cover Application 86.5°WL 17 GHz BSS

Transcription

ATTACHMENT 1 - BENEFITS OF SPECTRUM AGGREGATION
INTRODUCTION AND SUMMARY
In the Call for Applications to License Satellite Orbital Positions (“Call”), Notice No.
DGRB-001-06 dated July 7, 2006, Industry Canada is offering 29 licences for satellite
spectrum covering four frequency bands (extended Ku-band FSS, Ka-band FSS, 12 GHz
BSS and 17 GHz BSS) spread over 16 orbital positions. Telesat already has operating
satellites at six of these orbital positions.
Telesat is applying for 10 of the 29 licences to expand its satellite fleet and to build a
platform for continued growth and innovation through the next decade and beyond.
Nine of the 10 licences for which Telesat is applying are for satellites at orbital locations
at which Telesat already operates. Telesat’s business rationale for each application is
based on detailed discussions with its customer and user groups in Canada, each of
which has identified needs and growth plans of their own. Moreover, Telesat is seeking
to maintain the ability to compete effectively in both Canadian and North American
satellite service markets and to compete for critical investment funds in an increasingly
satellite-sophisticated financial community.
In this context, Telesat would like to raise a fundamental issue for consideration by
Industry Canada, one that is critical to the Canadian satellite industry as a whole, and to
the customers of Canadian satellite services. As discussed below, Telesat urges Industry
Canada to maximize that number of frequency bands that are assigned to an operator at
any given orbital location. This approach is consistent with the orbital/frequency
assignment policies of the U.S. and European countries. To have a different orbital
assignment policy would, in Telesat’s view, disadvantage Canadian-licensed satellite
systems vis-à-vis satellite systems licensed in the U.S. and Europe, for example.
Moreover, permitting Canadian satellite operators to aggregate frequencies at assigned
orbital locations will facilitate the development of new satellite “neighbourhoods” and
the expansion of existing ones, for the benefit of Canadian consumers and Canadian
industry.
Thus, Telesat urges Industry Canada to adopt as a guiding principle the notion that
licences subject to this Call be awarded to applicants in a manner that allows spectrum
aggregation (i.e., the use of multiple frequency bands) at the assigned orbital positions, if
so requested by applicants.
This orbital assignment principle is well-recognized by regulators in the United States
and Europe. Applying it in Canada will:
•
facilitate the use of hybrid satellites, thus lowering the cost of satellite
services and generating multiple efficiencies, thereby enhancing
competition;
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•
provide incentives to create innovative services and proliferate twoway broadband service for all Canadians, particularly those in rural
areas;
•
increase satellite backup and redundancy to increase the stability and
survivability of satellite-based services;
•
permit Canadian satellite operators to maximize flexibility in satellite
design and fleet deployment/replacement strategies;
•
minimize the risk of interference to those dependent on satellite
services;
•
avoid costly and complex inter-satellite coordination with other
satellite operators and government administrations;
•
preserve and enhance Canadian spectrum and orbital resources by
making it easier to bring frequency assignments into use
expeditiously; and
•
harmonize Canada’s orbital assignment policies with those of other
countries, thereby levelling the playing field between Canadian
satellite operators and those licensed elsewhere.
In short, adoption of this orbital assignment principle will enable Industry Canada to
achieve the objectives outlined in Section 6.1.1 of the Call, of “fostering the future
introduction of new and innovative … services,“ “enhanc[ing] competitiveness … of
Canadian telecommunications,” enabling “Canadian satellite operators and satellite
service providers to advance their service offerings in the domestic market … and …
compete in the larger market for the Americas,” “recognizing the importance of
delivering reliable and affordable telecommunications and broadcasting services,”
“achiev[ing] greater economies and operational flexibility,” and ensuring that “satellites
authorized as a result of this licensing process … [are] deployed in a timely manner.”
Finally, adoption of such a policy will disadvantage no applicant, since there are
sufficient frequencies and orbital positions available to permit other satellite operators to
aggregate frequencies and derive the benefits discussed in this paper, if they so choose.
DISCUSSION
Spectrum Aggregation Fosters Efficiencies and Leads to Lower Cost Services
Maximizing the number of frequency bands that are assigned to the same satellite
operator at any given orbital location permits operators to use hybrid – or multi-band –
satellites, which are more efficient and cost effective than individual satellites each using
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one frequency band and, often, a smaller amount of spectrum. If a satellite operator can
employ hybrid satellites, it will unlock these efficiencies and lower costs. In a
competitive market, consumers benefit when service providers’ costs are reduced.
Lower costs generate downward pressure on prices and enhance benefits to the
consumer.
The cost of placing satellite capacity in orbit has a fixed component (satellite frame or
bus, launch, insurance, etc.) and a component that varies with the amount of capacity
(transponders, power, etc.). As Table 1 illustrates, the cost per unit of capacity decreases
as fixed costs are shared across more frequency bands.
Satellite
Transponders
Frequency Band X
Transponders
Frequency Band Y
Transponders
Frequency Band Z
Total Transponders
A
24
24
32
56
84
136
Relative satellite Cost
1
1.15
1.43
1.67
2.16
0.042
0.036
0.026
0.020
0.016
Relative cost per
Transponder
B
C
24
D
36
E
24
32
32
48
32
80
Table 1 - Satellite and Transponder Costs
Since any satellite operator will need to recover its costs plus margin in pricing services,
the lower the cost of a unit of capacity in orbit, the lower the prices a satellite operator is
able to charge while earning a fair return. As satellite, launch, and insurance costs
continue to climb, Canadian satellite operators need the ability to adjust their satellite
designs by adding frequencies and building large satellites in order to offer attractive
rates to customers and, indeed, to ensure that they remain competitive.
Making available the efficiencies of multi-band satellites also will enable Canadian
satellite operators to compete in increasingly sophisticated capital markets for the debt
and equity funding needed to support satellite construction and operation. The capital
markets are global in scope and sources of capital look for the highest return they can
find. Investors obviously are more attracted to satellite companies with lower per unit
costs and with more opportunity to offer “one-stop-shopping” to satellite customers.
Higher capacity satellites are possible only if there is enough RF spectrum to make use
of at each orbital position. As shown in Table 1, if different operators were licensed for
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frequency bands X and Y, 56 transponders could be made available in these bands on
satellites A and B at a total cost of 2.15 units. However, if one operator were licensed for
both bands X and Y, that operator could use satellite C at a total cost of 1.43 units – a
one-third reduction in cost per transponder. Even greater economies can be achieved
for triple-band satellites.
The relationship between capacity and cost has been understood for many years. The
evolution of the Canadian satellite fleet provides only one example. The Anik C (16
transponders) and Anik D (24 transponders) generations operated in only one frequency
band. Introducing the Anik E satellites (40 transponders) with hybrid C-band and Kuband capability reduced the cost per unit of capacity. Similarly, the Anik F generation
saw capacity grow relative to the Anik E generation through the introduction of
additional coverage areas, in the case of Anik F1 (84 transponders), and the addition of
additional payloads in other bands, in the case of Anik F1R and Anik F2 (94
transponders).
By responding to Industry Canada’s Call, Telesat is hoping to improve upon these
efficiencies. Five of Telesat’s six applications are for satellites at orbital locations that
already have frequency bands assigned to Telesat. If these applications are granted,
over time Telesat will be able to deploy satellites incorporating additional frequency
bands, thereby generating further economies of scale.
Multiple frequency band satellites also create efficiencies for consumers. When
frequency bands are assigned to different satellite operators at the same orbital location,
the satellite operators must separate their spacecraft to facilitate station-keeping. As a
result, customers may have to use multiple, or more technically complex and costly,
dishes to access multiple frequency bands at the orbital location. If the frequency bands
are assigned to a single operator that can launch a hybrid satellite, on the other hand,
then the customers can use a single dish to access the frequency bands. In the case of
consumer services such as direct-to-home services involving wide scale deployment of
ground stations, the satellite customer cost savings that are generated by hybrid satellite
efficiencies can be substantial.
Spectrum Aggregation Preserves and Enhances Canadian Orbital Resources
Allowing satellite operators to aggregate spectrum at each orbital location creates
incentives for bringing frequency assignments into use expeditiously, which obviously
is in Canada’s interest. Since the International Telecommunications Union establishes
strict time limits for bringing satellite frequencies into use, Canada risks losing its
priority for an orbital position if an operator is unable to bring a given frequency band
into use within the allotted time. Moreover, as a matter of public interest, consumers are
better served by frequencies that are in use than by frequencies that lie fallow.
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Satellite operators have a greater economic incentive to initiate service if they are
authorized to operate on multiple frequency bands at the same location. A strong
business case can be made for constructing and launching capacity having a lower cost
per unit of capacity in orbit.1 Given that, for reasons discussed above, hybrid satellites
have a lower cost per unit of capacity in orbit, it follows that aggregating frequency
band assignments will facilitate and encourage satellite operators to bring frequencies
into use in a timely fashion.
Spectrum Aggregation Fosters Creation of Innovative Services Including Two-Way
Broadband
Satellite developments over the past three decades show that newer frequencies bands
are laboratories for innovation. At the dawn of the communications satellite era, C-band
was king. Then as satellite operators began to make use of the Ku-band, it became
possible to offer services such as VSAT services that require smaller, less expensive
dishes. Ku-band technology also revolutionized the newsgathering business. In time,
satellite operators began to exploit the BSS band to provide direct-to-home services and
now are looking to use expansion BSS frequencies to support their high definition
television spectrum requirements. Also, satellite operators look to Ka-band frequencies
as a home for two-way broadband services.
Telesat is a long time innovator and the policies of Industry Canada helped establish the
conditions in which Telesat’s innovations could flourish. Telesat launched the world’s
first domestic geostationary communications satellite. It launched the first commercial
Ku-band satellite. And it launched the first satellite platform used for two-way
broadband services using Ka-band frequencies.
The same business imperatives that give satellite operators with multiple frequency
bands an incentive to initiate service promptly also make them more likely to innovate
than licensees of single-band satellites. Services in new frequency bands are more
expensive to provide, because they have not benefited from the lower equipment costs
that mass production makes possible. Services in new frequency bands generate less
revenue, because they take time to be perfected and gain acceptance by consumers and
other users.
In short, it is easier for satellite operators to take the business risk to offer innovative but low margin - services in new bands if they can combine new-band payloads with
payloads for mature bands on a single spacecraft. This would be of particular benefit to
It may be impossible in some circumstances to make a business case for satellites incorporating
individual frequency bands. For example, extended Ku-band frequencies may be valuable for
expansion capacity purposes to satellite operators making use of standard Ku-band frequencies,
but may have insufficient value to satellite operators lacking a standard Ku-band customer base
to support the cost of constructing and launching a satellite.
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rural Canadians who do not always have the same choice of services. The incremental
cost of adding a new-band payload would be much lower than the cost of constructing
and launching a single-band satellite with the new band, which might well be the
deciding factor in determining whether or not to offer an innovative new service.
The development of the Ka-band is a perfect case in point. Since wide-scale deployment
of Ka-band equipment had not occurred, Telesat could not have taken the risk of
launching a Ka-band only satellite for provision of broadband services to members of
the public living beyond the reach of terrestrial broadband networks. Telesat, however,
was able to take a more manageable risk and add a Ka-band payload to its Anik F2
satellite. Telesat’s pioneering Ka-band effort was a first for the entire satellite industry
and allowed for the introduction of innovative Ka-band services that, but for the
efficiencies of a shared satellite payload, could not have been introduced in a timely
fashion.
Spectrum Aggregation Increases Stability and Survivability of Satellite Services and
Minimizes the Risk of Interference
The more redundancy a satellite operator can call upon, the better equipped the operator
will be to maintain continuity of service if there are satellite failures. There are multiple
ways to build redundancy into a satellite system. In-orbit spare satellites can back up
multiple satellites. Spare TWTAs or SSPAs can be installed for back up redundancy on a
single satellite. Back-up spacecraft control processors can be incorporated into satellite
design.
Hybrid satellites provide an element of redundancy. If a satellite experiences a partial
failure that causes power degradation issues, the operator of the satellite will be better
equipped to accommodate its in-orbit requirements if the failed satellite is a larger, more
powerful hybrid satellite. It may be able to shift its remaining power supporting one
frequency band to another band to satisfy customer requirements that are most
important from a public interest standpoint.
Maintaining the integrity of an orbital location for each satellite operator also will
minimize the risk of interference to those who are dependent on satellite services, since
it enables a single operator to manage the interference environment at that orbital
location, which is particularly important when small dish, consumer service is being
provided.
Spectrum Aggregation Will Harmonize Canada’s Orbital Assignment Policies
Internationally and Level The Playing Field Among Satellite Operators
U.S.-licensed satellite operators are permitted to provide service in Canada and compete
with Telesat. Multiple U.S.-licensed satellites are on the List of Satellites Approved to
Provide Fixed-satellite Services in Canada administered by Industry Canada. Multiple
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Canadian-licensed satellites are on the Permitted Space Station List administered by the
U.S. Federal Communications Commission (“FCC”).
In this environment, any competitive disadvantage for customers and capital
experienced by a Canadian satellite operator could prove serious. Telesat’s U.S. and
European competitors benefit from their administrations’ policies that encourage the
aggregation of spectrum resources at an operator’s orbital location. Over time, U.S.licensed operators will continue to build larger, more frequency-capable satellites,
including those with developmental payloads.2 If Canadian-licensed operators do not
have comparable abilities, we will be at a competitive disadvantage. Customers seeking
lower prices or more innovative services could migrate from a Canadian-licensed
system (including those of Telesat) to U.S. and European-licensed systems over time.
Investors seeking higher returns could follow. It is essential, therefore, that Telesat also
be able to aggregate frequency bands at its orbital positions.
Policies in the United States. In the United States, the FCC’s policies long have
favored hybrid satellites, and virtually every orbital location in the core portion of the
U.S. arc is occupied by a hybrid satellite. As the FCC has recognized repeatedly,
“operating a state-of-the-art hybrid satellite at a particular orbital location may be more
efficient than operating two single-band satellites at that location.” Hughes
Communications Galaxy, Inc., 6 FCC Rcd 72 at n. 7 (1991). The FCC has found that
“hybrid satellites can provide cost savings to operators and customers with no decrease
in technical performance.” Hughes Communications Galaxy, Inc., 5 FCC Rcd 3423, ¶ 8
(1990). See also GE American Communications, Inc., 11 FCC Rcd 15030, 15034 (1996) (“the
FCC has long recognized the cost efficiencies inherent in hybrid satellites”).3
The efficiencies of hybrid satellites have been a key consideration in the FCC’s orbital
assignment policies. For example, “in developing the 1988 Orbital Assignment Plan, the
[Federal Communications] Commission attempted, when possible, to assign operators to
corresponding C-band and Ku-band orbital locations.” Hughes Communications Galaxy,
Inc., 5 FCC Rcd 3423 at ¶ 8 (1990). This plan “was designed to provide operators the
opportunity to construct and launch hybrid satellites in current or future generations.”
Id. By virtue of the importance of hybrid satellite efficiencies, moreover, the FCC
waived its “expansion capacity” rule, which limited the assignment of new orbital
2
SES operations at, or near, 105° W offer perhaps the most dramatic example of aggregation. SES
and related companies will have access to C, Ku, Ka, extended Ku-band, and the 17 GHz BSS, as
well as a proposal to operate in the 12 GHz BSS band.
3 Because of the technical and spectrum efficiencies that can be realized from the use of hybrid
C/Ku-band satellites, the FCC has permitted operators to consolidate two single-band satellites
by launching a single hybrid replacement satellite. See Hughes Communications Galaxy, Inc., 6 FCC
Rcd 72 (1991) (single-band satellites at 91° W.L. consolidated into a single hybrid); Hughes
Communications Galaxy, Inc., 5 FCC Rcd 3423 (1990) (single-band satellites at 99° W.L.
consolidated into a single hybrid).
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locations in a frequency band until existing assignments were filled, so that single band
satellites could be replaced with hybrid satellites. See, e.g., Hughes Communications
Galaxy, Inc., 11 FCC Rcd 16425 (1996) (Hughes authorized to replace the Ku-band SBS-5
with Galaxy X, a C-/Ku-band hybrid satellite; expansion capacity rule waived); GE
American Communications, Inc., 11 FCC Rcd at 15034 (GE Americom authorized to replace
Satcom C-5, a C-band satellite, with GE-3, a C-/Ku-band hybrid satellite; expansion
capacity rule waived).4
Several years ago, the FCC shifted from assigning orbital locations in processing rounds
to assigning them on a first come, first served basis. See Amendment of the Commission's
Space Station Licensing Rules and Policies; Mitigation of Orbital Debris, First Report and
Order and Further Notice of Proposed Rulemaking, 18 FCC Rcd 10760 (2003). This
change was a logical outgrowth of the FCC’s policies favouring hybrid satellites. At the
time the FCC put its new policy into effect, U.S.-licensed operators already had secured
hybrid C-band/Ku-band authority for the most critical orbital locations. A first come,
first served policy enables these operators to apply on an as needed basis, without
having to wait for a processing round to be completed, for authority to use frequency
bands whose principal value is as expansion capacity for operators already making use
of other frequency bands at the same orbital location.
It also should be noted that the trilateral arrangement Canada, the United States, and
Mexico entered into in 1988 reflects an implicit recognition at the international level of
the value of hybrid satellites. Subject to a few exceptions, the trilateral arrangement
provides that, at each of the orbital positions in the arc between 107.3° W.L. and 118.7°
W.L., only one of the three administrations will license operations on standard C-band
and Ku-band frequencies. By making a single administration responsible for licensing
multiple frequency bands, the trilateral agreement preserves the option of hybrid
licensing.
Policies in Europe. The high-capacity model also has been successfully adopted in
Europe, where it is industry practice for one operator to occupy an orbital position with
satellites operating in multiple bands. Eutelsat and SES are routinely successful in
tapping the capital markets due in no small part to their ability to aggregate frequencies
and achieve scale advantages to fund expansion not only in Europe but worldwide.
Figure 1 is a graphic representation of the Ku-band spectrum fully exploited at two
primary European slots occupied by Eutelsat and SES, each of which has satellites with
transponders spanning 2 GHz of available Ku-band spectrum. The operators also have
Ka-band on some satellites at these positions and are expected to add incremental KaThe FCC’s policies have encouraged operators serving the United States market to establish
satellite neighbourhoods with multiple frequency band payloads. Examples include Intelsat
operations in the C, Ku-and extended Ku-bands at 91° W and in the C, Ku and Ka-bands at 89°
W, and, as noted above, SES operations at, or near, 105° W.
4
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band capacity. Moreover, Eutelsat recently announced its plans to add S-band payloads.
This design philosophy is feasible only because one operator is licensed at each orbital
position.
Figure 1: Ku-band Spectrum Exploited by
SES and Eutelsat at orbital positions in Europe
Spectrum Aggregation Minimizes the Need for Costly And Complex Inter-Satellite
Coordination and Discourages Regulatory Gamesmanship
A policy favoring aggregation of frequencies at a single orbital location simplifies the
time-consuming and complex task of inter-satellite coordination among operators and
national administrations. It also will ease Industry Canada’s task of assigning orbital
locations to multiple applicants, since it can be difficult to articulate a basis for
determining which applicants should be assigned the rights to particular frequency
bands at particular orbital locations.
In addition, in the absence of a policy favouring aggregation of frequency bands by
individual satellite operators, there is a risk that applicants will apply for the right to
expansion frequencies at orbital locations that already are occupied not because the
applicants intend to use the expansion frequencies, but because they hope to obstruct
the plans of a competitor or because they see an opportunity for “greenmail” profits.
The best way to prevent such regulatory gamesmanship is to announce unequivocally
that orbital assignments will be made based on hybrid satellite principles.
CONCLUSION
This proceeding presents Industry Canada with an unparalled opportunity to shape
satellite technologies to meet the considerable challenges of delivering high-quality,
affordable, innovative telecommunications services to all Canadians no matter where
they reside, even off the terrestrial telecommunications “grid.”
As demonstrated above, adoption of an orbital assignment policy that will allow
Canadian satellite operators and satellite service providers to maximize the number of
frequency bands at any given assigned orbital location will not only match assignment
policies in the U.S. and Europe but, more importantly, will level the regulatory playing
field so that Canadian operators and service providers can develop the same economies
of scale as their foreign competitors are permitted. Moreover, the adoption of this
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guiding principle will help applicants achieve the objectives outlined in Section 6.1.1 of
the Call; namely:
•
“fostering the future introduction of new and innovative …
services,“
•
“enhanc[ing]
competitiveness
…
of
Canadian
telecommunications,” enabling “Canadian satellite operators and
satellite service providers to advance their service offerings in the
domestic market … and … compete in the larger market for the
Americas,”
•
“recognizing the importance of delivering reliable and affordable
telecommunications and broadcasting services,”
•
“achiev[ing] greater economies and operational flexibility,” and
•
ensuring that “satellites authorized as a result of this licensing
process … [are] deployed in a timely manner.”
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Attachment 2 - Overview of Telesat Canada’s Applications for
Orbital Spectrum Licences
Telesat Canada is Canada’s premier satellite service provider, and has built its business
on the basis of serving the needs of Canadians first. Telesat’s future is equally being
planned with a continuing commitment to serve the Canadian market first.
Today, Telesat is filing six applications, representing 10 licences being made available in
Industry Canada’s Call for Applications to License Satellite Orbital Positions, Notice
No. DGRB-001-06 dated July 7, 2006. The Department’s decisions in the award process
will have a far-reaching impact on the capacity available for the Canadian market for
years to come. Indeed, most of the spectrum which Canada has available for
development for the next decade could be allocated in this process.
Telesat is mindful of this, and has structured its applications with a view to securing
spectrum to safeguard as Canadian in the near term and retain its long-term availability
for meeting the demand of Telesat’s core market of Canadian users.
Structure of Applications
What follows is an overview of Telesat’s applications outlining for Industry Canada the
Company’s strategy for accomplishing this objective. Telesat’s applications are divided
into three groups: the Broadband market, the Star Choice system, and the Bell
ExpressVu system.
Each of these three groups represents an important Canadian satellite user group whose
businesses are integrally tied to the orbital platform they occupy. Within each of those
groups, the applications are listed in order of priority, ranked beginning with the
satellite project which has the most immediate demand and which is the major driver of
Telesat’s and our customer’s future growth.
Broadband Market
Application Ka/BSS1: 118.7º W position, Ka-band and 17 GHz BSS band (Licence
Nos. 23 and 24)
The first application is for broadband and multimedia spectrum at the 118.7º W orbital
position. Telesat has an immediate need for Ka-band spectrum to serve a growing
market which Telesat has seeded with its world-pioneering Anik F2. It is critical to
Telesat’s Canadian anchor customer Barrett Xplore that it maintain its market
momentum and continue to have the ability to capitalize on its early entry into this risky
new market. In addition, this satellite is also being designed with coverage of the U.S. in
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order to provide capacity to a U.S. service provider, thus defraying costs to Canadian
users.
Telesat will also add a payload in the 17 GHz BSS band with North American coverage
in order to enable the early adoption of IPTV (Internet protocol television) and
interactive television applications working in conjunction with the Ka-band broadband
service. The development of this innovative application in this new frequency band
could help to provide long-term sustainability of a Canadian entertainment delivery
industry utilizing new technologies. The continued growth of the Ka service will benefit
from innovation and overlaying one-way services is important to its future
development.
Application Ka/BSS2: 91º W position, Ka-band and 17 GHz BSS band (Licence Nos. 8
and 9)
Telesat’s anchor Canadian broadband customer Barrett Xplore requires a significant
amount of capacity in order to capitalize on its momentum in rolling out service to an
underserved high-speed Internet market. It would be ideal for Barrett to have its
capacity spread between the satellites at 118.7º W and 91º W, in part because the rollout
of available capacity will be staged consistent with the ramp-up in customer demand,
and also because the anticipated demand in the most populated areas of Canada will
better be met with frequency reuse based on orbital separation than in trying to utilize
smaller spot beams from the same satellite. Users will also benefit from the in-orbit
redundancy and multiple backup plan which this proposal offers.
This satellite platform at 91º W will also present an opportunity for the broadcasting
community to participate in the development of multimedia applications using the
17 GHz BSS spectrum..
The affordability of these services benefits from the aggregation of frequency bands on
large satellites, and in this particular case, is an opportunity for Telesat to secure and
maintain Canada’s rights to this orbital spectrum in both bands.
Star Choice System
Application XKu/BSS: 107.3º W 17 GHz BSS band and 111.1º W Extended Ku-band
and 17 GHz BSS band (Licence Nos. 14, 17 and 18)
This application proposes to augment the conventional Canadian broadcast industry’s
access to much needed capacity at the 107.3º W and 111.1º W positions, both in the short
and long terms. Telesat’s long-standing Canadian customer Star Choice has built its
business at these two orbital positions and requires capacity to ensure its ability to
deliver on its mandate as a Canadian broadcasting undertaking and DTH service
provider. In securing a major amount of capacity on both Anik F1R and Anik F2, this
customer has committed not only to serving the Canadian industry’s growth but also to
doing so in a manner which protects the underlying business through backup
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redundancy. This philosophy continues as this customer strives to serve the broadcast
industry’s evolution with new broadcast technologies such as high definition television
(HDTV).
Telesat is proposing to develop a twin-satellite procurement to meet the near-term needs
of this customer with an Extended Ku-band capacity payload, each accompanied by a
small payload in the 17 GHz BSS band which will secure it for the Canadian industry’s
developing requirements. As Telesat already holds the approval for Extended Ku-band
at 107.3º W, awarding the same band at the 111.1º W location will ensure full backup for
this customer.
The Company has consulted extensively with the Canadian broadcasting industry
regarding its capacity needs. Conventional broadcasters are simply not ready to commit
to significant amounts of new satellite capacity at this time. Telesat’s customer at these
two locations is both a DTH provider and an SRDU and has a clear and well-defined
preference at this time for Extended Ku-band, but recognizes that the 17 GHz BSS band
is the growth spectrum of the future. Telesat is particularly concerned that if Industry
Canada were to award the 17 GHz BSS band at these two orbital locations for full
payloads, the capacity would be committed for the long term to a non-Canadian market
and would likely not be available when Canadian demand materializes. Telesat’s plan,
however, provides a mechanism to secure it for Canadian use. Furthermore, should the
capacity be split between two operators, the economies of scale achievable through
multi-frequency satellites could not be realized. The ability to build replacement
satellites for Anik F1, F1R, and F2 that include the Extended Ku and 17 GHz BSS bands
requested in this application will enable per unit pricing to be significantly below single
or even dual frequency band satellites.
Bell ExpressVu System
Application BSS1: 86.5º W 17 GHz BSS band (Licence No. 6)
This is the first of three applications to develop the future growth capacity for Telesat’s
customer Bell ExpressVu. This customer has an existing base of 12 GHz BSS capacity at
two orbital locations and is making a commitment at a third position. However, this
broadcasting entity expects that additional capacity will be required in the future, and
the most suitable solution is the 17 GHz BSS band. The technical characteristics of this
frequency are compatible with those of the existing DTH service, and moving to a new
band is necessary to build on the existing neighbourhood of its Canadian positions.
The 86.5º W position is in a prime location for this customer’s DTH service
neighbourhood, and consistent with the configuration of its existing services, it is the
customer’s preference that its first expansion into the new frequency band begin here.
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The 17 GHz BSS satellites which Telesat is planning for the 86.5º W, 82º W and 72.5º W
positions will have beam coverage switchable between the Canadian or U.S. footprint,
on a transponder-by-transponder basis. This design will provide the maximum
flexibility for Telesat to provide service on any of these satellites to one or more U.S.
customers should there be capacity available which is surplus to the needs of our
Canadian customer or other Canadian users.
Application BSS2: 82º W 17 GHz BSS band (Licence No. 5)
As was outlined above with respect to Application BSS1, Telesat’s customer Bell
ExpressVu is pursuing the 17 GHz BSS band in order to expand its business for the
future. While 86.5º W is the first location of this service, the 82º W position will provide
capacity for future expansion in order to meet demand. This position is part of this
customer’s core neighbourhood and development of new spectrum at this location is
vital to its efficient use of spectrum for the long term.
Application BSS3: 72.5º W 17 GHz BSS band (Licence No. 2)
As described above for Applications BSS1 and BSS2, Telesat’s customer at the 12 GHz
BSS band is planning its future capacity needs and considers the 17 GHz BSS band to be
the growth spectrum of the future. This customer has recently committed to the
capacity on Nimiq 5, Telesat’s 12 GHz satellite to be built and launched into the 72.7º W
orbital position. Development of this position is therefore desirable for future expansion
plans and to be able to maximize the efficient use of spectrum resources within this
broadcasting neighbourhood.
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cover
Application 86.5°WL 17 GHz BSS
This is an abridged document intended for public disclosure.
Application 86.5°WL 17 GHz BSS (IC Licence No. 6)
ABRIDGED
TABLE OF CONTENTS
PAGE
1.0 EXECUTIVE SUMMARY .................................................................................................1
2.0 ELIGIBILITY ....................................................................................................................5
2.1 CANADIAN OWNERSHIP AND CONTROL...........................................................................5
2.2 CANADIAN DIRECTION AND CONTROL OF SPACECRAFT..............................................6
3.0 EVALUATION CRITERIA................................................................................................7
3.1 BENEFITS TO CANADIANS ..................................................................................................7
3.1.1 Telesat’s Canadian Satellite Capacity and Services Plan for 86.5ºWL........................8
3.1.1.1
3.1.1.2
3.1.1.3
3.1.1.4
Description of the Consultation Undertaken................................................................ 8
Requirements for 17 GHz BSS Capacity and Service at the 86.5°WL Position ........ 10
Telesat’s 17 GHz BSS Capacity and Service Plan for the 86.5°WL Position ............ 16
Procedure for Customers to Obtain Capacity/Services ............................................. 24
3.1.2 Securing Canadian Access to Orbital Resources ......................................................25
3.1.3 Other Benefits to Canadians ......................................................................................27
3.1.4 Satisfying Canadian Satellite Policy Objectives & Requirements ..............................30
3.1.4.1 General Satellite Policy Objectives and Telesat’s Transition Plan ............................ 30
3.1.4.2 General Canadian Requirements.............................................................................. 33
3.2 FINANCIAL PLAN.................................................................................................................35
3.2.1 Financial Qualifications...............................................................................................35
3.2.2 Financing ....................................................................................................................35
3.3 TECHNICAL PLAN ...............................................................................................................38
3.3.1 Introduction.................................................................................................................38
3.3.2 Satellite Features........................................................................................................38
3.3.2.1 Overview ................................................................................................................... 38
3.3.2.2 Payload Description .....................................................Error! Bookmark not defined.
3.3.3 Network and Services Considerations ........................ Error! Bookmark not defined.
3.3.3.1
3.3.3.2
3.3.3.3
3.3.3.4
3.3.3.5
3.3.3.6
Network Configurations................................................Error! Bookmark not defined.
Uplink Stations .............................................................Error! Bookmark not defined.
User Terminals.............................................................Error! Bookmark not defined.
Modulation and Coding ................................................Error! Bookmark not defined.
Rain Fade Mitigation ....................................................Error! Bookmark not defined.
Representative Link Budgets .......................................Error! Bookmark not defined.
3.3.4 Spectrum Requirements.............................................. Error! Bookmark not defined.
3.3.5 Satellite Design............................................................ Error! Bookmark not defined.
3.3.5.1 Functional Description..................................................Error! Bookmark not defined.
3.3.5.1.2 Bus and Launch Vehicle Compatibility...........Error! Bookmark not defined.
3.3.6 Satellite Program ......................................................... Error! Bookmark not defined.
3.3.6.1 RFP Preparation Phase ...............................................Error! Bookmark not defined.
3.3.6.2 Proposal Evaluation and Negotiations Stage ...............Error! Bookmark not defined.
3.3.6.2.1 General Requirements...................................Error! Bookmark not defined.
3.3.6.2.2 Contract Provisions to Enforce Schedule and Quality ....................................
3.3.6.3 Procurement Phase .....................................................Error! Bookmark not defined.
3.3.6.3.1 Schedule........................................................Error! Bookmark not defined.
3.3.6.3.2 Program Management ....................................................................................
3.3.6.3.3 Design Assurance...........................................................................................
3.3.6.3.4 Assembly, Integration and Test ......................................................................
3.3.6.4 Launch and Mission Phase ..........................................Error! Bookmark not defined.
3.3.6.4.1 Launch Campaign..........................................Error! Bookmark not defined.
3.3.6.4.2 Mission Support ..............................................................................................
3.3.6.4.3 In-Orbit Test...................................................Error! Bookmark not defined.
Telesat Canada Proprietary
- ii November 15, 2006
Use or disclosure of the information on this page is subject to the restrictions on the cover page.
ABRIDGED
TABLE OF CONTENTS
PAGE
3.3.7 Frequency Coordination and Regulatory Requirements ................................................
3.4 TELESAT’S COMPETENCIES .............................................................................................56
3.4.1 Overview of Telesat’s Record – A History of Commitment and Achievements .........56
3.4.2 Technical Competency ...............................................................................................67
3.4.3 Operational Competency............................................................................................76
3.4.4 Institutional Competency ............................................................................................84
4.0 BUSINESS PLAN AND AGREEMENTS.......................................................................91
4.1 MARKET ANALYSIS ................................................................................................................
4.1.1 Overview of the Canadian Television Broadcasting Sector ...........................................
4.1.2 Demand Drivers for New BSS Capacity.........................................................................
4.1.3 New Transponder Capacity Requirements ....................................................................
4.2 BUSINESS STRATEGY ...........................................................................................................
4.2.1 Satellite Capacity Plan....................................................................................................
4.2.2 Marketing and Sales.......................................................................................................
4.2.3 Implementation & Support ..............................................................................................
4.2.4 Pro Forma Financial Statements....................................................................................
4.2.5 Summary ........................................................................................................................
4.3 BUSINESS PARTNERSHIPS & AGREEMENTS .....................................................................
5.0 APPENDICES..............................................................................................................124
APPENDICES
Appendix 1
Declaration of Ownership and Control
Appendix 2
Canadian Satellite Capacity and Services Plan
Appendix 3
Letters of Support
Appendix 4
Financial Statements Telesat 2003-2005
Appendix 5
Financial Statements BCE Inc. 2003-2005
- iii November 15, 2006
ABRIDGED
TABLE OF CONTENTS
PAGE
FIGURES
Figure 3.1.1-1
Figure 3.3.2-1
Figure 3.3.2-2
Figure 3.3.2-3
Figure 3.3.4-1
Figure 3.3.5-1
Figure 3.3.5-2
Figure 3.3.5-3
Figure 3.4.1-1
Figure 3.4.1-2
Figure 3.4.2-1
Figure 3.4.2-2
Figure 4.1.2-1
Figure 4.1.2-2
Figure 4.1.2-3
Figure 4.2.1-1
Figure 4.2.1-2
EIRP Coverage of Canada at 86.5°WL ......................................................................21
Transmit Coverage of Canada ...................................................................................39
Transmit Coverage of U.S. .........................................................................................40
Receive Coverage ......................................................................................................40
17 GHz BSS Frequency and Polarization Plan ..........................................................45
17 GHz BSS Payload Functional Block Diagram .......................................................47
Spacecraft DC Power Capability Comparison............................................................48
Active Transponders Accommodation Comparison ...................................................48
Telesat’s Service Expansion in Canada 1973-2006 ..................................................57
Scope of Telesat’s Business Operations....................................................................58
Consulting Experience................................................................................................69
Telesat’s Current Satellite Fleet .................................................................................73
Mobile TV Evolution..................................................................................................105
Mobile Television Technology Trials ........................................................................105
DVB-H Broadcast System ........................................................................................107
Coverage of Canada at 86.5WL...............................................................................118
Coverage of the U.S. at 86.5WL ..............................................................................118
- iv November 15, 2006
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TABLE OF CONTENTS
PAGE
TABLES
Table 3.1.1-1
Table 3.1.1-2
Table 3.1.1-3
Table 3.1.2-1
Table 3.2.2-1
Table 3.3.2-1
Table 3.3.3-1
Table 3.3.5-1
Table 3.3.5-2
Table 3.3.6-1
Table 3.4.1-1
Table 3.4.1-2
Table 3.4.2-1
Table 3.4.2-2
Table 3.4.2-3
Table 3.4.3-1
Table 3.4.3-2
Table 3.4.3-3
Table 4.1.1-1
Table 4.1.1-2
Table 4.1.1-3
Table 4.1.1-4
Table 4.1.1-5
Table 4.1.1-6
Table 4.1.2-1
Table 4.1.2-2
Table 4.1.2-3
Table 4.1.2-4
Table 4.1.2-5
Table 4.1.3-1
Table 4.1.3-2
Table 4.1.3-3
Table 4.1.3-4
Table 4.2.1-1
Table 4.2.1-2
Table 4.2.4-1
Television Services Available in Canada - 2002-2006...............................................13
CSUA HDTV Demand Estimate Targets....................................................................15
Phased BSS Capacity Introduction in the 91°-72.5°WL Neighbourhood ...................19
17 GHz BSS Networks filed within 4° of the 86.5°WL Position..................................26
Telesat Five-Year Revenue and Expense Projections ($ millions) ............................37
Basic features of the Proposed Satellite ....................................................................38
Representative Link Budgets for 17 GHz BSS Satellite Network...............................43
Spacecraft Mass and Power Budget ..........................................................................47
Launch Vehicle Compatibility .....................................................................................49
Program Milestones....................................................................................................53
Application Development............................................................................................59
Telesat Satellite Builds To Date .................................................................................62
Recent Telesat Procurement Projects (2000 to Present)...........................................70
Recent Telesat Construction Monitoring Projects (2000 to Present) .........................71
Telesat Launch Vehicle Experience ...........................................................................72
Select Telesat Work Force Statistics..........................................................................77
Telesat’s Executive Officers .......................................................................................78
Telesat Business Segment Revenues .......................................................................83
Television Services Available in Canada - 2006 ........................................................92
HD Lineups of Major BDUs in Canada (September 2006).........................................93
Number of Canadian BDUs ........................................................................................94
Number of Basic Subscribers (‘000)...........................................................................95
Largest Canadian BDUs.............................................................................................96
BDU Revenues ($M) ..................................................................................................97
Television Services Available in Canada - 2002-2006.............................................100
Major Canadian VOD Groups and Area of Interest..................................................101
HD Trend Drivers......................................................................................................102
CSUA HDTV Demand Estimate ...............................................................................104
Mobile TV Market Potential ......................................................................................107
Net Increase in Available Television Services..........................................................108
HDTV Technology Comparisons..............................................................................109
Technology Adoption Assumptions ..........................................................................110
Transponder Requirements Due to HDTV Conversion............................................111
Phased BSS Capacity Introduction in the 91°-72.5°WL Neighbourhood .................114
17 GHz BSS Networks Filed within 4° of 86.5°WL...................................................116
Projected Revenues and Expenses .........................................................................121
-vNovember 15, 2006
1.0
ABRIDGED
EXECUTIVE SUMMARY
In this application, filed in response to the 7 July 2006 Notice No. DGRB-001-06 – Call for
Applications to Licence Satellite Orbital Positions (“Call for Applications”or “the Call”),
Telesat seeks Industry Canada authorization to develop the 17 GHz BSS frequencies at the
86.5°WL orbital position. This position is in the centre of the Canadian BSS broadcasting
neighbourhood which Telesat has developed for Bell ExpressVu’s DTH and SRDU
services, services to which some 1.8 million Canadians and numerous cable TV companies,
situated in all areas of Canada, currently subscribe.
The Bell ExpressVu services currently ride on Telesat’s four 12 GHz BSS Nimiq satellites
situated at the 91.1° and 82°WL positions. Telesat will be adding a fifth 12 GHz BSS
satellite (Nimiq 5) at the 72.7°WL position in the next few years, with all capacity on that
satellite again taken by Bell ExpressVu to support and augment its Canadian DTH/SRDU
service platforms. However, through the consultation process initiated by Telesat with its
customers and other interested parties as a result of the Call, Bell ExpressVu has indicated
that it will require substantial additional BSS capacity in this neighbourhood to further
expand and augment these BSS service platforms. With all available 12 GHz BSS capacity
in this neighbourhood nearing full utilization, 17 GHz BSS frequencies available in this
same neighbourhood provide a natural fit with Bell ExpressVu’s long-term capacity
requirements.
Bell ExpressVu has specifically identified an interest in these frequencies at the 86.5°WL
position and its interest in working with Telesat to develop this position. To this end, the
parties have reached an agreement under which Bell ExpressVu is providing exclusive
support to Telesat in its efforts to secure 17 GHz BSS authorizations in this Canadian
broadcasting satellite neighbourhood, with a view to Bell ExpressVu contracting for all
capacity on a new Telesat 17 GHz BSS satellite launched into the 86.5°WL position, and
possibly at other nearby positions.
The key driver behind this need for substantial new BSS capacity is the Canadian
broadcasting sector’s conversion of Standard Definition Television (SDTV) programming
into High Definition Television (HDTV) format. Currently, as many as 10 to 12 SDTV
channels can be carried on a transponder, but this number drops to 1 to 2 with HDTV
technologies presently in use (MPEG-2/DVB-S) and will likely only reach 4 to 6 channels
with the next generation technologies (MPEG-4/DVB-S2).
-1November 15, 2006
ABRIDGED
The full conversion to HDTV of Bell ExpressVu’s existing base of programming signals,
using next generation technologies, would therefore require at least twice as much capacity
as is currently being used on the Nimiq satellites.
In the consultation process undertaken by Telesat, the Canadian Satellite Users Association
(CSUA) confirmed that the Canadian broadcasting sector is firmly on the track leading to
the full conversion to HD format. Based on information received from its membership, the
CSUA stated that it was reasonable to assume that 30 to 50 percent of existing channels
would be converted to HD format in the next 2 to 3 years, 75 percent would be converted in
5 years, and 100 percent in 10 years.
The capacity requirement for the carriage of new programming services (currently being
licenced by the CRTC at a rate of nearly 30 new channels per year) and the development of
new broadcasting service applications (e.g., the widespread deployment of mobile
television) will need to be met on top of the HDTV conversion of the existing base of
broadcasting services. Indeed, to gain consumer acceptance these new services will almost
certainly need to be launched or converted to HDTV format as well, thereby further
increasing overall capacity requirements.
To address these anticipated new BSS capacity requirements in this Canadian broadcasting
neighbourhood, Telesat is proposing to launch four new state-of-the-art 32-transponder
BSS satellites, phased in over the next 10 years, and all with coverage of all areas of
Canada, including the far North:
•
Nimiq 5 into 72.7°WL: this is the 12 GHz BSS satellite which Telesat is already
authorized to launch into this position, with service expected to commence in the early
part of 2010. In aggregate, the new capacity introduced would be sufficient to
accommodate the HDTV conversion target of 50 percent of existing channels within
3 years, leaving a limited amount of new capacity for the launch of other new
programming services or applications, or to accelerate the HDTV conversion process.
Telesat is also in discussions with the satellite manufacturer to determine if a small
(one transponder) 17 GHz BSS payload could be added to this satellite which could be
used to bring these frequencies into use for Canada, possibly at multiple positions in
the neighbourhood.
-2November 15, 2006
ABRIDGED
•
BSS1 into 86.5°WL: this 17 GHz BSS satellite would go into service in early 2012 at
the 86.5°WL position, the position which Bell ExpressVu has identified as its first
preference for expansion into this band. The additional 32 transponders of BSS
capacity would be sufficient to satisfy the HDTV conversion target of 75 percent of
channels in 5 years time, with approximately 16 new transponders available to address
other new Canadian capacity requirements, or to accelerate the HDTV conversion
process.
•
BSS2 into 82°WL & BSS3 into 72.5°WL: Telesat would launch its second proposed
17 GHz BSS satellite (BSS2) into the 82°WL position to commence service in 2014,
and its third (BSS3) into the 72.5°WL position to commence service in 2016. With the
launch of these satellites the HDTV conversion target of 100 percent of the existing
base of channels in 10 years time would be met. New capacity would also be available
on both of these satellites to address other new Canadian capacity requirements such as
the launch of a significant number of new programming services in HD format, or for
other new bandwidth-hungry applications like mobile television.
Should no Canadian demand materialize for some portion of the new capacity introduced at
any of these locations, Telesat would consider leasing the surplus to non-Canadian
customers. However, Telesat’s proposed phased introduction of new capacity in this
neighbourhood with four new BSS satellites appropriately spaced over the next 10 years
best ensures that this capacity will be used to the maximum extent possible to meet
Canadian broadcasting industry requirements. Launching new satellites into each of these
positions in a shorter timeframe, let alone all at once, would far outstrip the then current
Canadian demand requirement and lead to a much greater portion of this capacity having to
be marketed outside of Canada, with little likelihood of ever being repatriated.
Telesat’s plan for the phased introduction over two-year intervals of three full-capacity
17 GHz BSS satellites into the Canadian BSS neighbourhood also ensures the timely
availability of critical emergency back-up and restoration capacity within this band. A
failure or significant malfunction of any of these satellites would be damaging but
contingency arrangements could be implemented to mitigate the impact of the problem.
Without this satellite diversity and back-up, options would be severely limited and a failure
or significant malfunction of a single satellite in this neighbourhood could devastate a
service provider’s business and leave its end-user customers without a 17 GHz BSS
service.
-3November 15, 2006
ABRIDGED
For Telesat to be able to provide customers with this critical back-up requirement in the
17 GHz BSS frequencies within the Canadian BSS neighbourhood, it is clear that Telesat
must be awarded at least two of the three positions requested. Telesat has proposed a plan
which it believes will maximize the potential of each of these positions for the benefit of
Canadians and is fully prepared to develop all three positions.
However, in the event that Industry Canada is prepared to award only two of these 17 GHz
BSS positions to Telesat, Telesat’s preference would be the award of the 86.5°WL position,
to coincide with the expressed preference of its customer Bell ExpressVu, and the 82°WL
position, which Telesat believes would be the next best position to develop in meeting the
future capacity requirements of this customer and to back up its 17 GHz BSS service at the
86.5°WL position.
Telesat is eminently qualified to launch and operate these 17 GHz BSS satellites. Telesat
has a long and very distinguished track record in bringing state-of-the-art broadcast
distribution and telecommunications services to all areas of Canada, the far North included.
Indeed, with more than 35 years in satellite communications and systems management and
a thriving domestic and international business, Telesat is both an early pioneer and an
influential innovator operating at the forefront of the satellite communications industry.
Few, if any, existing satellite operators come close to matching Telesat’s proven record and
ability to excel in satellite service delivery and dependability. Nor do any have the wealth
of experience and expertise that Telesat has acquired over the past three-plus decades in
serving the unique and challenging requirements of Canadian satellite users across all areas
of the country.
-4November 15, 2006
2.0
ELIGIBILITY
2.1
CANADIAN OWNERSHIP AND CONTROL
ABRIDGED
Telesat Canada was incorporated on September 1, 1969 by the Telesat Canada Act, a
special act of the Parliament of Canada. Since May 1998, Bell Canada Enterprises (BCE)
has indirectly owned 100 percent of the voting shares of Telesat. More specifically,
100 percent of the voting shares of Telesat are owned by Alouette Telecommunications Inc.
(Alouette). In turn, 100 percent of the voting shares of Alouette are held directly by BCE.
BCE is publicly traded on both the Toronto and New York Stock Exchanges.
The principal and head offices of Telesat and Alouette are located at 1601 Telesat Court,
Ottawa, Ontario, K1B 5P4.
Telesat as an established radiocommunications carrier is currently bound by, and is fully
compliant with, its statutory obligations of the Radiocommunication Regulations, including
Section 10(2)(d). Telesat will continue to abide by current and any future regulations as
established by Industry Canada. All of its directors are Canadian citizens, except for
Mr. Robert C. Pozen and all of Telesat’s officers are Canadian citizens with the
exception of, Mr. Daniel S. Goldberg, President and Chief Executive Officer, and
Ms. Patricia A. Olah, Corporate Secretary; 100 percent of its voting shares are Canadian
owned and Telesat is not in any way subject to foreign control. Telesat is also fully
compliant with its obligations as a Canadian owned and controlled telecommunications
common carrier pursuant to the Telecommunications Act.
A signed attestation declaring Telesat’s eligibility and Canadian ownership and control
required in the Call for Applications is provided in Appendix 1, herein.
-5November 15, 2006
2.2
ABRIDGED
CANADIAN DIRECTION AND CONTROL OF SPACECRAFT
The proposed 17 GHz BSS satellite will be operated at the 86.5°WL orbital position by
Telesat from its Satellite Control Centre (SCC) located at its headquarters in Ottawa,
Ontario and in conjunction with Telesat’s Telemetry, Tracking and Command (TT&C)
facilities in Allan Park, Ontario. Full back-up facilities are available for use in the event of
a problem or failure at Allan Park whereby this satellite’s operations would be controlled
by Telesat from SCC and its TT&C facilities in Edmonton, Alberta.
Telesat commits to ensuring that it will operate the proposed 17 GHz BSS satellite in
compliance with transmission power level limits, co-ordination agreements, orbital debris
mitigation requirements and orbital placement specifications. The proposed satellite will at
all times be operated in compliance with all conditions imposed by Industry Canada, the
requirements of the Radiocommunication Act and specifically Section 3(3)(b) of the Act,
the ITU Radio Regulations and all other applicable laws and regulations.
-6November 15, 2006
3.0
EVALUATION CRITERIA
3.1
BENEFITS TO CANADIANS
ABRIDGED
The first criterion listed in the Call against which the Department will assess applications is
Benefits to Canadians. As indicated in the Call, these benefits are expected to include, in
order of importance:
•
satisfying Canadian requirements for satellite capacity and services
•
securing Canadian access to the orbital resources
•
any other benefits attributable to the project.
It is also strongly encouraged that Applicants address satellite policy objectives and
requirements in the most complete manner possible. These further objectives and
requirements are listed in the Call as:
•
the telecommunications policy objectives set out in Section 7 of the
Telecommunications Act
•
Canadian coverage
•
compliance with ITU Radio Regulations
•
satellite capacity or other benefits for underserved communities
As shown below, Telesat’s comprehensive plan for the development of the 17 GHz BSS
band frequencies associated with the 86.5ºWL position (and two other 17 GHz BSS
positions in this Canadian broadcasting neighbourhood) will maximize the potential of this
orbital location for the benefit of all Canadians, and effectively promote the above
mentioned Canadian satellite policy objectives and requirements. One of the critical
elements of this plan is the early commitment by one or more Canadian customers to take a
substantial portion of the capacity on the proposed satellite. This element of the plan for
the 86.5°WL position has now fallen into place with the agreement that Telesat and Bell
ExpressVu have reached under which Bell ExpressVu will support Telesat’s efforts to
secure this authorization with the view to contracting for all the capacity on the new Telesat
17 GHz BSS satellite that would be launched into this position.
-7November 15, 2006
3.1.1
ABRIDGED
Telesat’s Canadian Satellite Capacity and Services Plan for 86.5ºWL
As part of each application, applicants are to provide a stand-alone Canadian Satellite
Capacity and Services Plan which will be posted on Industry Canada’s website for public
comment. These plans are to include:
•
a description of the consultation undertaken with Canadian satellite users in the
development of the plan
•
the requirements for capacity and services being addressed
•
the amount and characteristics of the satellite capacity that will be available to the
Canadian market over the lifetime of the satellite project
•
a description of the mechanisms or processes the applicant will use to make capacity
and services available to Canadian satellite users
This section of the application presents Telesat’s plan for development of the 17 GHz BSS
86.5°WL position, and is reproduced as a separate stand-alone document for posting on the
Department’s website.
3.1.1.1
Description of the Consultation Undertaken
Shortly after Industry Canada issued the Call for Applications to Licence Satellite Orbital
Positions in July of this year, Telesat contacted its Canadian Broadcasting, Business and
Government customers, informing them of this event and requesting a follow-up meeting to
discuss the Call in more detail and their long-term satellite requirements in all frequency
bands addressed in the Call. Various Canadian industry groups and associations
(e.g., CSUA, Canadian Association of Broadcasters (CAB), and Canadian Cable System
Alliance (CCSA)) were contacted at the same time for the same basic purpose. Telesat also
reviewed the Canadian Satellite User Registration List posted on Industry Canada’s website
in response to the Call to make sure that all parties on that list were directly contacted in
regard to their capacity requirements as well.
-8November 15, 2006
ABRIDGED
At the preliminary meetings that were held with these satellite service users and industry
associations, the primary focus was on recent developments in the industry (including
details of the Call), key issues facing the industry or likely to arise in the foreseeable future,
and the customers’ anticipated medium and long-term capacity needs and growth
requirements. Telesat intentionally avoided discussing in detail any specific capacity
expansion plans of its own at these meetings. Indeed, at the time of these initial meetings,
Telesat had no firm plan as to precisely how many, or which authorizations it should apply
for in response to the Call. For Telesat, the primary intent of these meetings was to get a
better understanding of where its customers thought the industry was heading and what
capacity, at what frequency bands, they might need to meet these challenges and growth
opportunities. The CSUA assisted in this information gathering and exchange process by
issuing a memo to potential applicants providing “broad gauge estimates” concerning the
collective demand requirements of its members.
With this better understanding of customers’ requirements, Telesat then formulated its
preliminary plan for which positions would best meet its customers’ anticipated
requirements and what would be required to implement this plan (e.g., financing, customer
commitments, basic satellite design, etc.).
In subsequent meetings with individual customers who expressed an interest in further
discussions, Telesat presented details on its preliminary plan that were relevant to that
particular customer. Telesat did this to ensure that it was on track to fully address that
customer’s specific requirements, or to revise or fine-tune the plan as appropriate. With
more specific plans on the table, Telesat and the customer were also in a better position to
explore the level of commitment the customer was prepared to make at this time to make
the proposed plan a reality. Telesat also had subsequent discussions regarding its overall
satellite plans with the CSUA.
Based on the customer information provided in these discussions, Telesat’s own analysis of
future broadcasting industry capacity requirements, and the level of commitment received
from prospective customers, Telesat then finalized its plans for the authorizations requested
in response to the Call.
-9November 15, 2006
ABRIDGED
It was during these customer consultations that Bell ExpressVu voiced a strong interest in
using the full complement of the 17 GHz BSS frequencies at the 86.5°WL position, and
possibly other 17 GHz BSS positions, to expand and augment its existing BSS business in
this neighbourhood. Telesat and Bell ExpressVu subsequently reached an agreement under
which Bell ExpressVu will provide exclusive support to Telesat in its efforts to secure
17 GHz BSS authorizations in this Canadian broadcasting satellite neighbourhood. The
two companies will continue to work closely to conclude and implement capacity
arrangements that will fully address Bell ExpressVu’s long term BSS requirements in this
neighbourhood.
3.1.1.2
Requirements for 17 GHz BSS Capacity and Service at the 86.5°WL Position
The 91.1° and 82°WL orbital positions currently constitute Canada’s core BSS
neighbourhood, and this neighbourhood will soon be expanded to include the 72.7°WL
position. Telesat launched Canada’s first BSS satellite, Nimiq 1, into the 91.1°WL position
in May 1999, with all capacity on the satellite sold to Bell ExpressVu. Shortly thereafter,
Bell ExpressVu’s existing DTH service was migrated from an Anik E (FSS) platform to the
Nimiq 1 (12 GHz BSS) platform. With the phenomenal growth of this service it soon
became apparent that a single BSS satellite would not be enough to satisfy this customer’s
capacity requirements. It was also recognized that a single BSS satellite left this customer
– and its approximately one-million Canadian end-user subscribers at that time – in an
extremely vulnerable position in the event of a satellite failure or malfunction. To address
these critical service expansion and emergency back-up and restoration requirements,
Telesat launched a second 12 GHz BSS satellite, Nimiq 2, in December 2002. Nimiq 2 is
currently in operation at the 82°WL position with all capacity again taken by Bell
ExpressVu.
Nimiq 2 suffered a partial failure shortly after going into commercial service and as a result
can no longer operate using the full complement of 32 BSS frequencies in the 12 GHz BSS
band available at its orbital location. This prompted Telesat to acquire two spare in-orbit
12 GHz BSS satellites from a U.S. service provider. These satellites were re-named Nimiq
3 and 4i, with the former currently co-located with Nimiq 2 at 82°WL and the latter colocated with Nimiq 1 at the 91.1°WL position. These additional satellites currently allow
Bell ExpressVu to use almost all of the BSS frequencies available at each of these locations
(with some transponders operated in high power mode to enhance the service capacity), and
provide in-orbit, on-station emergency back-up and restoration capabilities for this
customer’s service.
- 10 November 15, 2006
ABRIDGED
The Bell ExpressVu DTH service carried by Telesat’s four Nimiq satellites at these two
orbital positions now consists of several hundred programming channels (including some
30 HDTV services), delivered to a customer base now approaching 1.8 million Canadian
subscribers. A large number of cable television companies located all across Canada also
rely on delivery of these programming signals to their headends as part of Bell
ExpressVu’s satellite relay distribution undertaking (SRDU) service.
With virtually all of the 12 GHz BSS capacity at the 91.1° and 82°WL positions now being
used, Canadian interest in this band at the 72.7°WL position is growing. Telesat currently
operates DTV 1 on an interim basis at this position to provide DTH service into the U.S. by
an American service provider, and will be launching a new 12 GHz BSS satellite, Nimiq 5,
into this position near the end of the decade. Bell ExpressVu recently committed to taking
all capacity on Nimiq 5, and has also indicated an interest in gaining access to capacity at
this position on an interim satellite until the new satellite is available.1
The 72.7°WL position will therefore become an integral part of the Canadian BSS
neighbourhood. Further capacity expansion in this neighbourhood will therefore require
the development of other suitable frequency bands. The ideal candidate for this expansion
in this BSS neighbourhood is the 17 GHz BSS band, as evidenced by the strong interest
shown by Bell ExpressVu in 86.5°WL and possibly other nearby positions.
Demand Drivers
A variety of factors and industry developments are fuelling the demand for significant new
BSS capacity. New technologies, for example, are fundamentally changing the way people
watch television and enhancing their viewing experience, giving rise to the expectation
among consumers that they can have access to an ever growing number of these services
‘any time, any place and on any device’ they find to be most convenient at the moment.
For instance, new mobile phones and other portable devices are being developed that allow
people to watch video content – from downloading and streaming to full broadcasting –
‘any place’ they want. New satellite/terrestrial hybrid networks for the delivery of mobile
television services are starting to appear in the U.S. (e.g., Modeo, Hiwire and MobiTV).
1
See Comments of Bell Canada re Broadcasting Public Notice CRTC 2006-72, 1 September 2006, at ¶ 36.
- 11 November 15, 2006
ABRIDGED
These services are also being widely tested and have reached commercialization in Europe
and Asia, most notably in Digital Video Broadcasting Handheld (DVB-H) standard over
terrestrial networks. SES Global and Eutelsat Communications recently announced plans
to establish a joint venture company to provide the first European satellite infrastructure for
delivering video broadcasting and other services to mobile devices, including wireless
phones, PDAs, laptops and vehicle receivers, using the S-band payload on a satellite to be
launched in 2009. As these satellite operators noted, mobile services represent a large and
currently underdeveloped market, and a market which is ideally suited for the universal
coverage benefit a satellite solution can offer.2 Indeed, independent research studies predict
that worldwide demand for mobile broadcasting services may reach 108 million subscribers
by 2010 or soon thereafter, with close to 50 million of those subscribers located in North
America and a revenue potential approaching $5 billion.3
Similarly, video-on-demand (VOD) services are increasingly allowing people to watch
their programming choices ‘any time’ they want. These services have been available for
some time in North America but the market has been slow to develop. However, this
appears to be changing as more service providers with more content have been entering the
market, and as the ‘any time’ nature of this service is becoming a more appealing and better
fit with the viewing needs of time-strapped consumers. It is forecast that the North
American VOD market will be worth approximately $3.9 billion by 2010, with Canadian
revenues, prorated by market size, to account for some $370 to $390 million of that total.4
The television viewing experience is being further augmented by the proliferation of other
new broadcasting services, providing an ever wider range of specialty programming and
more choice of programming within the various specialty genres. The CRTC decision to
licence Category 2 digital specialty services on a more competitive, open-entry basis
sparked much of this increase in programming options and it is continuing unabated.
Indeed, as shown in Table 3.1.1-1, since 2002 the number of new Category 2 digital
specialty services that have been licensed has more than doubled, going from 32 to
75 services.
2
3
4
SES and Eutelsat Announce Joint Investment to Serve Markets for Mobile Broadcasting and Other Communications
Services in Europe, REDORBIT NEWS (30 October 2006)
Northern Sky Research, Mobile TV 2006 (February 2006)
Pricewaterhouse Coopers Annual Entertainment and Media Report (2006))
- 12 November 15, 2006
ABRIDGED
It should be further noted that the number of Category 2 specialty services identified in
Table 3.1.1-1 are those that have actually launched, whereas the total number of these
services that have been authorized by the Commission now run into the several hundred.
Two of the main reasons why so many of these services have so far failed to launch are
lack of financing and lack of distribution capacity. However, the availability of new
spectrum resources (e.g., the 17 GHz BSS band) will mitigate this latter constraint, at least
for satellite DTH and SRDU services. To remain competitive with DTH service providers,
cable TV and other terrestrial companies will also be forced to find new capacity to carry
more of these new services over their facilities and to augment their subscription to SRDU
services.
Table 3.1.1-1
Television Services Available in Canada - 2002-2006
2006
2005
2004
2003
2002
31
101
5
7
9
14
28
101
5
7
10
11
25
100
5
7
10
9
40
91
5
7
10
-
46
81
5
7
10
-
49
18
75
12
11
13
49
18
58
12
11
13
49
18
48
7
12
11
49
15
41
8
12
9
51
16
32
7
12
4
166
12
2
235
11
2
235
12
2
251
-
246
-
Canadian Conventional (over-the-air):
National public broadcaster (CBC)
Private Commercial
Religious
Educational
Aboriginal
Transitional digital
Canadian Specialty, Pay, PPV & VOD:
Analog specialty services
Category 1 digital specialty services
Pay television
PPV (DTH & terrestrial)
VOD services
Other Canadian Services:
Community channels
Community programming services
House of Commons – CPAC
- 13 November 15, 2006
Table 3.1.1-1
ABRIDGED
2006
2005
2004
2003
2002
134
108
107
93
93
Total Number of Television Services
659
679
657
631
610
Net of Community Channels &
Community Programming Services
481
433
410
380
364
Non-Canadian Services:
Non-Canadian satellite services
authorized for distribution in Canada
Source:
CRTC Broadcasting Policy Monitoring Reports
Similarly, the number of non-Canadian satellite services (many of which are carried on
Telesat satellites as part of Canadian DTH and SRDU service packages) has risen from
93 to 134, a 44 percent increase, over this same 2002 to 2006 time period. Moreover,
although the total number of television services available in Canada has only been creeping
up since 2002, if local community channels and programming services are netted out of this
total to better reflect national or regional viewing options (and carriage opportunities for
satellite), then the number of available services has actually risen dramatically from 364 to
481, an increase of 117 services, or just over 32 percent.
With its vastly superior picture and sound quality, television programming in
High Definition TV (HDTV) format will also greatly enhance the viewing experience for
consumers. Indeed, while at present only some 30 channels in a channel universe
numbering in the several hundred are being broadcast in Canada in HDTV format by the
major BDUs, Canadian viewers are fast embracing this technology and looking for more
HDTV content. As of September 2006 it is estimated that approximately 2.6 million
Canadian households have purchased HD television sets and this number is expected to
jump to more than 8 million households by 2009.5
5
Canadian Cable Telecommunications Association (November 2005)
- 14 November 15, 2006
ABRIDGED
Wholesale conversion to HDTV format is therefore a trend that Canadian broadcasters and
BDUs can ill afford to miss or ignore, and it does not appear that they have done so. As
shown in Table 3.1.1-2, information supplied in the consultation process by the CSUA, as
agreed to by its members, confirms that the Canadian broadcasting industry is gearing up
for the complete conversion to HDTV format.
Table 3.1.1-2
CSUA HDTV Demand Estimate Targets
Timeframe
Conversion of Existing Channels to HD
Next 2-3 years:
30-50 %
In 5 years:
75 %
In 10 years:
100 %
There are thus three principal drivers of new capacity demand which will largely have to be
addressed using new BSS frequencies in this broadcasting neighbourhood, and this total
new demand requirement promises to be huge:
•
Conversion of the existing base of programming services to HD format: While the
HDTV picture quality is vastly superior to that of Standard Definition TV (SDTV), the
total transponder capacity required to effect the full conversion of Bell ExpressVu’s
existing base of programming signals to HD format will be enormous and will
dominate new BSS satellite capacity requirements over the next several years.
Specifically, a transponder can transmit up to a maximum of 10 to 12 SDTV channels,
but this number drops to 1 to 2 HDTV channels using current transmission standards
(MPEG 2 with DVB-S). This number will likely increase to a maximum of only 4 to 6
channels per transponder with the full development and deployment of next generation
transmission standards (MPEG 4-AVC or H.264 with DVB-S2). Depending on the
mix of transmission standards actually used, the HDTV conversion will therefore
require, at the very least, twice as many transponders to handle today’s number of
signals than are currently used to transmit these signals in SDTV format.
Requirements for dual illumination of channels (i.e., simulcasting in SD and HD)
through the transition period will add further to the overall capacity requirement and
likely slow the conversion process until new capacity becomes available.
- 15 November 15, 2006
ABRIDGED
•
Growth in the existing base of programming services: Over the past several years
the base of available programming services (net of community channels and
programming services) has been steadily growing, with no suggestion that this trend is
about to end or reverse itself any time soon. Indeed, over the past four years some 117
new services have been added to this total, averaging close to 30 new services a year.
If this trend continues, then, even assuming conservatively that most would launch in
SDTV format, an additional two to three transponders per year will be required to
transmit the additional new services. And while it is true that a significant number of
the newly authorized services may never be launched commercially, the eventual
conversion into HDTV format of those that are will again drive this capacity
requirement upwards.
•
Development and deployment of new broadcasting services: Mobile television is a
new broadcasting application that is evolving into a must-have consumer service,
particularly among certain segments of the consuming public. Terrestrial networks
have so far been able to accommodate the bulk of the carriage requirements associated
with this emerging service, but the expectation is that satellite, with its inherent
advantages in the delivery of broadcasting services over wide geographic areas, will
have a prominent role to play in the carriage of these services, likely as part of a hybrid
network. As these satellite/hybrid networks are still in the early stages of development,
it is difficult to precisely forecast satellite capacity requirements at this time. That said,
HD format will likely be the industry standard; consequently, even if service
providers were to start by offering only a limited number of programming services and
add more as the market develops, whole transponder capacity requirements will
quickly mount up.
Taken together these drivers indicate that substantial new Canadian BSS capacity demand
will materialize over the next several years and will require the phased introduction of new
satellite capacity in the 17 GHz BSS band at a number of orbital locations, and particularly
in Canada’s established BSS neighbourhood stretching from 91.1° to 72.7°WL.
3.1.1.3
Telesat’s 17 GHz BSS Capacity and Service Plan for the 86.5°WL Position
Telesat’s 12 GHz BSS Nimiq satellites enabled Bell ExpressVu to introduce affordable
DTH and SRDU services to all areas of Canada, the far North included. They have helped
establish the 91.1° and 82°WL positions as a Canadian broadcasting neighbourhood where
several hundred programming signals are currently being delivered to some 1.8 million
Canadian DTH subscribers and hundreds of cable television company headends.
- 16 November 15, 2006
ABRIDGED
As noted above, Telesat and Bell ExpressVu are in the process of expanding this Canadian
neighbourhood to include the 72.7°WL 12 GHz BSS position where Nimiq 5 will go into
service for Bell ExpressVu’s use by 2010. All available 12 GHz BSS capacity at these
three orbital locations is therefore committed, with full utilization of this capacity expected
to be reached in the first few years of Nimiq 5 going into service. Expansion capacity in a
complementary band, such as 17 GHz BSS, will therefore need to be introduced and
developed in a timely manner to address the huge emerging demand requirement identified
above.
Experience has shown that a single-satellite solution to meet all demand requirements in a
given frequency band is not optimal. It leaves service providers and their customers in an
extremely vulnerable position should that one satellite malfunction or fail completely. This
is an especially troublesome situation where, as in the present case, the satellite service
involves DTH and the end-user customer number is in the millions.
As a significant number of these Canadian DTH customers would be in rural and remote
areas where there is no terrestrial service alterative, a satellite malfunction could mean that
these customers would be deprived of television service completely, with little likelihood
of having their service quickly restored. Satellite diversity and emergency back-up is
therefore a critical component of any responsible Canadian satellite service plan.
The priority and main thrust of Telesat’s 17 GHz BSS capacity and service plan for the
86.5°WL position, in combination with the 82° and 72.5°WL positions, is therefore to meet
these two requirements head on, and specifically to provide:
•
phased-in growth capacity at the three orbital positions comprising this Canadian
broadcasting neighbourhood
•
a back-up scenario in the event of a catastrophic failure or serious degradation in a 17
GHz BSS satellite at any of these positions
Growth Capacity
To address the identified new BSS capacity requirements in this Canadian broadcasting
neighbourhood, Telesat is proposing to launch four new 32-transponder BSS satellites,
phased in over the next 10 years.
- 17 November 15, 2006
ABRIDGED
Nimiq 5, a 12 GHz BSS satellite which Telesat is already authorized to launch into the
72.5°WL position, would be the first of the four satellites to go into service. Bell
ExpressVu recently committed to taking all capacity on this satellite and thus will have
access to 32 new BSS transponders for Canadian customer use in this neighbourhood. This
new capacity, with traffic allocated by Bell ExpressVu across this and the other Nimiq
(12 GHz BSS) satellites as appropriate, is more than sufficient to accommodate CSUA’s
demand estimate for HDTV conversion of ‘30-50% of channels’ by 2010. Based on
aggressive assumptions regarding the deployment of next generation transmission
standards, Telesat estimates that the equivalent of approximately 29 of these 32 new
transponders will be needed by that time to fulfill this conversion estimate to the 50 percent
level. The capacity of the three remaining transponders would be available to serve the
other new sources of Canadian demand identified above (i.e., to launch new programming
services, or for use with new applications such as mobile TV), or to accelerate the HDTV
conversion process.
Telesat’s first 17 GHz BSS satellite (BSS1) in this Canadian broadcasting neighbourhood
would go into service in early 2012 at the 86.5°WL position. This will introduce another
32 transponders of BSS capacity into this neighbourhood. Telesat estimates that the new
capacity on this satellite would be sufficient to satisfy CSUA’s demand estimate for HDTV
conversion of ‘75% of channels in 5 years time’, possibly leaving up to 16 of the new
transponders available to address the other identified new Canadian capacity requirements
or to accelerate the HDTV conversion process. Realistically, however, business decisions
or on-going regulatory requirements concerning simulcasting of television programming in
SD and HD format will impact the maximum number of transponders that would remain
available to address these other new demands.
Telesat would launch its second proposed 17 GHz BSS satellite (BSS2) into the 82°WL
position to commence service in 2014, and its third (BSS3) into the 72.5°WL position to
commence service in 2016. The capacity of these two additional satellites would be
sufficient to meet the CSUA’s demand estimate for complete conversion to HD format of
the existing base of programming signals ‘in 10 years time’, leaving approximately half of
new capacity available to address the other new Canadian demand requirements mentioned
above. Again, however, simulcasting requirements will impact the actual number of new
transponders available to address these other demands.
- 18 November 15, 2006
ABRIDGED
Table 3.1.1-3 summarizes this matching of Canadian demand for additional BSS spectrum
in this Canadian broadcasting neighbourhood with the phased introduction of the four new
satellites.
Table 3.1.1-3
Phased BSS Capacity Introduction in the 91°-72.5°WL
Neighbourhood
New Satellite
In Service
New Transponders
Available
(band/location)
(Cumulative)
2010
Nimiq 5
(12 GHz/ 72.7°WL)
32
2012
BSS1
(17 GHz/ 86.5°WL)
2014
2016
Year
CSUA HDTV
Conversion
Target*
New
Transponders
Required to
Meet CSUA
HDTV
Conversion
Target**
New
Transponders
Available to
Address Other
Demands
(Including
Simulcasting)
(Cumulative)
(Cumulative)
50 %
29
3
64
75 %
45
19
BSS2
(17 GHz/
82°WL)
96
85 %
56
40
BSS3
(17GHz/ 72.5°WL)
128
100 %
71
57
*
CSUA did not provide a specific HDTV conversion target for 2014. The 85% target is an estimate,
consistent with the target percentage progression provided by CSUA, as to the extent of the HD
conversion that should be complete by this date.
**
The underlying assumptions on technology adoption through the HDTV conversion process were as
follows: MPEG-2 & DVB-S used to convert 25% of the CSUA target number of signals in 2010 (i.e.,
25% of the target level of 50%), dropping to 20% to meet the conversion target in the subsequent years
shown, at 2 signals/transponder; MPEG-4 & DVB S2 used to convert 75% of the CSUA target number
of signals in 2010 (i.e., 75% of the target level of 50%), increasing to 80% to meet the conversion
target in the subsequent years shown, at 5 signals/transponder.
The 57 transponders shown cumulatively as available over and above the HD conversion
process would be introduced staggered over a six year period (i.e., starting in 2010
following the launch of Nimiq 5 and ending in 2016 with the launch of BSS3). Over this
timeframe some of these transponders would be required to simulcast television
programming.
- 19 November 15, 2006
ABRIDGED
However, a significant number of these transponders would remain available to address
new Canadian demand requirements, including the launch of new programming services,
which the CRTC is currently licencing at a rate of close to 30 new services a year, and new
broadcasting applications such as mobile TV.
Should no Canadian requirement for some portion of these available transponders at any of
these locations materialize, Telesat would consider marketing them outside of Canada.
However, Telesat’s proposed phased introduction of new capacity in this neighbourhood
with four new BSS satellites appropriately spaced over the next ten years best ensures that
this capacity will be used to the maximum extent possible to meet Canadian broadcasting
industry requirements. Launching new satellites into each of these positions in a shorter
timeframe, let alone all at once, would simply swamp the then current Canadian demand
requirements and lead to a much greater portion of this capacity having to be marketed
outside of Canada, with little likelihood of it ever being repatriated.
Satellite Design and Coverage
The three 17 GHz BSS satellites Telesat proposes to build to fulfill Canadian demand
requirements in this neighbourhood would be virtually identical. Each would carry 32
27 MHz BSS transponders, using the 24.75 to 25.25 GHz spectrum on the uplink and
17.3 to 17.8 GHz on the downlink. The full 500 MHz of spectrum, in both polarizations, at
each of these positions would therefore be used. The satellites would be designed for
15 year service lives. Construction of each satellite through to in-orbit delivery would take
approximately 30 months from the date of contract signature with the satellite
manufacturer.
- 20 November 15, 2006
ABRIDGED
OFT
9.00
44
8.00
49
49
52
52
44
54
7.00
Theta*sin(phi) in Degrees
54
52
49
6.00
44
5.00
4.00
3.00
-5.00
-4.00
-3.00
Figure 3.1.1-1
-2.00
-1.00
0.00
1.00
T heta*cos(phi) in Degrees
2.00
3.00
4.00
5.00
EIRP Coverage of Canada at 86.5°WL
The coverage pattern for BSS1 located at its proposed position of 86.5°WL is shown in
Figure 3.1.1-1. Each of the new satellites would be designed for optimal coverage of all
areas of Canada from its orbital position. However, the beam coverage on each of these
satellites will be switchable between the Canadian and (continental) U.S. footprint, on a
transponder-by-transponder basis. This design will provide the maximum flexibility for
Telesat to provide service on any of these satellites to one or more U.S. customers should
there be any capacity surplus to the needs of Canadian customers.
Allowing non-Canadian customers to access such surplus capacity spreads satellite
construction and operation costs over a broader base, and thus will make the capacity used
by Canadian customers even more affordable.
Marketing Approach
Regarding the marketing of 17 GHz BSS capacity at the three orbital locations, Telesat is
following the same approach it has used in the marketing of DTH capacity on the Nimiq
and Anik satellites. Under this approach customers have generally committed to taking
blocks of capacity, under long term contracts, to develop their own end-user service. This
approach has proven extremely successful in the development of DTH markets in Canada.
- 21 November 15, 2006
ABRIDGED
As indicated above, Bell ExpressVu has expressed a strong interest in taking all the
capacity on the BSS1 satellite launched into the 86.5°WL position, and possibly at other
17 GHz BSS positions in the neighbourhood. Telesat is working to fully accommodate this
customer’s requirements.
As also indicated above, in the event that capacity surplus to Bell ExpressVu’s or other
Canadian customers’ requirements remains on a planned satellite, that capacity will be
made available to a U.S. customer(s) based on the same marketing approach (i.e., sale of
blocks of unused transponders).
Other Near-Term BSS Capacity Enhancements
In addition to procuring four new state-of-the-art 12 and 17 GHz BSS satellites for the
86.5°, 82° and 72.5°WL orbital positions to satisfy growth requirements, there are other
important elements in Telesat’s overall plan to effectively develop this neighbourhood for
the immediate and long term benefit of the Canadian broadcasting industry.
The 17 GHz BSS frequency band is a new band and so there are no spare in-orbit satellites
operating in this band that Telesat can acquire for interim use at any of these positions.
However, Telesat has acquired spare 12 GHz BSS satellites over the past few years to
maximize the number of BSS frequencies in this band available for use in Canada at the
91.1° and 82°WL positions (Nimiq 4i and Nimiq 3 respectively) and/or to enhance service
performance of the BSS signals at these positions.
Moreover, Telesat has a state-of-the-art replacement 12 GHz BSS satellite under
construction (Nimiq 4) scheduled for launch in 2008 into the 82°WL position. In addition
to the full complement of 32 BSS transponders, this satellite is being equipped with
8 Ka-band transponders which could also be used in the delivery of Bell ExpressVu’s
BSS service.
Telesat is also very active in the development of new technologies and improved
compression and modulation techniques geared towards enabling service providers to
increase the number of TV signals on a satellite per unit of bandwidth. This development
is continuing and promises to allow service providers to add new television services
without compromising digital quality.
- 22 November 15, 2006
ABRIDGED
This increased efficiency would also translate into significant cost reductions for broadcast
distributors and programmers and would assist their transition to HDTV format in the near
term while capacity remains tight. However, as Bell ExpressVu has observed, even with
the adoption of these more efficient techniques, there will still be a need for more satellite
capacity to accommodate Canadian broadcasters’ transition to HD.6
Satellite Diversity and Emergency Back-up
Over the years customers have consistently voiced concerns that single-satellite approaches
to satisfying their capacity needs can leave them in an extremely vulnerable position.
Should anything go wrong with the one satellite, their entire business on that satellite could
be irreversibly lost or take years to re-establish. This concern is particularly troublesome
for individual broadcasters and broadcasting distribution undertakings requiring large
blocks of capacity or whole satellites for their service, as finding sufficient capacity capable
of satisfying their immediate requirements from another operator on such short notice
would be extremely difficult, if at all possible. In the development of new frequency
bands, the likelihood of finding suitable emergency or back-up capacity from another
source is further diminished by the fact that there will be few operating satellites in the new
band. Indeed, in the case of 17 GHz BSS, no satellite operating in this band has yet been
built, or to Telesat’s knowledge is currently under construction.
Dealing with an operator that can offer satellite diversity and emergency back-up is
therefore an important customer consideration, and in the present context of 17 GHz BSS
can only be addressed if the operator launches more than one satellite in a short timeframe.
This is precisely what Telesat is proposing under its plan to launch three such satellites into
the 86.5°, 82° and 72.5°WL 17 GHz BSS positions. As described above, Telesat’s plan is
to launch its BSS1 17 GHz BSS satellite into the 86.5°WL position in 2012, as this is the
preferred initial position of its customer Bell ExpressVu. Within two years of that date,
Telesat would launch its second 17 GHz BSS satellite, BSS2, into the 82°WL position to
back-up BSS1. Within another two years, BSS3 would be launched into the 72.5°WL
17 GHz BSS position, providing critical back-up for both BSS1 and BSS2, as well as for
service expansion in its own right.
6
- 23 November 15, 2006
ABRIDGED
Telesat will therefore have three full-capacity 17 GHz BSS satellites in service in the 86.5°,
82° and 72.5°WL neighbourhood within the space of four years. A failure or significant
malfunction of any of these satellites would be damaging but contingency arrangements
could be implemented to mitigate the impact of the problem. Without this satellite
diversity and back-up, options would be severely limited, if available at all, and a failure or
significant malfunction of a single-service satellite in this neighbourhood could devastate a
service.
Other Customer Requirements Addressed
During the consultation process undertaken by Telesat, a number of parties expressed the
importance of continued access to reliable and reasonably priced satellite communications
services. In response, Telesat would note that, with a network service availability
performance level that has consistently been above 99.9 percent, it has established itself as
one of the most reliable satellite operators in the world.
Telesat has also established itself as being a low-cost supplier of satellite services, and its
transponder capacity prices remain amongst the most competitive in the North American
marketplace. Perhaps more importantly, Canada has always been Telesat’s core base of
operations and most important market. Telesat has no intention of risking its position in
this market, as would occur if it were to abandon its commitment to being the low-cost
supplier of reliable satellite services to all areas of Canada.
3.1.1.4
Procedure for Customers to Obtain Capacity/Services
Telesat will operate its proposed 17 GHz BSS satellites as a Canadian telecommunications
common carrier, offering service from each of these satellites on a non-discriminatory,
first-come, first-served basis. This first-come, first-served capacity reservation process is
open now, conditional on Telesat ultimately being awarded the licence for the 17-GHz BSS
frequencies at these positions. To date, only one customer, Bell ExpressVu, has indicated
strong interest in taking capacity on the 17 GHz BSS satellite to be launched into the
86.5°WL position, as well as possible interest in capacity on other 17 GHz BSS satellites in
this neighbourhood. Canadian satellite service users are therefore strongly encouraged to
keep Telesat fully informed as to their anticipated requirements for service on these
satellites and to enter into the appropriate arrangements for service, once they have a firm
understanding of their actual requirements.
- 24 November 15, 2006
ABRIDGED
If capacity remains available on any of these satellites at the time Telesat is awarded the
authorizations, Telesat will consider initiating a public “call for interest” for 17 GHz BSS
capacity, first for the remaining capacity on the satellite to be launched into the 86.5°WL
position, followed at the appropriate time by similar calls for the remaining capacity on the
other two planned 17 GHz BSS satellites.
Throughout these processes, Telesat would continue to operate as a Canadian
telecommunications common carrier, offering service on the satellite on a
non-discriminatory, first-come, first-served basis.
3.1.2
Securing Canadian Access to Orbital Resources
As stated in the Call, applicants must provide information from their satellite facilities plan
demonstrating credible project milestones that will lead to the timely deployment of
satellites at the requested positions and the bringing into use of the associated spectrum.
In accordance with ITU Radio Regulations footnote No. 5.517, allocation of 17 GHz band
to the BSS will become effective in Region 2 of the ITU on 1 April 2007. Thus currently
there are no existing BSS satellites operating in these bands over North America, nor to the
best of Telesat’s knowledge is such a satellite currently licenced or under construction.
Nevertheless, there are a number of satellite network filings that have been submitted to the
ITU Bureau of Radiocommunications since 1 April 2002 for the provision of broadcasting
services in these bands to Region 2 territories.
As the successful applicant for these frequencies at 86.5°WL, Telesat would expect to use
both Canadian satellite network filings of CAN-BSS-85.0 and CAN-BSS9 to establish
international protection for its satellite service.
Table 3.1.2-1 shows all the networks filed in the 17 GHz BSS band with the ITU within
four degrees of the 86.5°WL position. The Canadian satellite filing CAN-BSS-85.0, with
an expiry date of 1 April 2009, establishes Canadian priority rights to the 17 GHz BSS
frequencies at this position. The U.K. satellite filing AM-SAT-85W (filed on behalf of
SES) is the next in the queue for operation in these frequencies at this location, and has an
expiry date of 11 July 2009. Telesat believes that it would be extremely difficult for either
of these two network filings to be brought into use before their respective 2009 expiry
dates.
- 25 November 15, 2006
Table 3.1.2-1
Administration
ABRIDGED
17 GHz BSS Networks filed within 4° of the 86.5°WL Position
ITU Network Name
Sat. Name or Operator
SES
SES
Orbit Slot
Priority Date
Expiry Date
RES49 Due Date
89.8
89.8
-
8-Feb-2007
9-Jun-2008
-
Luxembourg
LUX-G4-61
LUX-G5-61
Malaysia
MEASAT-89.5W
89.5
31-Dec-2004
11-Jun-2011
11-Jun-2011
USA
INTELSAT KAEXT 89W
89.0
14-Sep-2005
14-Mar-2012
14-Mar-2012
Canada
CAN-BSS-85.0
CAN-BSS9
86.5
86.5
1-Oct-2002
18-Nov-2005
1-Apr-2009
18-May-2012
1-Apr-2009
18-May-2012
Luxembourg
LUX-G4-62
LUX-G5-62
SES
SES
85.3
85.3
-
8-Feb-2007
9-Jun-2008
-
United Kingdom
AM-SAT-85W
SES
85.0
28-Jan-2003
11-Jul-2009
11-Jul-2009
The next filing in the queue is MEASAT-89.5W with a priority date of 31 December 2004,
followed by INTELSAT KAEXT 89W with a priority date of 14 September 2005.
CAN-BSS9, with a later priority date of 18 November 2005 and a network expiry date of
18 May 2012, comes after these two networks. Prospective Canadian applicants for the
86.5°WL position must therefore carefully assess the likelihood of either of the U.S. and
Malaysian filings being implemented ahead of a Canadian network. In this regard it should
be noted that Intelsat owns and operates a hybrid C, Ku and Ka-band satellite at the
89°WL position.
Telesat has carefully reviewed the situation and there is a risk that Canada will not have
ITU priority at the time the 17 GHz BSS satellite at 86.5°WL is brought into use. That is, it
would be constructing its satellite for this position before the U.S. and Malaysian filings
expire. Telesat would launch this satellite by early 2012. By this date, Telesat expects that
12 GHz BSS spectrum in the North American arc will be nearing full utilization, thus
necessitating that new 17 GHz BSS capacity be introduced. Telesat is prepared to take this
risk, given the stated preference of its customer Bell ExpressVu for this orbital position.
However, should it not be possible to satisfactorily coordinate the network at 86.5°WL, it
may be necessary to locate the first 17 GHz satellite for Bell ExpressVu at either the 82° or
72.5°WL orbital positions.
Proposed project milestones set out in the Technical Plan (see section 3.3.6.3.1)
demonstrate how this satellite can be constructed and launched into this position in the
timeframe indicated.
- 26 November 15, 2006
3.1.3
ABRIDGED
Other Benefits to Canadians
As indicated above, the most obvious benefits resulting from the award of the 86.5°WL, in
combination with the other 17 GHz BSS positions Telesat has requested in this Canadian
BSS neighbourhood, and the driving force behind each of these applications, is that
Bell ExpressVu and other Canadian broadcasting customers would be provided expansion
and emergency back-up capacity, in both the near and the long term. As discussed below,
the award of the authorization to Telesat for the 86.5°WL position will result in a number
of other significant benefits to Canada and Canadian satellite users, many of which could
not be realized, or would not be of the same magnitude or as certain, if this position were
awarded to any other operator.
•
Industrial Benefits: Telesat has a strong record of promoting Canadian
manufacturers, designers, and suppliers of telecommunications components in the
construction of its satellites and associated earth station equipment. Specifically, in its
satellite procurement process Telesat requires that non-Canadian manufacturers of its
satellites enter into agreements with Canadian equipment suppliers to provide satellite
components or related earth station equipment. To maximize these benefits to
Canadian manufacturers, these offset commitments are not limited to components
directly associated with the Telesat satellite build in question, but can also include
commitments for other satellite or ground segment builds.
For example, as Telesat has reported to the Department in its annual Compliance
Reports, in the Nimiq program EMS Technologies entered into offset agreements
totalling US$53 million (approximately Cdn$80 million at then prevailing exchange
rates) with the satellite manufacturer Lockheed Martin as a direct result of this
construction program. This also added approximately 50 new jobs for highly-skilled
workers at EMS’ Ste. Anne de Bellevue, Quebec facility over the term of those
agreements.
The Canadian satellite manufacturing sector has similarly benefited from the Anik F
satellite procurement program. In the Anik F1R construction program, for example,
Telesat obtained commitments from EADS Astrium, the European prime contractor for
the satellite, to enter into contracts valued at $10 million or more with Canadian
subcontractors for the procurement of equipment for use on the Anik F1R satellite
(Direct Canadian Content), and to place orders with Canadian manufacturers over the
next five years in the amount of $65 million in other satellite builds (Indirect Canadian
Content). These combined Canadian content commitments totalling $75 million were
met, and exceeded, through contracts with COM DEV Canada and EMS Canada –
i.e., $17 million in Direct Canadian Content and a further $68.7 million in Indirect
Canadian Content, for a combined total of $85.7 million.
- 27 November 15, 2006
ABRIDGED
Telesat’s Anik F3 procurement has yielded similar economic benefits for Canadian
equipment manufacturers. Specifically, after making an initial commitment to
negotiate offset contracts valued at $10 million or more for Canadian content on this
satellite and a further $15 million for Canadian content on other satellite projects,
Astrium awarded contracts totalling more than $20 million for Canadian content on
this satellite and another $20.8 million for Canadian content on other satellite contract
builds. The total value of the Astrium contracts with Canadian subcontractors
associated with the Anik F3 and F1R satellite builds therefore exceeded $100 million.
If Telesat is successful in its bid for the award to develop the 17 GHz BSS frequencies
at the 86.5ºWL, Telesat will again commit to making all reasonable efforts to promote
Canadian manufacturers in the satellite procurement process, and fully expects that it
will be successful in this endeavour to secure significant industrial benefits for this
important sector of Canada’s satellite industry.
The 17 GHz BSS band is also a new band, and thus offers significant new product
opportunities for equipment manufacturers ready to move quickly into this market
segment. Telesat’s early entry into this band and its promotion of Canadian equipment
manufacturers in the satellite procurement process would give these manufacturers a
significant boost both domestically and in international markets.
Attached to this application are copies of the letters sent by COM DEV and
MacDonald, Dettwiler and Associates (MDA), two of Canada’s leading satellite
equipment manufacturers, to Minister of Industry Maxime Bernier, attesting to the role
that Telesat has played in promoting Canadian satellite equipment manufacturers over
the past 30 years, and providing full support for Telesat’s applications filed in response
to the Call.
•
Other Canadian Spillover Benefits: Telesat is the only FSS and BSS satellite
operator that has a significant physical presence in Canada. This includes the vast
majority of Telesat’s 500-plus employees, its headquarters and R&D lab, its main
satellite and ground segment monitoring and control facilities, its equipment repair
operations, and most of its teleports and regional sales offices. Telesat is a major
employer in Canada’s high-tech sector, a generator of significant Canadian tax monies,
and tied into the local economy of every centre and region in which it has offices or
facilities.
Award of the 86.5°WL 17 GHz BSS position to Telesat is therefore an investment in a
truly Canadian company and will serve to augment and expand upon the types of
spillover benefits flowing back into Canada.
- 28 November 15, 2006
ABRIDGED
•
Satellite Construction Economies: Telesat is proposing to build virtually identical,
full-payload 17 GHz BSS satellites for the 86.5°, 82° and 72.5°WL positions in a short
period of time and would request quotes from satellite manufacturers for the three
satellites at the same time. Telesat would therefore likely be able to negotiate very
favourable procurement terms and thus be in a position to offer favourable terms to its
customers seeking capacity on these satellites. This in turn will tend to drive down the
price of service-provider services, thus making them more affordable to end-user
customers.
•
U.S. Customer Benefits to Canadians: Telesat is proposing to build 32-transponder
17 GHz BSS satellites for the 86.5°, 82° and 72.5°WL positions, with the transponders
on these satellites to be switchable for coverage of Canada or the U.S. Canadian
customers will have first access to capacity on each of these satellites, and the satellites
will be launched at two year intervals to better match the expected ramp-up in
Canadian demand for additional BSS capacity in this neighbourhood. Transponders
not required for service in Canada could then be made available for service into
the U.S.
Consequently, while Canadian customers benefit by having first access to the capacity,
to the extent that capacity surplus to their requirements is sold in the U.S., they will
also benefit from having a portion of the costs for the construction, launch and
operation of the new satellite recovered from non-Canadian customers. This has the
effect of lowering the cost of satellite service provided in Canada, with a
corresponding decrease in the price charged to these service-provider customers. This
in turn will tend to drive down the price of service-provider services, thus making them
more affordable to end-user customers.
•
Mitigate Grey Market Erosion: With the substantial new 17 GHz BSS capacity
made available by Telesat, Bell ExpressVu and/or other Canadian customers will be in
a position to carry significantly more television signals, in SD or HD format. This will
make their service more appealing to Canadian end users who might otherwise be
tempted to subscribe to a grey market alternative provided by U.S. service providers.
More broadcasting service revenues will therefore remain in Canada, and better ensure
that the rights of Canadian broadcasters and the objectives of Canada’s Broadcasting
Act are protected and promoted.
•
Canadian Broadcasting Sector Spillover Benefits: Expanded BSS capacity will
allow Bell ExpressVu and other Canadian customers to distribute more Canadian
programming and pay and PPV services to entice new subscribers, which in turn will
have revenue stimulating effects on the amount of money flowing into Canadian
programming services and Canadian programming.
- 29 November 15, 2006
ABRIDGED
Indeed, from 1998 to the end of 2005, Canadian DTH service delivered $1.9 billion in
net revenue to Canadian pay, PPV and specialty services, with approximately
$685 million of that total used to fund new Canadian programs. In addition, DTH
service providers are required to contribute 5 percent of their broadcasting revenues
into the Canadian Television Fund and other independent production funds, and have
paid some $187 million in net new contributions to these funds over this time period.
The total DTH contribution to Canadian programming to date therefore exceeds
$870 million.7
The new demand for Canadian programming services and increased industry revenues
made possible by the expansion of 17 GHz BSS capacity in this neighbourhood will
therefore have positive spillover impacts extending across the whole of the Canadian
broadcasting sector.
3.1.4
Satisfying Canadian Satellite Policy Objectives & Requirements
3.1.4.1
General Satellite Policy Objectives and Telesat’s Transition Plan
As stated in the Call, Industry Canada is guided in this award process by the Canadian
telecommunications policy objectives set out in Section 7 of the Telecommunications Act.
These objectives are wide ranging in scope, but most of them are directly relevant to the
award of the 17 GHz BSS frequencies at the various Canadian positions, and can be
grouped as follows: orderly and user-responsive development of the resources Section (7(a)
& (h)), the rendering of reliable and affordable services to all parts of Canada Section
(7(b)), enhanced efficiency and competitiveness of Canadian telecommunications Section
(7(c) & (f)), promotion of Canadian control over and use of these resources Section (7(d)
& (e)), and the stimulation of R&D and innovation in Canada Section (7(g)). As
demonstrated below, each of these sets of objectives is addressed and promoted under
Telesat’s plan for the development of 17 GHz BSS at the 86.5°, 82° and 72.5°WL
positions.
•
7
Orderly and User-Responsive Development Section (7(a) & (h)): Telesat’s plan for
the development of 17 GHz BSS resources at these orbital positions recognizes that
there should be a phased introduction of new capacity to match the expected ramp-up
in demand for this service.
See Comments of Bell Canada re Broadcasting Public Notice CRTC 2006-72, 1 September 2006, at page 123.
- 30 November 15, 2006
ABRIDGED
Telesat’s 12 GHz BSS Nimiq satellites are operating at close to full capacity in the
91.1° and 82°WL positions. Telesat is launching a new 12 GHz BSS satellite into the
72.7°WL position in the next three years and this will provide significant new capacity
for use in this Canadian satellite broadcasting neighbourhood. However, with the
conversion to HD format and growth of other high-bandwidth services, this additional
12 GHz BSS capacity will soon be exhausted as well, necessitating that new capacity
in other suitable frequency bands be made available for further expansion of
broadcasting services in this neighbourhood. Telesat’s phased introduction of 17 GHz
BSS capacity over three satellites spaced two years apart will ensure that capacity is
made available to Canadian users at the time it is needed.
Telesat’s proposed 17 GHz BSS roll-out plan for this Canadian broadcasting
neighbourhood will therefore contribute significantly to the orderly development of
this important telecommunications market segment and is fully responsive to the
requirements of the Canadian broadcasting community.
•
Reliable and Affordable Service in All Regions Section (7(b)): Telesat’s satellites
have always been designed to provide coverage of all regions of Canada, the far North
included. Indeed, for over 35 years Telesat has operated under a mandate to provide
satellite services to all parts of Canada, and especially to those areas where terrestrial
alternatives were unavailable or prohibitively expensive.
Telesat’s record for satellite service reliability and affordability is exceptional.
Telesat’s network service availability performance has consistently been above 99.9
percent, and in 2005 exceeded 99.99 percent. Similarly, Telesat’s transponder capacity
prices are amongst the lowest in the North American marketplace.
In this regard it should also be noted that DTH is an important market segment to
Telesat, with its two DTH customers Bell ExpressVu and Star Choice/Cancom
accounting for a significant portion of its total revenues. Retaining these service
providers is therefore extremely important to Telesat, and provides a strong incentive
for Telesat to keep its capacity prices reasonable and affordable.
Canada has always been Telesat’s core base of operations and most important market,
and this is not about to change. Telesat has no intention of risking its position in this
market, as would occur if it were to abandon its commitment and practice to being a
low-cost supplier of reliable satellite services to all areas of Canada.
- 31 November 15, 2006
•
ABRIDGED
Enhanced Efficiency and Competitiveness Section (7(c) & (f)): As indicated in the
Call, with the implementation of WTO obligations, many countries, including Canada,
have opened their satellite markets to domestic and foreign competition. The response
to the liberalization of the Canadian satellite marketplace has been swift, with another
satellite operator already awarded a Canadian BSS orbital position and more than
70 foreign satellites currently listed on Industry Canada’s List of Satellites Approved to
Provide Fixed-satellite Services (FSS) in Canada. Consolidation is also an on-going
trend in the satellite industry, with the world’s top three operators – Intelsat/PanAmSat,
SES Global and Eutelsat – having topped 1 billion dollars in annual revenues and
accounting for more than over 60 percent of global FSS industry revenues. Terrestrial
service providers also compete rigorously in all satellite markets, with their networks
increasingly expanding into rural areas of the country, the traditional market niche of
satellite operators.
Competitive market forces and the market disciplining effects these forces are expected
to promote (e.g., increased efficiency, expanded choice and functionality, etc.) are
therefore already much in existence in the satellite industry and having their desired
effect in Canada.
As also stated in the Call, the licencing process should foster the development of a
Canadian satellite infrastructure which allows Canadian satellite operators and service
providers to advance their service offerings in the domestic market, and to compete in
the larger market in the Americas, while recognizing the importance of delivering
reliable and affordable telecommunications and broadcasting services in all regions of
Canada, including the North.
Telesat has recognized the importance of delivering reliable and affordable service to
all regions of Canada; indeed, this has been Telesat’s primary mandate since its
inception. Telesat has also strived to advance its service offerings in the domestic
marketplace to the benefit of Canadian satellite service users, and to compete in the
much larger North American marketplace. However, Telesat is a relatively small
operator in the wide-open North American marketplace, and most of the competitors it
is facing are several times larger than Telesat both in terms of revenues and satellite
resources. To compete against these global satellite giants, Telesat must grow to take
advantage of similar scale and scope economies available to the larger satellite
operators, or it will be marginalized as a small Canadian operator.
This award process and access to additional spectrum is therefore vitally important to
Telesat and to Canada’s ability to retain a competitively strong and independent
Canadian satellite operator.
- 32 November 15, 2006
ABRIDGED
•
Promotion of Canadian Control and Facilities Use Section (7(d) & (e)): Telesat is
the only FSS/BSS satellite operator in the world that has a substantial physical presence
in Canada. This includes the vast majority of its 500+ employees, its headquarters and
R&D lab, the bulk of its satellite network monitoring and control facilities and
teleports, its major inventory and repair depot and almost all of its sales offices.
Telesat’s operations are spread across Canada. All major decisions concerning
Telesat’s satellites are made in Canada and all of its satellites are flown by satellite
controllers located in Canada. Canada also always been Telesat’s core market focus.
•
Stimulation of R&D and Innovation in Canada Section (7(g)): Telesat has an
exceptional record in introducing innovative new satellite technologies and services,
and has built and staffed a world-class R&D facility at its headquarters. These research
efforts have included the development of a wide range of leading-edge broadcast
technologies and applications, including Internet protocol TV (IPTV) delivery to
wireless fidelity (WiFi) hot spots and remote cable headends, advanced compression
systems for both HDTV and satellite digital television, a unique HDTV evaluation
facility, digital signage, electronic cinema and next-generation of digital video
broadcasting (DVB) broadcast systems. This on-going R&D work and expertise in
broadcast technologies was a key factor in Telesat’s selection to host the World
Broadcast Unions’ international interoperability testing of HDTV codecs over satellite,
in collaboration with the CBC and the CRC.
The strong North American competition Telesat is facing from other satellite operators
will provide a strong incentive for Telesat to continue this research work to distinguish
its service and remain at the leading edge with respect to new broadcasting services
and applications. However, while this research work has generated enormous public
benefits, it is commercially driven. New market opportunities for Telesat, made
possible as a result from the award of new spectrum resources such as the 17 GHz BSS
frequencies at the 86.5°, 82° and 72.5°WL positions, are therefore important to Telesat
and will help sustain Telesat’s innovative research efforts in this field.
3.1.4.2
General Canadian Requirements
•
Canadian Coverage
As illustrated in Figure 3.1.1-1, Telesat’s proposed 17 GHz BSS satellite to be
deployed at 86.5°WL would be designed to provide all-Canada coverage.
- 33 November 15, 2006
•
ABRIDGED
ITU Radio Regulations
As stipulated in section 6.2.1 of the Call, all proposed new and interim satellite
networks must comply with the operational and technical provisions contained in the
ITU Radio Regulations. Telesat is extremely knowledgeable of all aspects of these
Regulations as they pertain to satellite, and has operated its seven generations of Anik
and Nimiq satellites in full compliance with the Radio Regulations and all other
pertinent international agreements to which Canada is a party. Telesat has no difficulty
committing to operating its proposed 17 GHz BSS satellites in full compliance with the
operational and technical provisions contained in the ITU Radio Regulations.
•
Benefits for Underserved Communities
As stated in section 6.2.2 of the Call, one of the key components of Canada’s
commitment to connecting Canadians is the development and use of broadband and
communications technologies in all communities across Canada. It is further stated
that Canadian satellites are considered an essential element in advancing the goal of
broadband access to all Canadians, and, to this end, successful applicants will be
required to direct a minimum of 2 percent of the revenues resulting from the operation
of the satellite toward special initiatives aimed at supporting the development of
broadband access in, or providing other benefits to, underserved communities, as to be
determined in consultation with the Department.
With its experience in developing unique satellite solutions for the delivery of
advanced communications services to communities unserved by terrestrial
technologies, Telesat does not foresee any difficulty in meeting this requirement.
•
Other Anticipated Licence Conditions
Telesat has reviewed the list of conditions of licence set out in Section 7.5 of the Call
that will likely be imposed on the successful applicant for the 17 GHz BSS licence at
the 86.5°WL position. These conditions are very similar to the ones contained in other
Telesat orbital resource authorizations issued by the Department.
Telesat has consistently met all of these conditions in the operation of its other
satellites. Telesat therefore does not foresee any difficulties in meeting similar
conditions should it be the successful applicant for this new 17 GHz BSS authorization.
- 34 November 15, 2006
3.2
ABRIDGED
FINANCIAL PLAN
The second evaluation criterion against which the Department will assess applications
concerns the financial plan of the applicant.
3.2.1
Financial Qualifications
Telesat is well experienced in undertaking satellite construction programs and how these
activities place demands on a company’s financial resources. Telesat has demonstrated
through the procurement of 18 satellites to date (16 of which have been placed into orbit
and two of which are under construction) that it has the financial strength and flexibility,
the support of the financial community around the world, and the management expertise
required to effectively implement substantial capital expenditure programs. Telesat has
also paid close attention to protecting itself and its stakeholders against undue financial
risk. As a result of its unique expertise and proven technical success, Telesat is well
regarded in the insurance community. Such demonstrated financial strength and stability
will be essential to successfully procure and launch new satellites as outlined in this
application as well as the concurrent applications Telesat is filing.
3.2.2
Financing
Telesat has substantial assets (in excess of $1.6 billion) and an established revenue base.
Furthermore, Telesat’s existing capital structure is well diversified. Telesat’s capital
structure has included private and public debt, preferred shares, and common shares. Other
sources of financing for Telesat include its customers, through prepayment arrangements
for satellite capacity, and satellite and launch services vendors, through deferred milestone
payment programs.
Telesat’s common shares are indirectly 100% owned by BCE Inc. BCE, together with its
subsidiaries and associated companies, is Canada’s largest telecommunications company.
In February 2006, BCE announced its intention to conduct an initial public offering (IPO)
for a portion of Telesat’s shares. Although it is unclear at this time what changes, if any,
will be made to Telesat’s capital structure, the fiscal prudence and financial management
principles are expected to remain an integral function of its ongoing operations.
- 35 November 15, 2006
ABRIDGED
Telesat has earned a BBB- corporate credit rating from Dominion Bond Rating Service
Limited (DBRS) and Standard & Poor’s (S&P) Ratings Group, a division of McGraw Hill
Inc. Companies with a credit rating of BBB- or better qualify as investment grade credits,
and benefit from lower borrowing rates and greater market accessibility than
non-investment-grade companies. Telesat is a public debt reporting issuer.
Telesat has a $165 million revolving credit facility, with an “accordion” feature step-up to
$250 million, with a syndicate of foreign and Canadian chartered banks. The facility is
unsecured and ranks pari passu with Telesat’s other unsecured debt. This facility expires
in June 2009.
Telesat has shown it is resourceful and creative in its approach to financing. For example
through customer prepayments and supplier financing, Telesat has decreased its overall
financing requirements and reduced its exposure to risk.
While leverage and other financial ratios are important in evaluating the credit worthiness
of a company, the credibility of senior management within the financial community is also
a key determinant. Telesat is recognized as a world leader in the satellite communications
and systems management industry. This leadership has been recognized by the financial
community and is reflected in Telesat’s dealings with financial markets, rating agencies,
insurance underwriters and the banking community.
Over the past five years, Telesat has invested over $1.5 billion in capital programs while
retaining a strong financial position. Telesat currently has sufficient cash flow, customer
prepayment commitments, and existing credit facilities to complete the launch of Anik F3
and the construction of Nimiq 4, and subject to Board approval, the construction of the
Nimiq 5 satellite.
Telesat’s estimated capital investment requirement for the BSS1 satellite is $305 million.
Revenue and expense projections related to the project are included in the Business Plan.
There are a number of options available for the financing of this satellite project. Firstly,
with Bell ExpressVu as an anchor tenant, Telesat will require a substantial revenue
prepayment, and expects to secure commitments in excess of $50 million. Appendix 3
contains a letter of commitment and support from Bell ExpressVu.
- 36 November 15, 2006
ABRIDGED
Over $300 million of cash reserve is already contracted in each of 2007, 2008, 2009,
2010 and 2011. Further, Telesat is currently generating strong and predictable cashflows of
approximately $200 to $250 million per year which is available for reinvestment.
Typically, Telesat will acquire a modest amount of debt financing during the construction
program of a satellite and repay this debt during the early years after the satellite enters
service. Incremental debt financing should be available, since Telesat’s debt-tocapitalization has averaged 17 percent over 2004 and 2005, in an industry where it is not
uncommon for this ratio to approach 70 percent.
Until August 2006, Telesat maintained a series of preferred shares which were valued at
$50 million. These were recently repurchased and there are no preferred shares existing at
this time.
Telesat’s business proposal for this BSS1 satellite project is built on its extensive
knowledge of the satellite business, its intimate knowledge of Canadian satellite users’
needs, and its track record of over 35 years of Canadian operational experience. This
familiarity and understanding of the Canadian market is unmatched by any other company,
and Telesat is confident of its ability to implement this proposal.
The five year forecast of Telesat’s revenues, operating expenses, and cost of equipment
sales is detailed in Table 3.2.2-1. Telesat does not produce a forecast for periods exceeding
five years. This forecast reflects Telesat as it currently stands, and includes the launch of
Anik F3 and the construction of the Nimiq 4 and Nimiq 5 satellites. Satellites to be built as
a result of authorizations awarded pursuant to this Call for Applications are not included in
this forecast.
Financial statements for Telesat and BCE covering the years 2003 to 2005 inclusive are
provided in Appendices 4 and 5.
Table 3.2.2-1
Telesat Five-Year Revenue and Expense Projections ($
millions)
2006
2007
2008
2009
2010
2011
Revenues
$468
$558
$637
$680
$768
$765
Operating Expenses
$168
$190
$213
$216
$230
$243
Cost of Eqpt. Sales
$29
$36
$43
$48
$37
$37
$271
$332
$381
$416
$501
$485
EBITDA
- 37 November 15, 2006
3.3
TECHNICAL PLAN
3.3.1
Introduction
ABRIDGED
The third evaluation criterion against which the Department will assess applications is the
technical plan of the applicant. Telesat’s application features a flexible yet low risk design
that will provide capacity to serve the introduction of new broadcasting technologies and
expansion in the number of signals made available to the Canadian public by the
broadcasters.
The spacecraft will carry 32 powerful transponders using the 17 GHz BSS spectrum on the
downlink with a proposed coverage of Canada and the U.S., with coverage switchable on a
transponder-by-transponder basis. It is anticipated that capacity will be required first by
Canadian broadcasters and enterprises but this spacecraft will have the flexibility to offer
U.S. customers any surplus remaining capacity, once the Canadian demand has been
satisfied.
3.3.2
Satellite Features
3.3.2.1
Overview
The key features of the proposed satellite are summarized in Table 3.3.2-1 below.
Table 3.3.2-1
Baseline Configuration
Frequency Bands
Basic features of the Proposed Satellite
Single payload using 17 GHz BSS spectrum and associated FSS
feederlink. Separate coverage of Canada and U.S.
24.75 – 25.25 GHz uplink
17.3 – 17.8 GHz downlink
Orbital Position
86.5°West Longitude
Payload
32 transponders of 24 MHz using TWTAs of 150W
Two independent downlink coverage areas:
Geographical Coverage
•
Canada only
•
Continental U.S.
Network Connectivity
Broadcast
Program Schedule
30 months
- 38 November 15, 2006
ABRIDGED
3.3.2.2
The payload is designed to support broadcast services such as HDTV to rural and remote
communities. The configuration will be very simple and low risk, referred to as bent pipe
configuration, similar to the Nimiq series. The payload will have a total of 32 transponders
powered by 150 Watts (W) Traveling Wave Tube Amplifiers (TWTAs), providing
excellent coverage of Canada and separately to the U.S., as shown in Figures 3.3.2-1 and
3.3.2-2 for the downlink. A common receive pattern is provided on the uplink as shown in
Figure 3.3.2-3. A G/T of a minimum of 4 dB/K is planned for two hot spots in southern
Ontario/Quebec and in British Columbia.
As for the downlink coverage of Canada, an Effective Isotropic Radiated Power (EIRP) of
54 dBW is available over the Eastern and Western parts of Canada, reaching more than 80
percent of the Canadian population. As for the U.S. coverage, the majority of the power is
concentrated in the South-East, where the rain fade is more pronounced. Again an EIRP of
54 dBW is achieved over that area.
Canadian consumers will enjoy superior signal availability due to the high directivity of the
2.4m antennas on the satellite and the powerful transponders.
SATSOFT
9.00
44
8.00
49
52
44
54
7.00
49
52
54
52
49
6.00
44
5.00
4.00
3.00
-5.00
-4.00
-3.00
-2.00
Figure 3.3.2-1
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
Transmit Coverage of Canada
- 39 November 15, 2006
ABRIDGED
SATSOFT
9.00
8.00
49
7.00
51
51
49
54
53
52
6.00
52
5.00
52
51
53
54
52
49
4.00
3.00
-5.00
-4.00
-3.00
-2.00
-1.00
Figure 3.3.2-2
0.00
1.00
2.00
3.00
4.00
5.00
Transmit Coverage of U.S.
SATSOFT
9.00
-5
8.00
4
7.00
0.50
4
0.50
6.00
-5
5.00
0.50
-5
4.00
3.00
-5.00
-4.00
-3.00
-2.00
-1.00
Figure 3.3.2-3
0.00
1.00
2.00
3.00
4.00
5.00
Receive Coverage
- 40 November 15, 2006
ABRIDGED
3.3.3
3.3.3.1
The network will be configured for broadcast applications similar to that implemented
today by Bell ExpressVu on the Nimiq 1 and Nimiq 2 satellites. The spacecraft receive
coverage will allow one or more uplink stations in Canada or the U.S. The uplink signals
will be amplified on-board the spacecraft and transmitted to users across Canada or the
U.S., depending upon the downlink beam selection.
3.3.3.2
The satellite is designed to operate with one or more broadcast uplink stations, transmitting
circularly polarized signals in the 24.75-25.25 GHz band. An uplink station consists of
facilities (the building, fibre access, power and environmental subsystems) and the
communication system (antenna, Radio Frequency (RF) transmitters and converters, and
baseband subsystems).
All subsystems are connected to an advanced network management system that provides
monitoring and control functions, automatic redundancy control, uplink power control, and
alarm notifications. Additional uplink sites may be constructed to allow for increased
uplink availability through site diversity. The uplink station(s) will use relatively large
transmit antennas, typically 5.6m or more. Either Telesat or Bell ExpressVu may design,
construct and operate the broadcast uplink station(s).
3.3.3.3
Telesat’s 17 GHz BSS design is based on the existing subscriber terminal currently
deployed for the Bell ExpressVu service. The existing 12 GHz BSS subscriber reflector
would be replaced or retrofitted with the appropriate feed assembly to receive the 17 GHz
BSS signals in addition to 12 GHz BSS signals. This would permit Bell ExpressVu to incur
minimal upgrade costs to expand into the 17 GHz BSS band while maintaining
performance comparable to the current configuration. User terminal considerations
underlie Bell ExpressVu’s preference for the 86.5°WL orbital location. The resulting
geometry facilitates a user terminal that also receives 12 GHz BSS signals from the 91° and
82°WL orbital locations.
- 41 November 15, 2006
ABRIDGED
3.3.3.4
Bell ExpressVu will select the modulation and coding techniques, for example, a standard
DVB-S1 system, or a proprietary Turbo-Coded system. The DVB-S1 system supports
Multi-Channel Per Carrier (MCPC) mode on a QPSK-modulated, Concatenated ReedSolomon (204,188) and Viterbi, selectable-R1/2, R2/3, R3/4, R5/6 and R7/8 Forward Error
Correction (FEC) scheme. An alternative system would supports MCPC mode on an
8PSK-modulated and Turbo-Coded signal. Both compression systems would support
statistical multiplexing mode to increase picture quality and maximize throughput within
each channel.
3.3.3.5
Effective rain fade mitigation techniques are important to consider for satellite systems
using frequencies above 10 GHz. The proposed system will incorporate mitigation schemes
in the payload as well as on the ground, as follows:
1. Automatic Level Control (ALC) will be used on board the satellite to maintain constant
downlink levels to the small user antennas over a considerable range of uplink fade
conditions.
2. The broadcast uplink stations may incorporate Uplink Power Control (UPC) capability.
3.3.3.6
Sample representative link budgets are provided based on the following assumptions:
1. Adjacent satellite interference (ASI) calculations assumed first and second adjacent
interfering networks located 4 degrees and 8 degrees from the wanted satellite
respectively, with homogenous uplink and downlink power density (psd) values. The
actual ASI environment will be determined once frequency coordination has been
completed with neighbouring operators other than Telesat.
- 42 November 15, 2006
ABRIDGED
2. The uplink rain attenuation and down link degradation were computed using the ITU
method as contained in the ITU-R Recommendation P.618-7. The rain height values
were read from the matrix map provided in the ITU Recommendation. The uplink
attenuation depends on frequency, earth station location (longitude, latitude and
altitude), satellite position, polarization, rain statistics and the required link availability.
In addition to the rain attenuation calculated using the ITU method; the degradation in
G/T due to the increase of system noise temperature in the earth station due to rain fade
was computed.
3. It has been assumed for the purpose of margin and availability calculations that the
required threshold C/N is 7.4 dB. This is consistent with a DVB-S1 QPSK R3/4
design.
Table 3.3.3-1
Representative Link Budgets for 17 GHz BSS Satellite Network
Link 1
Link2
Link3
Link4
Uplink City
Toronto
Toronto
Toronto
Toronto
Downlink City
Windsor
St. John's
Edmonton
Vancouver
-86.5
-86.5
-86.5
-86.5
deg.E
Clear Sky Uplink EIRP Req'd
80.16
80.16
80.16
80.16
dBW
Uplink Antenna Diameter
5.60
5.60
5.60
5.60
metre
Uplink Antenna Gain
60.80
60.80
60.80
60.80
dBi
Uplink Frequency
25.000
25.000
25.000
25.000
GHz
Uplink Path Loss
212.0
212.0
212.0
212.0
dB
Uplink Atmosp Abs
0.40
0.40
0.40
0.40
dB
Satellite G/T
4.0
4.0
4.0
4.0
dB/K
Satellite SFD
-87.0
-87.0
-87.0
-87.0
dBW/m2
Transponder IPBO
0.00
0.00
0.00
0.00
dB
Saturated EIRP
53.00
55.00
53.00
53.00
dBW
Transponder OPBO
0.00
0.00
0.00
0.00
dB
Wanted Sat Longitude
Units
UPLINK
TRANSPONDER ANALYSIS
- 43 November 15, 2006
Table 3.3.3-1
ABRIDGED
Representative Link Budgets for 17 GHz BSS Satellite Network
Link 1
Link2
Link3
Link4
Units
Downlink Frequency
17.550
17.550
17.550
17.550
GHz
Downlink Path Loss
209.3
209.3
209.3
209.3
dB
Downlink Atmosp Abs
0.3
0.3
0.3
0.3
dB
RCVR Ant Ptg Loss
0.5
0.5
0.5
0.5
dB
RCVR Term Ant Size
0.51
0.51
0.51
0.51
metre
RCVR Antenna Gain
37.2
37.2
37.2
37.2
dBi
Receive Terminal G/T
15.5
15.5
15.5
15.5
dB/K
7.4
7.4
7.4
7.4
dB
(C/N)up - Thermal
23.17
23.17
23.17
23.17
dB
(C/N)dn - Thermal
13.96
15.96
13.96
13.96
dB
(C/I)up ASI
37.71
37.71
37.71
37.71
dB
(C/I)up X-pol
26.99
26.99
26.99
26.99
dB
(C/I)dn ASI
21.60
21.60
21.60
21.60
dB
(C/I)dn X-pol
21.03
21.03
21.03
21.03
dB
(C/I)Tot
17.58
17.58
17.58
17.58
dB
(C/N + I)sys - Total
12.04
13.22
12.04
12.04
dB
Clear Sky System Margin
4.63
5.81
4.63
4.63
dB
Uplink Avail
99.9286
99.9348
99.9272
99.9271
%
Downlink Avail
99.7528
99.9126
99.8517
99.7801
%
Total Avail
99.6816
99.8474
99.7790
99.7073
%
DOWNLINK ANALYSIS
PERFORMANCE ANALYSIS
Required C/N
PERFORMANCE ANALYSIS
[CLEAR SKY]
- 44 November 15, 2006
ABRIDGED
3.3.4
The spacecraft will be designed to use 500 MHz of spectrum: 24.75 to 25.25 GHz in the
earth-to-space direction and 17.3 to 17.8 GHz in the space-to-earth direction. A two-fold
frequency re-use will be achieved through the use of orthogonal circular polarization. The
frequency plan is shown as Figure 3.3.4-1. It is based on the existing Region 2 12 GHz
BSS frequency plan, having channel width of 24 MHz with a spacing of 5.16 MHz. This is
to facilitate subscriber terminal design. The odd channels will utilize Right-Hand Circular
Polarization (RHCP) on the uplink and downlink, and the even channels will use the LeftHand Circular Polarization (LHCP). It is planned to locate the Telecommand and
Telemetry frequencies in the lower band of the spectrum using LHCP, as shown in the
Figure 3.3.4-1.
17 GHz BSS Uplink
24. 75 GHz
25. 25 GHz
500MHz
12.0
26. 6
24
24774.00
RHCP
24803.16
T1
24832.32
T3
T5
T2
LHCP
24876.06
24948.96
T11
T8
24846.90
24919.80
T9
T6
24817.74
24890.64
T7
T4
24788.58
24861.48
24978.12
T13
25007.28
T15
25036.44
T17
25065.60
T19
25094.76
T21
25123.92
T23
25153.08
T25
25182.24
T27
25211.40
T29
T31
T10
T12
T14
T16
T18
T20
T22
T24
T26
T28
T30
T32
24905.22
24934.38
24963.54
24992.70
25021.86
25051.02
25080.18
25109.34
25138.50
25167.66
25196.82
25225.98
26.58
12.02
5. 16
17 GHz BSS Downlink
17. 30 GHz
17. 80 GHz
500MHz
12. 0
26. 6
24
17324.00
RHCP
17353.16
T1
T3
T2
LHCP
17382.32
17338.58
17411.48
T5
T4
17367.74
17440.64
T7
T6
17396.90
26.58
17469.80
17498.96
17528.12
17557.28
17586.44
17612.60
17644.76
17673.92
17703.08
17732.24
17761.40
T11
T13
T15
T17
T19
T21
T23
T25
T27
T29
T31
T9
T8
17426.06
T10
T12
T14
T16
T18
T20
T22
T24
T26
T28
T30
T32
17455.22
17484.38
17513.54
17542.70
17571.86
17601.02
17630.18
17659.34
17688.50
17717.66
17746.82
17775.98
5. 16
12.02
LO Frequency
: 7450MHz
All frequencies in MHz
, unless stated otherwise
Figure 3.3.4-1
17 GHz BSS Frequency and Polarization Plan
3.3.5
The spacecraft will have a single payload using the 17 GHz BSS spectrum. Having
32 active transponders of 150 W will bring the total spacecraft direct current (DC) power
consumption to approximately 10.9 kW at the end-of-life (EOL), including 7.5% of margin
for insurance purposes. The total mass is expected to be 1,655 kg.
- 45 November 15, 2006
ABRIDGED
This size of spacecraft is considered medium to large with a minimum of five
manufacturers having the required platform to satisfy the payload mass and power
requirements. The spacecraft will be designed for a service life of 15 years. The
program is expected to take 30 months from contract signature to in-orbit delivery.
3.3.5.1
3.3.5.1.1
The payload will have a single receive coverage of North America from the use of a 1.2m
offset reflector, as shown in Figure 3.3.5-1, allowing transmit stations to be located
anywhere within the landmass covered with a minimum G/T of 0 dB/K. On the transmit
side, two independent coverage areas, one for Canada and one for the continental U.S.
(CONUS), will be formed using two 2.4m reflectors for each footprint. Due to the
high power of the payload, it is preferable to transmit only 16 channels per reflector. This
also reduces the possibility of having multipath interference within the payload.
A functional block diagram is shown as Figure 3.3.5-1. Having only one receive coverage
simplifies the receive end design, with a redundancy of 4 for 2 receivers/downconverters.
It should be noted that this feeder-link spectrum has not been used before; and therefore
units operating in the 24.75 to 25.25 GHz range will have to be space qualified through a
stringent qualification process. After filtering through the input multiplexers, the signals
will be amplified, linearized and directed to a set of switches before being again filtered
and transmitted to the appropriate coverage. A total of 32 additional switches are located
between the final redundancy ring and the output multiplexers. These allow the redirection
of any channel to any transmit coverage, on a channel-by-channel basis, offering flexibility
to meet changing demands.
- 46 November 15, 2006
ABRIDGED
Tx BSS
Canadian Coverage
2.4 m Antenna
8 Ch. LHCP
Output
Muxes
Can.
8 Ch. LHCP
150W
US
OMT
8 Ch. RHCP
22 for 16
OMT
8 Ch. RHCP
LTWTAs
R e dun da nc y S wi tc h es
Channel
Amplifiers
R e du n da ncy S wit ch es
Receivers
4 for2
8 Chan. RHCP
Rx BSS
NA Coverage
1.2 m Antenna
8 Chan. LHCP
Input
Muxes
8 Ch. LHCP
OMT
Can.
OMT
US
8 Ch. RHCP
8 Ch. LHCP
150W
8 Ch. RHCP
22 for 16
R e d un d a nc y S wi tc h es
R e d un d a nc y S wi tc h es
8 Chan. RHCP
8 Chan. LHCP
OMT
Tx BSS US
Coverage
2.2 m Antenna
Figure 3.3.5-1
17 GHz BSS Payload Functional Block Diagram
With this payload design, it is also possible to add additional hardware to combine two
TWTAs and offer approximately 2.7 dB of added power per channel, operating in boost
mode. In this case, the number of operating channels is reduced to 16 from 32.
3.3.5.1.2
A summary of the mass and DC power budgets of the spacecraft is shown in Table 3.3.5-1.
Table 3.3.5-1
Dedicated 17 GHz BSS
32-Ch Payload
Spacecraft
Spacecraft Mass and Power Budget
Mass
Power
(kg)
(kW)
315
1655
8.5
10.9
- 47 November 15, 2006
ABRIDGED
With a mass of 1,655kg and a power consumption of 10.9kW at the end-of-life (EOL), this
spacecraft is considered to be medium to large in size and well within the limits of the four
major manufacturers’ platform capabilities, as shown in Figures 3.3.5-2 and 3.3.5-3. In
terms of active transponders, there is considerable room for growth.
Spacecraft EOL Power
30
EOL Power (kW)
25
20
15
10
5
0
Star II
SB4000
FS1300
E3000
BSS601HP
A2100AX
17 GHz BBS
Spacecraft Platform
Figure 3.3.5-2
Spacecraft DC Power Capability Comparison
Accommodation of Active Transponders
160
Number of Active Transponders
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
Star II
SB4000
FS1300
E3000
BSS601HP
A2100AX
17 GHz BBS
Spacecraft Platform
Figure 3.3.5-3
Active Transponders Accommodation Comparison
- 48 November 15, 2006
ABRIDGED
Table 3.3.5-2 shows the compatibility with existing launch vehicles. Telesat requires that
the spacecraft be compatible with all launch vehicles within its class. In addition, the
selected manufacturer must ensure that the spacecraft can be launched on a minimum of
two launchers in the event that a major delay occurs in the schedule of the selected launch
vehicle. In the case of this spacecraft, a minimum of five launch vehicles are available.
Table 3.3.5-2
Compatible Platform
Launch Vehicle Compatibility
Compatible Launch Vehicle
A2100AX
Ariane 5, Atlas V, Proton, Land Launch, Sea Launch
Eurostar 3000
FS1300
Spacebus 4000
3.3.6
Telesat has a worldwide reputation for excellence in the way in which it manages a satellite
program, as evidenced by the success of its own satellite programs and the considerable
demand for its consulting expertise. The satellite program typically starts with the
preparation of a Request for Proposal (RFP) for the spacecraft and associated ground
equipment; and continues through to the satellite end-of-life. This section outlines the
procurement cycle for the 17 GHz BSS satellite to be launched into 86.5°WL, up to handover for commercial operations. Awarding the licence to Telesat to develop the 86.5°WL
orbital position will give Industry Canada the assurance of meeting the in-service date
established in the Call for Applications. No other operator has such an enviable track
record of satellite program performance.
3.3.6.1
Telesat has a well-established procedure for preparing and releasing an RFP to the space
industry for the procurement of a communications satellite. Typically, the process takes six
to eight weeks to complete. The RFP consists of the following documents:
- 49 November 15, 2006
ABRIDGED
•
Instructions to Bidders, which is generic and outlines guidelines regarding the
bidding process.
•
Attachment 1 – Statement of Work (SOW), also generic but tailored to the specific
spacecraft design.
•
Attachment 2 – Spacecraft Performance Requirements. This document outlines the
spacecraft specification. Due to its complexity it is divided into three parts: the Satellite
Systems Performance Requirements, the Communications Subsystem Performance
Requirements, and the Bus Performance Requirements. In addition, this document also
defines the Space Environment in which the spacecraft must operate and the Launch
Vehicle Interface Requirements.
•
Attachment 3 – Spacecraft Performance Verification Requirements outlines
guidelines that the manufacturer must apply in order to verify that the spacecraft meets
the performance requirements of Attachment 2. The verification requirements are
specified for the spacecraft system, the payload and the platform.
•
Attachment 4 – Spacecraft Product Assurance Requirements are generic in nature,
ensuring that the manufacturer establishes and manages a Product Assurance Program
to ensure the overall quality and reliability objectives of the hardware and software are
achieved.
•
Attachment 5 – Satellite Control and Operations Requirements, which define
Telesat’s requirements for technical information, documentation and data, and satellitespecific equipment deliverables from the supplier needed for implementation of the
satellite control facility and operation of the satellite.
•
Attachment 6 – Satellite Control and Operations Product Assurance
Requirements describe the guidelines to be implemented by the manufacturer to
ensure that the quality and maintainability objectives of ground hardware and software
are achieved.
•
Attachment 7 – Pro Forma Contract Terms and Conditions. This document forms
the basis for contract negotiations. It becomes the main contractual document after
negotiations.
•
Attachment 8 – Price Proposal Format describes how the financial information
should be presented along with a breakdown of the information.
After negotiations, Attachment 7 becomes the formal contract and Attachments 1 to 6
become contractual documents. The Instructions to Bidders and Attachment 8 are
discarded since they are used only for the pre-contract phase.
- 50 November 15, 2006
ABRIDGED
3.3.6.2
3.3.6.2.1
The Instructions to Bidder require that the proposal be submitted in a well defined format,
made-up of five separate parts:
•
Executive Summary
•
Part A – Technical
•
Part B – Program Management
•
Part C – Price
•
Part D – Compliance
Telesat creates two evaluation teams; one technical and one commercial. The technical
team does not have access to the price proposal, in order to ensure that the technical team is
not influenced by commercial consideration. Typically, the bid evaluation phase lasts three
to four weeks, depending of the complexity of the spacecraft. During the first week, the
teams will make a quick assessment of the proposals to determine the overall compliance,
the major risk areas and any omissions. A first round of questions to the bidders will
follow, if necessary, along with an in-depth evaluation by each specialist. At the end of the
evaluation phase, the number of bidders will be reduced to two who will be invited to
Telesat to take part in a first round of negotiations. From these negotiations, one bidder
will be selected for the final negotiations and contract signature.
This process has been used for in-house and consulting programs and has proven to be very
effective.
3.3.6.2.2
To obtain a commitment from the satellite contractor on delivery, Telesat includes a
liquidated-damages provision. Should the satellite be delivered later than the contractual
delivery date, the contract price would be reduced by a pre-agreed amount.
- 51 November 15, 2006
ABRIDGED
Telesat also has provisions in its satellite contracts allowing termination of the contract in
the event that the contractor fails to meet pre-agreed defined events within a specific
period. Payment milestone requirements of the contract also encourage adherence to the
delivery schedule. Telesat will make milestone payments to the contractor only as program
milestones are achieved, in accordance with the Statement of Work.
Telesat contracts specify monitoring by Telesat of all the key aspects of the spacecraft
development, manufacture, integration and test. This enables early identification of
potentially serious engineering or schedule problems and ensures that corrective actions are
taken to minimize the impact on performance and schedule.
3.3.6.3
3.3.6.3.1
Based on the Nimiq programs, Telesat will request a 30 month program for the on-orbit
delivery. Telesat will allow for the launch to be two months after the projected spacecraft
completion date for contingency. Following delivery to the launch site there will be an
additional month for the launch campaign and a further one month for the mission and inorbit testing (IOT). The resulting top-level schedule for the 17 GHz BSS satellite at
86.5°WL is shown in Table 3.3.6-1.
- 52 November 15, 2006
Table 3.3.6-1
ABRIDGED
Program Milestones
Telesat will take all necessary steps to ensure on-orbit delivery of the satellite as early as
possible.
3.3.6.3.2
The Telesat Program Manager will be appointed following the completion of the proposal
review and upon selection of a contractor for negotiations. The Program Manager is
responsible for regular contact with the contractor's Program Manager, and also coordinates
the activities of the Telesat team at the manufacturer's site and Telesat's headquarters.
In Telesat's experience, the most cost-effective approach to satellite monitoring is to have
bus and payload experts permanently on-site at the manufacturer's facilities, supported by
experts from headquarters, as required for key events. These Resident Engineers, by
focusing on areas of spacecraft design, manufacturing, assembly and test, performance,
reliability, product assurance and schedule, ensure that the contractor carries out its
contractual obligations.
- 53 November 15, 2006
ABRIDGED
3.3.6.3.3
Telesat will arrange for a Preliminary Design Review (PDR) to be held within the first four
months of the program and a Critical Design Review (CDR) to be held within twelve
months of the start of the program. The Telesat engineering team will review the design
data provided up to the PDR, as well as the PDR data packages, to ensure compliance with
the performance requirements and to identify any risk areas. The progress of the design
and procurement will be closely monitored up to the CDR and any issues identified will be
added to the CDR agenda. Key specialists in each of the subsystem areas will participate in
the design reviews, raising issues and action items as required.
3.3.6.3.4
Telesat will monitor and review all the pertinent fabrication, assembly and test operations
at unit level for the antennas, transponders, batteries, solar panels, power electronics,
telemetry and command electronics, thermal control system, attitude control system,
propulsion system, structures and mechanisms. During the payload integration, Telesat
will monitor and review all test data to ensure that the payload performance meets the
contractual requirements. Telesat will also monitor the spacecraft-level integration and test
program including pre-environmental system performance tests, environmental testing,
post-environmental testing, and range testing.
Telesat will also participate in all the contractor status reviews, test readiness reviews, test
data reviews, and any technical reviews related to anomalies or problem resolution. This
active participation allows early identification of performance issues and allows Telesat to
work closely with the contractor in problem resolution.
3.3.6.4
3.3.6.4.1
Telesat will monitor the launch vehicle progress throughout the spacecraft build program
and will participate in all interface meetings between the spacecraft contractor and launch
agency up to the launch date. When the spacecraft is shipped to the launch site, a Telesat
technical team will accompany it to a field office at the launch site. The Telesat team will
monitor the final spacecraft integration, fueling, mating to the launch vehicle, and all
combined operations.
- 54 November 15, 2006
ABRIDGED
3.3.6.4.2
Telesat will participate in all mission planning activities and mission rehearsals. Telesat
will also provide a team to monitor the transfer orbit mission between the time of
separation from the launch vehicle to achieving the geostationary orbital location of
86.5°WL.
3.3.6.4.3
Telesat defines the In-Orbit Test (IOT) requirements in the contract. Acceptance of the
spacecraft by Telesat will occur upon successful completion of the IOT. The bus testing
will be performed from the contractor's facility, whereas the payload testing will be
performed from Telesat's Allan Park facility using Telesat equipment. The Telesat team
monitors the contractor's preparations for IOT, reviews the IOT plan and procedures, and
participates in the actual tests.
3.3.7
Telesat has a division of experienced engineering staff dedicated to satellite coordination
and ITU activities and is active in both domestic and international coordination of its earth
stations.
The design of the 17 GHz BSS satellite to be located at the 86.5°WL orbital position has
been carefully considered to ensure full compliance with the ITU Radio Regulations, and in
particular with Article 22, and with the domestic regulations. The feeder link stations
operating in the FSS frequency band (24.75-25.25 GHz) will operate in compliance with
footnote No. 5.535 of the ITU Radio Regulations and footnote C44 of the Canadian Table
of Frequency Allocations (May 2005).
Telesat is confident that, based on the network design described in this application, it will
be possible to reach coordination agreements with the other satellite operators and
administrations, as required.
- 55 November 15, 2006
ABRIDGED
The gateways and other earth stations associated with the satellite at the 86.5°WL orbital
position will be frequency coordinated in accordance with Industry Canada’s Procedure for
the Submission of Applications to License Fixed Earth Stations and to Approve the use of
Foreign Fixed Satellite Service (FSS) Satellites in Canada (CPC-2-6-01).
3.4
TELESAT’S COMPETENCIES
3.4.1
Overview of Telesat’s Record – A History of Commitment and Achievements
The fourth stated criterion against which the Department will assess applications concerns
the applicant’s ability to implement and sustain their proposed business and technical plans.
To this end, the Call stipulates that applicants are required to demonstrate that they have a
proven track record in technical, operational and institutional competencies necessary for
the proposed project, or provide a well developed plan to illustrate how they intend to
acquire and maintain these competencies.
As demonstrated in this section, Telesat has a long and very distinguished track record in
bringing state-of-the-art broadcast distribution and telecommunications services to all areas
of Canada, the far North included. Indeed, with more than 35 years in satellite
communications and systems management and a thriving domestic and international
business, Telesat is both an early pioneer and an influential innovator operating at the
forefront of the satellite communications industry. Few, if any, existing satellite operators
– and certainly no new entrants or start-up ventures – come close to matching Telesat’s
proven record and ability to excel in satellite service delivery and dependability. Nor do
any offer the same range and depth of end-to-end satellite communications services or the
wealth of experience and expertise that Telesat has acquired over the past three-plus
decades in serving the unique and challenging requirements of Canadian satellite users
across all areas of the country.
Telesat was created in 1969 by an Act of Parliament (“The Telesat Canada Act”) and given
a mandate to provide satellite services to all parts of Canada, and especially to those areas
where terrestrial alternatives were unavailable or cost prohibitive. Telesat’s first order of
business was to make it possible for Canadian broadcasters (e.g., the CBC) and other
telecommunications carriers (e.g., Bell Canada/NWTel) to extend their television and
telephony services to Canada’s North and other remote regions through satellite links to the
rest of Canada.
- 56 November 15, 2006
ABRIDGED
Telesat accomplished this task in short order with the launch of its first satellite, Anik A1,
in 1972, and in the process gave Canada the twin distinctions of being the first country in
the world to place a commercial domestic communications satellite into geostationary orbit
and to have a national satellite television broadcasting system.
Over the years Telesat has built on this Northern/remote area commitment. For example,
Telesat’s northern service coverage has proven extremely beneficial to Canada in
maintaining sovereignty over this vast, largely unpopulated region of the country, and to
the overall defence of North America in supporting the North Warning System. With
Telesat’s recently introduced Ka-band service, Canadians in northern and all other remote
regions of Canada now also have access to a direct-to-customer high-speed Internet service,
with performance and prices comparable to what is available to their southern, urban-based
counterparts through terrestrial technologies. This reach into remote areas also extends to
marine vessels operating off Canada’s shores, which now can also enjoy reliable highspeed Internet access and other advanced communications services through Telesat satellite
links and services.
1973
2006
¾ 37 communities provided CBC & telephone
service
Figure 3.4.1-1
¾
virtually all Canadian TV viewers watch
signals carried on Anik/NIMIQ satellites
¾
2.6 million DTH subscribers
¾
advanced information & telephony services
provided to business & government
customers
¾
ubiquitous satellite high-speed Internet
service
Telesat’s Service Expansion in Canada 1973-2006
- 57 November 15, 2006
ABRIDGED
Unique in the industry, Telesat also made an early commitment to be an end-to-end satellite
solutions provider. As depicted in Figure 3.4.1-2, this full range of satellite services
extends from space segment capacity, to network management and gateway operation, to
user terminals sales, installation and maintenance, applications development, and satellite
consulting and procurement. With Telesat, customers have the benefit of one-stop
shopping and, perhaps more importantly, the knowledge that they are dealing with an
operator who understands all aspects of satellite communications and who can provide
them with a satellite solution that will be comprehensive and optimally tailored to their
unique requirements, based on the full range of space and ground segment technologies.
Satellite
Capacity
Network
Management
Gateways&
Teleports
• Space Segment• Network Operations •
Capacity
• Systems Engineering •
• Efficient use of• T raffic Planning
spectrum
• Capacity Management
• Full period and• End - To- End visibility •
occasional use • Network availability
•
Figure 3.4.1-2
RF uplinks
•
Digital Interfaces •
- Broadcast
•
- Enterprise
•
Internet/
•
terrestrial access
User
Terminals
Applications
Sales
• Integration •
Installation
activities
Operations • Service
•
Maintenance
development •
Repair
• R&D
Satellite
Consulting
Feasibility
Studies
Procurement
Construction
& Launch
Customer
operations and
monitoring
Scope of Telesat’s Business Operations
New technology development and innovative service design and delivery is another critical
element of Telesat’s commitment to excel at meeting its customers’ unique requirements.
To assist in this endeavour, Telesat operates a leading-edge Research & Development Lab
in Ottawa for the evaluation and demonstration of next-generation satellite services.
Telesat has also partnered with a wide variety of private and public sector groups, including
equipment manufacturers, software developers, other service providers and satellite service
users, business and community groups, and government agencies and departments, in the
development, test and trial of many new service applications.
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Examples of recent joint R&D initiatives include the development and testing of the latest
Ka-band technologies and systems for high-speed Internet access to consumers and
enterprise, cutting-edge telemedicine services, multimedia communications to ships,
remote security and surveillance systems, and broadband communications links through the
world’s first digital, regenerative on-board processor. Telesat has also directed its research
efforts towards the development and refinement of a wide range of leading-edge broadcast
technologies and applications, including Internet protocol TV (IPTV) delivery to wireless
fidelity (WiFi) hot spots and remote cable headends, advanced compression systems for
both high-definition television HDTV and satellite digital television, a unique HDTV
evaluation facility, digital signage, electronic cinema, and the next-generation of digital
video broadcasting (DVB) broadcast systems.
As depicted in Table 3.4.1-1, because of its heavy involvement in R&D initiatives of these
types, Telesat continues to pioneer and develop new satellite technologies and applications
that break down the barriers of geography and distance experienced by Canadians living
and working in remote areas of Canada to provide them with access to a wide variety of
essential emergency, health and public safety, education and advanced business services
that are generally taken for granted in urban centres across southern Canada.
Table 3.4.1-1
Project Name
Remote Communities
Services Telecentre (RCST)
Application Development
Description of Related Experience
Gained During The Project
In a project carried out with funding from the European Space Agency and
Canadian Space Agency, Telesat developed a Community Aggregator Model for
satellite broadband communications delivery to remote locations.
Shared community hub
Local wireless links within
the community
High-speed satellite links to
other communities
High-speed links to urban
hospitals & other facilities
Telehealth, telelearning,
videoconferencing
High-speed Internet,
government services, etc
- 59 November 15, 2006
Table 3.4.1-1
Project Name
ABRIDGED
SchoolNet
This federal government program was designed to connect all Canadian schools to
the Internet and relied heavily on satellite to develop and extend the reach to rural
and remote communities.
Integrated Emergency
Medicine Network (IEMN)
Built on the RCST project, IEMN is a satellite and terrestrial hybrid infrastructure
that employs road and air ambulances for medical emergencies.
Marine Interactive Satellite
Technologies (MIST)
Built on the IEMN project, MIST provides a satellite and terrestrial hybrid
infrastructure to help deal with medical emergencies at sea and to provide eCommerce applications in maritime regions.
Marine eCommerce
Applications (MeCA)
The Marine e-Commerce project provides broadband satellite access to ships off
the east coast of Canada for e-Commerce applications.
Real-time Emergency
Management via Satellite
(REMSAT)
REMSAT is a current Telesat project to develop and demonstrate a satellite
communications system that simultaneously amalgamates communications from
four different types of satellites for disaster and emergency management
applications. The four types of satellites: i) mobile communications using an Lband MSS satellite, ii) broadband voice and data communications using an FSS
satellite, iii) navigation and positioning using the GPS system, and iv) near realtime Earth observation information via an earth observation satellite.
REMSAT – An Amalgamation of 4 Satellite Technologies
10
- 60 November 15, 2006
Table 3.4.1-1
Project Name
ABRIDGED
Advanced SatCom TeleLearning Project
Under this project, teachers and students are provided with broadband interactive
multimedia capability for learning at a distance.
CMAS TeleSurgery
Hamilton, Ontario
In this project, surgeons at McMaster University in Hamilton, Canada, have been
developing techniques to perform remote arthroscopic surgery. Thus far,
experimental procedures have been performed on cadavers via satellite
communications. The eventual objective is to enable surgeons to perform remote
telesurgery on live patients.
Remote Assertive
Community Homecare
(REACH)
This pilot project allowed health practitioners to treat people with mental illnesses
using interactive, satellite-based systems. Under this system, each patient’s home
was outfitted with a computer, health-monitoring software, an interactive touchscreen monitor and a video conference link. The project therefore promises to
reduce health care costs and increase the number of patients who can be treated.
High Definition Television
(HDTV) Investigations
This project has the objective of studying and understanding new developments in
HDTV systems, and in developing new and innovative methods for incorporating
these developments into the satellite environment.
Emerging Technologies
Includes on-going projects to investigate the feasibility of integrating new
terrestrial technologies with satellite networks, so as to extend the reach of these
technologies to un-served or underserved areas – specific projects include digital
signage, mobile TV and HD videoconferencing.
Telesat’s commitment to top-notch service extends to the reliability and dependability of its
satellites and networks. To date, Telesat has successfully launched 16 satellites, and never
experienced a launch or full in-orbit failure. Indeed, all of Telesat’s retired satellites
remained operational beyond the manufacturers’ service life expectations.
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ABRIDGED
Telesat’s network service availability performance has also consistently been above 99.9
percent, and in 2005 exceeded 99.99 percent.
This is not meant to suggest that Telesat has never experienced a serious in-orbit satellite
malfunction. However, what Telesat’s industry-leading performance record demonstrates
is that when such malfunctions have occurred Telesat has been diligent and resourceful in
minimizing any adverse impact on its customers while the problem with the satellite is
determined and appropriate action taken. Telesat has received numerous industry honours
and awards for the successes it has achieved through its satellite rescue and capacity loss
minimization efforts, including the 1998 SSPI (Society of Satellite Professionals
International) Industry Innovator Award, the 1994 Laurels Award (Aviation Week & Space
Technology), and the 1992 Space Mission Recovery Prize (La Réunion Spatiale).
Table 3.4.1-2
Satellite Series
Telesat Satellite Builds To Date
Transponders
Launch Date
Status
A1
12 C-Band
November 1972
Retired/July 1982
A2
12 C-Band
April 1973
Retired/October 1982
A3
12 C-Band
May 1975
Retired/November 1984
Anik B:
B1
12 C-Band/6 Ku-Band
December 1978
Retired/December 1986
Anik C:
C1
16 Ku-Band
April 1985
Retired/May 2003
C2
16 Ku-Band
June 1983
Retired/January 1998
C3
16 Ku-Band
November 1982
Retired/June 1997
D1
24 C-Band
August 1982
Retired/December 1991
D2
24 C-Band
November 1984
E1
24 C-Band/16 Ku-Band
September 1991
E2
April 1991
Retired/November 2005
N1
32 Ku-Band
May 1999
Operational
N2
32 Ku-Band/2 Ka-Band
December 2002
Operational
N4
32 Ku-Band/8 Ka-Band
-
Under Construction
F1
November 2000
Operational
F1R
September 2005
Operational
F2
24 C/32 Ku/38 Ka-Band
July 2004
Operational
F3
24 C/32 Ku/2 Ka-Band
-
Awaiting Launch
Anik A:
Anik D:
Anik E:
Nimiq:
Anik F:
Note:
Telesat also leases two additional BSS satellites for service in Canada (Nimiq 3 and 4i).
- 62 November 15, 2006
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Telesat’s many years of successful satellite procurement and operation and its reputation
for service excellence in the delivery of its own satellite services has established Telesat as
one of the leading satellite communication consultants in the world.
Telesat has a proven record and strong history of commitment to providing the full range of
state-of-the-art satellite communications services to all areas of Canada and to ensuring that
it remains at the forefront in developing innovative new services and applications for
satellite users. As highlighted in the following chronological listing of major Telesat
achievements, it has excelled in the delivery of satellite communications solutions and is a
recognized leader in the global satellite industry:
1972
Telesat launched Anik A1, the world’s first commercial domestic
communications satellite placed into geostationary orbit.
1973
Commercial services commenced on Anik A1. The Canadian Broadcasting
Corporation (CBC) is Telesat’s first customer and used Anik A1 to provide
live television to the remote Canadian North for the first time, giving Canada
the world’s first national satellite television system.
Anik A1’s coverage of northern Canada brought telephony service to many
previously unserved rural and remote communities across northern Canada.
1976
Telesat established and implemented the world’s first commercial Time
Division Multiple Access (TDMA) system.
1978
Telesat’s Anik B1 satellite was the world’s first domestic communications
dual-band satellite, operating in both C- and Ku-bands.
1980
In August, the first transportable message terminal began service on an oil rig
off Canada’s east coast. In September, the first commercial Ku-band service
via satellite was provided by Anik B1.
1981
Telesat became the world’s first satellite operator to co-locate two satellites –
Anik A2 and A3 – in a single orbital slot (within 0.1° of each other, at
114°WL).
- 63 November 15, 2006
1982
ABRIDGED
Anik C3 was launched on the first commercial flight of NASA’s Space
Shuttle Columbia. Anik C1 was subsequently launched on Space Shuttle
Discovery and Anik C2 on Space Shuttle Challenger.
1986
The contract to construct Telesat’s Anik E satellites was signed. At the time,
the Anik E satellites were the largest dual-band, three-axis commercial
satellites ever built.
Telesat began experimental trials on Digital Video Compression (DVC). At
the time, DVC was emerging as a new technology to significantly reduce the
amount of bandwidth required to transmit broadcast quality television
signals.
Telesat provided a new Telephony Earth Station (TES) service in Canada.
This service provides high-quality, voice priority, digital networks with
added data capability.
Telesat became the largest operator of interactive Very Small Aperture
Terminal (VSAT) systems in Canada.
1989
Telesat constructed the world’s first mobile HDTV production facility to
foster HDTV development among Canadian broadcasters.
1994
Telesat engineers earn international recognition for the dramatic recovery of
the Anik E1 and E2 satellites after a severe electromagnetic solar storm
caused system failures on both satellites. Anik E1 was back in full operation
in just a few hours. The more challenging recovery of Anik E2 took Telesat
engineers six months to develop and implement a sophisticated Ground Loop
Attitude Control System (GLACS).
Motorola awarded Telesat a multi-year contract in 1994 to design and
construct three telemetry, tracking and command facilities as part of the
IRIDIUM communications system.
1995
Telesat introduced standard commercial DVC services in both C- and Kubands.
1996
Telesat’s Special Assembly Earth Stations (SAES) product line received
ISO9001 certification, and in 2002 became ISO 9001:2000 certified.
- 64 November 15, 2006
1997
ABRIDGED
Telesat was selected by CSA/CRC as the prime contractor for Canada’s
Multimedia Satellite Technology Development and Trials Program thereby
bringing a service provider’s perspective to the Advanced Satcom Program
1998
Telesat was honoured with an Industry Innovators Award from the SSPI in
recognition of Telesat’s technological prowess in developing GLACS for the
Anik E2 satellite.
1999
Telesat’s Nimiq 1 satellite, Canada’s first Direct Broadcast Satellite, was
launched.
In September, Telesat strengthened its presence in the U.S. satellite services
market by signing a three-year service contract with IBM. Under this
contract, Telesat oversaw hardware maintenance and support for all
components of the FORDSTAR Network – a VSAT satellite-based network
that links 5,500 Ford dealerships in the United States. Telesat was
subsequently awarded a contract directly with Ford Motor Company to repoint satellite antennas and manage facility upgrades at 6,000 Ford
dealerships in Canada and the United States.
In December, Telesat’s Anik E1 and E2 satellites became the first non-U.S.
satellites to be placed on the U.S. FCC’s Permitted Space Station list, thereby
enabling U.S. customers to use Telesat satellites for services.
2002
Telesat received CSUA’s Outstanding Service Award at the organization’s
annual conference. This was the first time the honour had been bestowed on
an organization.
Telesat launched the first high-speed business Internet service that is
available ubiquitously across the United States and Canada.
2004
Telesat received the 2004 Frost & Sullivan Regional Satellite operator award.
Telesat earned this distinction for its strategy and product innovation and
diversification, which has given Telesat a competitive advantage over both
regional and global operators. Also in this year Telesat was named one of
Canada’s Top 100 Employers in the prestigious annual survey published in
Maclean’s magazine.
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ABRIDGED
Telesat announced that it is pilot testing a breakthrough system that will
enable a wide range of cost-effective e-Commerce applications on marine
vessels. The marine e-commerce applications (MeCA) project aims to
provide marine operators with a suite of e-Commerce applications that are
flexible and easy to manage for vessels of various types and sizes. These
applications include improved Internet access, distance education, banking
services, remote data collection and tele-tourism.
Telesat launched its state-of-the-art Anik F2 satellite with the first North
American Ka-band payload designed for direct to home Internet service via
satellite. At the time of launch, Anik F2 was the largest ever built
commercial satellite to be put in geostationary orbit.
2005
In January, Telesat acquired SpaceConnection Inc., a major California-based
reseller of full-time channel and occasional use satellite capacity in the U.S.
Its clients include the major U.S. television networks, cable programmers,
and services to the educational, religious, government, business and
entertainment sectors.
Telesat was selected by the World Broadcasting Unions International
Satellite Operations Group (WBU-ISOG) as the host site for critical tests to
ensure the global interoperability of codecs, the technology used for the
compression and decompression of high-definition television (HDTV)
signals.
Telesat completed in-orbit testing of a next-generation digital broadband onboard signal processor. The experimental “SpaceMux” on-board processor
(or “broadband switch in the sky”), designed and supplied by EMS
Technologies, Inc. makes it possible to provide direct user-to-user broadband
connectivity for spot-beam systems such as the one deployed at Ka-band on
Telesat’s Anik F2 satellite.
Telesat provided a large end-to-end Interactive Distance Learning (IDL)
service to a large American automobile manufacturer in 2005. The
IDL service involves approximately 8,000 dealer and corporate locations in
the United States, Canada and Mexico with satellite uplink and broadcast
operations served from Teleports in Detroit, Michigan and Toronto, Ontario.
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ABRIDGED
Telesat became the world’s first company to fully commercialize Ka-band
with its new two-way satellite broadband service operating on Anik F2. The
new service delivers always-on, always-ready high-speed Internet
connectivity, anywhere in Canada and the United States.
2006
Telesat was selected as the exclusive satellite provider for Auroras
Entertainment, a U.S.-based, end-to-end provider of the infrastructure,
services and content for Internet Protocol Television (IPTV).
In March, Telesat was selected by the Government of Canada to design,
supply, commission and operate Vessel Satellite Communication System
(VSCS), a satellite-based digital communications system that will provide email applications, voice-over-Internet (VoIP) capability and Canadian
satellite television for selected vessels in the Canadian Coast Guard fleet.
3.4.2
Technical Competency
The Call indicates that applicants are required to demonstrate competencies in the
procurement, coordination, launch and control of satellites. As the world’s first domestic
satellite operator, Telesat has considerable experience and expertise in each of these
technical areas.
Satellite Procurement and Launch Services Expertise
One of Telesat’s great strengths is that it has always exercised complete control over all
aspects of the design, construction, launch and operation of its satellites, employing a staff
of dedicated satellite engineering specialists. These successful satellite programs now
number 16 FSS and BSS satellites over a span of approximately 35 years – roughly a new
satellite every two years. In addition, Telesat has two other satellites under construction
(Anik F3 and Nimiq 4), and another in the planning stages (Nimiq 5).
Telesat’s in-house management of these programs includes the following types of
activities:
- 67 November 15, 2006
ABRIDGED
•
performing feasibility studies
•
securing satellite system financing
•
optimizing design concepts
•
preparing RFPs
•
selecting and negotiating contract and technical terms with satellite manufacturers
•
monitoring spacecraft construction
•
procuring launch services
•
implementing ground segment facilities
•
training operations personnel
•
placing insurance
•
operating the satellite
In addition to the experience and expertise gained from managing its own satellite
programs, Telesat has a thriving international consulting business performing these same
functions for other established and new satellite operators. Telesat has consulted on more
than 100 satellites for itself and for satellite operators in over 30 countries. In most cases,
these monitoring programs involved evaluating proposals, optimizing the selected design,
negotiating with short-listed bidders, and ultimately, negotiating a contract for the customer
with the winning bidder.
- 68 November 15, 2006
Figure 3.4.2-1
ABRIDGED
Consulting Experience
By participating extensively in the evaluation, design and construction of its own satellite
systems and those of its international customers, Telesat personnel are completely up to
date on state-of-the-art developments and concerns in the satellite industry. In fact, over
the last several years no other satellite operator/consulting company has been involved in as
many satellite procurement programs and/or construction monitoring programs as Telesat.
As shown in Table 3.4.2-1, since 2000 Telesat has been involved in the procurement of
more than 25 communications satellites (including 5 of its own).
- 69 November 15, 2006
Table 3.4.2-1
Timeframe
ABRIDGED
Recent Telesat Procurement Projects (2000 to Present)
Satellite Program
Chosen Manufacturer
Customer
2000
Anik F2
Boeing
Telesat (Canada)
2001
Nimiq 2
Lockheed Martin
Telesat (Canada)
2002
Measat 3
Boeing
Measat (Malaysia)
2002
Telkom 2
Orbital Sciences
PT Telkom (Indonesia)
2003
Anik F1R
Astrium
Telesat (Canada)
2003
Arabsat 4A & 4B
Astrium
Arabsat (Saudi Arabia)
2003
Vinasat 1
TBD
VNPT (Vietnam)
2004
Anik F3
Astrium
Telesat (Canada)
2004
Nigcomsat 1
China Great Wall
NASRDA (Nigeria)
2004
Rainbow 1, 2, 3, 4, 5
Lockheed Martin
Rainbow Cablevision (USA)
2004
Measat 4
TBD
Measat (Malaysia)
2005
Thor IIR
Orbital Sciences
Telenor (Norway)
2005
Terrestar 1
Space Systems Loral
Terrestar Networks (USA)
2005
Turksat 3A
Orbital Sciences
Turksat (Turkey)
2005
Nimiq 4
Astrium
Telesat (Canada)
2006
MSV 1, 2, SA
Boeing
Mobile Satellite Ventures
(USA)
2006
Arabsat 4AR
EADS Astrium
2006
Thor IIIR
TBD
Telenor (Norway)
2006
Vinasat 1
Lockheed Martin
VNPT (Vietnam)
Telesat’s extensive satellite procurement experience also extends to direct involvement in
the procurement of Ka-band satellites, for itself and for customers. Telesat’s Nimiq 2
satellite incorporated an experimental Ka-band payload, while Anik F2 has a full-up
Ka-band payload. Anik F3 has also been built with a small Ka-band payload and Nimiq 4
has been designed to incorporate a significant Ka-band payload package. In addition,
Telesat recently acted as a consultant for the U.S. service provider Rainbow Cablevision.
Telesat helped Rainbow design, specify and negotiate the contract for their procurement of
five Ka-band DBS satellites from Lockheed Martin.
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ABRIDGED
Table 3.4.2-2 lists the various different spacecraft models on which Telesat has monitored
construction over the same period. No other satellite operator can compare to Telesat in
terms of the overall number and variety of procurement/monitoring projects completed.
This gives Telesat unsurpassed knowledge of the performance capabilities and
characteristics of the vast majority of the spacecraft on the market today.
Table 3.4.2-2
Timeframe
Satellite
Program
Recent Telesat Construction Monitoring Projects
(2000 to Present)
Manufacturer
Model
Customer
2001 to 2003
Nimiq 2
Lockheed Martin
A2100
Telesat (Canada)
2000 to 2004
Anik F2
Boeing
702
Telesat (Canada)
2003 to 2005
Anik F1R
Astrium
Eurostar 3000
Telesat (Canada)
2003 to 2005
Measat 3
Boeing
601HP
Binariang (Malaysia)
2003 to 2004
Telkom 2
Orbital Sciences
Starbus 2.2
PT Telkom (Indonesia)
2003 to 2006
Arabsat 4A & 4B
Astrium
Eurostar 2000
2003 to 2005
Rascomstar 1
Alcatel
Spacebus 3000
Rascomstar
(Africa-on-call consulting)
2003 to 2006
Koreasat 5
Alcatel
Spacebus 3000
Korea Telecom/ADD (Korea)
2004 to 2006
Anik F3
Astrium
Eurostar 3000
Telesat (Canada)
2005 to 2008
Nigcomsat 1
China Great Wall
DFH 4
NASRDA (Nigeria)
2005 to 2007
Terrestar 1
Space Systems Loral
FS 1300
Terrestar Networks (USA)
2005 to 2007
Thor IIR
Orbital Sciences
Starbus 2.3
Telenor (Norway)
2006 to 2008
Nimiq 4
Astrium
Eurostar 3000
Telesat (Canada)
2006 to 2008
Turksat 3A
Alcatel
Spacebus 2000
Turksat (Turkey)
2006 to 2009
MSV 1, 2, SA
Boeing
702
Mobile Satellite Ventures (USA)
As summarized in Table 3.4.2-3, Telesat’s extensive experience extends to include satellite
launches using all major launch vehicles. Telesat employees a staff of launch system
engineering specialists with extensive expertise in each of the prime launch support areas,
including launch services procurement, launch systems engineering and launch campaign
management. This group has successfully overseen all of Telesat’s satellite launches as
well as those of numerous international customers.
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ABRIDGED
This experience has been a key factor in the management and mitigation of risk, which
contributes to a record of successful launches and maximization of the life and performance
of Telesat’s satellite fleet.
Table 3.4.2-3
Telesat Launch Vehicle Experience
Launch Vehicle
Program
Ariane 44L
Anik F1, MSAT (42P)
Ariane 5G
Anik F2
Ariane 5 ECA
Telkom 2
Atlas
HellasSat-1, EchoStar 5, AMSC (IIA), Orion 1 (IIAS)
Delta
Anik D
ILS Proton
Nimiq 1 & 2 , Anik F1R & F3, Measat 3, Arabsat 4A/B
Long March
Asiasat 1 (1st commercial launch), Mabuhay 1; Nigcomsat-1
BLS Sea Launch
Directed study of SL, commissioned by Sea Launch, Koreasat 5
Another indicator of Telesat’s in-depth knowledge of and experience in satellite
construction and launch vehicle issues is provided by the fact that insurers regularly
approach Telesat to evaluate other operators’ satellite designs and launch vehicle choices
prior to making a decision to provide launch and/or in-orbit insurance to these operators
and under what terms. Telesat is also regularly approached to participate in launch failure
and anomaly investigations by these parties.
Satellite Control Expertise
In terms of technical expertise in the operation of spacecraft, Telesat’s 35+ years
experience in operating seven generations of its own FSS and BSS satellites again places
Telesat in a class of its own and well above other operators.
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ABRIDGED
Currently, as shown in Figure 3.4.2-2, Telesat operates a fleet of three FSS satellites (Anik
F1, F1R and F2) and four BSS satellites (Nimiq 1, 2, 3 and 4i) for use predominantly in
Canada, and controls another FSS satellite (AMC-16) used on an interim basis for service
in Canada and the United States. In addition, Telesat flies six other satellites (XM 1, 2 and
3, MSAT 1 and 2, and DTV 1) for other customers, with two more satellites (XM 4 and
WB 1) to be added by the end of 2006.
BSS
FSS
118.7
AMC-16
(future Anik F3
with Ka-band)
111.1
Anik F2
(with Ka-band)
Figure 3.4.2-2
107.3
Anik F1 & F1R
91
NIMIQ 1 & 4i
82
NIMIQ 2
(with Ka- and) & 3
(future NIMIQ 4)
72.5
DTV 1
(future NIMIQ 5)
Telesat’s Current Satellite Fleet
In addition to operating its own satellites and those of its customers, Telesat is a world
leader in the provision of Transfer Orbit Services (TOS) required to bring a satellite to its
final geosynchronous orbit after launch or to move it to another orbital location. Over the
past 20 years, Telesat’s TOS team has supported more than 70 satellite missions for a
number of international customers and spacecraft manufacturers, including Boeing, Space
Systems/Loral, CNES, Astrium, Israel Aircraft Industries and Orbital Services. Telesat’s
TOS service is provided to ISO 9001 quality standards.
Telesat developed its own advanced Flight Dynamics Software (FDS) to support all aspects
of geosynchronous missions from transfer orbit injection to arrival on station, equatorial
and inclined stationkeeping, orbit relocation and eventual satellite retirement. Since its
introduction in 1976, Telesat’s FDS has undergone three major revisions to the current
state-of-the art workstation system in use today.
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This software is currently being used to control satellites built by a variety of
manufacturers, including Boeing, Lockheed Martin, SS/Loral and Alcatel, and has been
sold internationally to a number of satellite operators and contractors, including Deutsche
Telekom, ICO, Boeing, L3-Storm and MOD (UK).
Telesat’s satellite control ground systems infrastructure consists of its Satellite Control
Centre (SCC) located at Telesat’s headquarters in Ottawa and a worldwide TT&C network.
The SCC is state-of-the-art and is the hub for all of Telesat’s satellite-related activities.
This centre is staffed 24 hours a day/365 days a year by Telesat satellite controllers, who
operate its seven satellites, plus the six operated on behalf of customers. Telesat’s satellite
controllers are engineering technologists who have undergone extensive training by Telesat
specialists. Several of these controllers have in excess of 20 years experience and exposure
to Telesat’s satellites and methods of operation.
Telesat’s primary TT&C station is located north of Toronto in Allan Park, backed up by a
facility in Edmonton. Allan Park is also the home of Telesat’s Satellite Network
Operations Centre (SNOC). This facility is the focal point of the network management
facilities, and monitors and manages the quality of service delivered to Telesat's North
American customers. These operations are supported by technologists, engineers, and
other professionals that are dedicated to operating, controlling and maintaining a current
network of more than 22,000 telecommunications earth stations in Canada and the
United States.
These personnel are experienced and qualified in operating and maintaining complex
integrated networks and trained to immediately react to all network issues. The key driver
is responsiveness to customer issues and problem resolution that meets or exceeds service
level agreement objectives.
Telesat’s extensive ground infrastructure includes other offices and teleports throughout
Canada, the U.S. and South America. These include seven teleports in Canada (Toronto,
Montreal, Vancouver, Calgary, Edmonton, Winnipeg and Halifax), plus one in the United
States and one in Brazil. Telesat also owns and operates five VSAT (data) hubs spread
throughout North America to provide back-up and diversity, and three Ka-band gateway
hubs in Canada, located in Vancouver, Winnipeg and Toronto. Telesat owns a major earth
station facility in Perth, Australia for use with its TOS services.
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Telesat is the only satellite operator to own hub facilities for both leading standards-based
broadband satellite solutions, i.e., DVB-RCS and DOCSIS. Telesat has been operating a
DVB-RCS system, developed by EMS technologies, for many years on both Ku and Kaband. The hub was one of the first North-American multimedia hubs capable of supporting
links speeds for multimedia applications. Telesat operates three S-DOCSIS hubs for
operation over the Anik F2 Ka-band payload. These hubs provide satellite broadband IP
services directly to consumers. Telesat also has fully redundant DVB-RCS and DOCSIS
hubs at its R&D lab facilities in Ottawa for development and testing in support of the
production hubs. These facilities provide Telesat with an excellent opportunity to develop
and test new applications before commencing the service.
Telesat’s vast ground infrastructure in Canada is unmatched by any other operator. Telesat
has approached the building of ground segment facilities as essential in developing and
bringing new communications solutions to Canadians everywhere. For this reason, Telesat
has taken the financial risk and invested aggressively in building its ground infrastructure
across every region of Canada. It is noteworthy that since Canada’s satellite markets were
liberalized in March 2000, no other satellite operator has made any investment in building a
single major ground segment facility in Canada.
Telesat is therefore eminently qualified to control and operate FSS, BSS, MSS and DARS
satellites and associated ground segment equipment. It is also one of only a handful of
operators worldwide that has significant practical experience in operating Ka-band
satellites and gateways. Indeed, as the owner/operator of the world’s first full commercial
Ka-band payload on Anik F2, Telesat is an acknowledged world leader in this field.
Frequency Coordination Expertise
Telesat has extensive experience in all aspects of frequency coordination. As the
Department is aware, frequency coordination is a highly specialized activity that requires
rigorous technical and strategic analyses and deft negotiation skills. As both a satellite
operator and a leading international consultant in satellite procurement and operation,
Telesat maintains an expert in-house frequency coordination team with detailed knowledge
of, and familiarity with, International Telecommunications Union (ITU) procedures and
filing requirements and the regulatory and technical provisions of the ITU Radio
Regulations. These experts enable Telesat to coordinate frequencies successfully for its
own satellite networks and those of its clients.
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ABRIDGED
As part of this function, Telesat actively participates in the activities of the ITU
Radiocommunication Sector (ITU-R) as a Sector Member, as part of the delegation of
Canada, or as part of the delegation of other administrations upon request. Telesat stays
current with the various frequency coordination provisions relevant to operators in each of
the ITU-R Regions, and its experts participate in all key ITU-R satellite technical Working
Parties such as WP4A (Fixed Satellite Service) and WP6S (Broadcast Satellite Service).
Other meetings regularly attended include specialty ITU-R meetings such as the Special
Committee on Regulatory and Procedural Matters (SCRPM) or the experts group dealing
with Resolution 609 and the division of aggregate power density among L-band Radio
Navigation Satellite Service (RNSS) operators. In addition, Telesat personnel attend all
World Radio Conferences (WRC) and associated preparatory meetings.
Telesat also has extensive experience in earth station coordination and licencing, and in
coordinating space and earth station systems with terrestrial system operators.
Telesat is therefore extremely well qualified to manage any and all aspects of satellite
procurement, launch, operation and coordination. Indeed, as evidenced by its exemplary
operation of seven generations of its own satellites, its many international honours and
awards, and its thriving international consulting business, Telesat is a recognized world
leader in performing each of these functions.
3.4.3
Operational Competency
The Call indicates that applicants should describe capabilities related to ongoing
operational requirements, such as business management, marketing and sales, as well as
details on the experience and abilities of management and staff.
Staff Resources and Qualifications
Another of Telesat’s great strengths is its dedicated workforce of over 500 employees,
primarily comprised of professional engineering, sales and marketing staff, administrative
staff and skilled technical workers. The majority of these employees are located at
Telesat’s headquarters in Ottawa and in Allan Park, but marketing and technical staff are
also located in offices spread across Canada, including the Territories. Approximately
24 full-time staff are located in the U.S. and South America.
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Telesat employees are well trained and well educated – more than 80 percent have college
diplomas or university degrees. The management team is also very experienced. Telesat’s
newly appointed President and CEO, Daniel Goldberg, has been working in the
communications sector for the past 15 years and in satellite operating companies since
1998, most recently as the CEO of SES New Skies. The rest of the Senior Executive team
has an average of 23 years service with Telesat, while other Management employees
average close to 20 years service. The average employee service currently stands at 14
years for Telesat as a whole.
Table 3.4.3-1
Select Telesat Work Force Statistics
Total Number of Employees: *
Employee Distribution by Country:
Employee Location in Canada:
Academic Credentials (%):
Employees by Discipline: **
Average Length of Service (years):
*
Note 1:
**
Note 2:
***
Note 3:
550
Canada:
USA:
South America:
Maritimes:
Quebec:
Ottawa HQ:
Rest of Ontario:
West:
Territories:
High School Diploma:
Military:
College Diploma:
Undergraduate:
Masters:
PhD:
Engineers/Technical:
Technologists/INST:
Sales & Marketing:
Finance, Legal, IT, HR, Adm:
Executive:
Management:
Non-Management:
All Employees:
526
18
6
3
17
352
134
16
4
15 %
4%
43 %
25 %
12 %
1%
153
146
36
202
23***
19
13
14
Estimate includes permanent and term employees and full-time independent
contractors.
Estimate excludes South American employees & all full-time independent
contractors.
Estimate excludes Telesat’s recently appointed President & CEO Daniel Goldberg
(who has 15 years experience in the telecommunications field).
- 77 November 15, 2006
Table 3.4.3-2
NAME
ABRIDGED
Telesat’s Executive Officers
POSITION AND EXPERIENCE
Daniel S. Goldberg
President & Chief Executive Officer – Daniel S. Goldberg, Ottawa,
Ontario, joined Telesat in September 2006. Prior to that,
Mr. Goldberg served as Chief Executive Officer of SES New Skies, a
position he held since March 2006 following the purchase of New
Skies by SES Global. During that time, Mr. Goldberg also served as
a member of the SES Global Executive Committee. Before that,
Mr. Goldberg served as the Chief Executive Officer of New Skies
Satellites since January 2002 and was President and a member of the
New Skies Satellites Holdings board of directors since its formation
in January 2005. Mr. Goldberg was also a managing director and a
member of the executive management committee formed by New
Skies Satellites. Prior to becoming its Chief Executive Officer, he
had served as Chief Operating Officer of New Skies since February
2000, and prior to that time, he had served as New Skies General
Counsel since October 1998. Prior to joining New Skies, he worked
at PanAmSat as the Associate General Counsel and Vice President of
Government and Regulatory Affairs during 1998. From 1993 to
1997, Mr. Goldberg was an associate at Goldberg, Godles, Wiener &
Wright, a law firm in Washington D.C. Mr. Goldberg earned an
undergraduate degree from the University of Virginia, graduating
with highest honours, and a law degree from Harvard Law School
where he graduated cum laude.
Ted H. Ignacy
Chief Financial Officer – Ted H. Ignacy, Ottawa, Ontario, joined
Telesat in 1986, and held a number of management positions until his
appointment as Vice-President, Finance and Treasurer in 1995, with
a title change to Chief Financial Officer in 2005. Mr. Ignacy is a
Board member of Infosat Communications Inc., The
SpaceConnection, Inc., Mobile Satellite Ventures LP and BIMCOR
Inc. Mr. Ignacy has also served as Vice-President, Finance, and was
a Board member of TMI Communications Inc. He holds a Masters
degree in Business Administration from McMaster University in
Hamilton, Ontario, and an Honours Bachelor of Commerce degree
from Laurentian University in Sudbury, Ontario.
- 78 November 15, 2006
Table 3.4.3-2
NAME
ABRIDGED
Patricia A. Olah
Corporate Secretary – Patricia A. Olah, Montréal, Québec, was
appointed Corporate Secretary of BCE, Bell Canada and Telesat in
December 2004. Prior to this appointment, she held the position of
Vice-President, Corporate Affairs of BCE Ventures (a wholly-owned
subsidiary of BCE). Ms. Olah first joined the BCE group in April
1995 as Chief International Counsel and Assistant Corporate
Secretary of Bell Canada International Inc., and has since held
numerous positions in the BCE group. From 1985 until joining the
BCE group, Ms. Olah was a senior associate in the Corporate
Department of Weil, Gotshal & Manges, LLC, and was based in the
New York office of this international law firm. Ms. Olah holds a
Juris Doctor degree, granted “With Distinction”, from Hofstra
University School of Law (Hempstead, New York, U.S.A.) and a
Bachelor of Business Administration degree from Adelphi University
(Garden City, New York, U.S.A.). She was admitted as a member of
the New York State Bar in 1985, and is also a member of the
International Bar Association and the American Bar Association.
Paul D. Bush
Vice-President, Broadcasting & Corporate Development – Paul D.
Bush, Ottawa, Ontario, joined Telesat in 1980, and since that time he
has held a variety of positions in Administration, Engineering and
Sales until being appointed Vice-President, Corporate Development
in 1997, with a title change to Vice-President, Broadcasting and
Corporate Development in 2004. Mr. Bush is a Board member of the
Canadian Advanced Technology Association (CATA), The
SpaceConnection, Inc., Auroras Entertainment LLC, and 2010 BCE
Olympic Technology Board. He holds both a Bachelor of Health
Science degree from the University of Ottawa, and a Bachelor of
Education degree from Queen’s University in Kingston, Ontario.
Patrick M. Enright
Vice-President, Network Services – Patrick M. Enright, West Grey,
Ontario, joined Telesat in 1981, and held progressively responsible
management positions until being appointed Vice-President,
Network Services in 2003. Mr. Enright holds a diploma in
Electronic Engineering Technology from Conestoga College of
Applied Arts and Technology. He is a graduate of the Western
Executive Program, University of Western Ontario, as well as a
graduate of the Executive Management Development Program from
the Banff Centre for Management.
David C. Lahey
Vice-President, Business Development – David C. Lahey, Brockton,
Ontario, joined Telesat in 1982, and held various positions until his
appointment to Vice-President, Network Services in 2002. During
2002, Mr. Lahey was also appointed as President and Chief
Operating Officer of Infosat Communications Inc., a wholly-owned
subsidiary of ours, until the transition to new management for Telesat
was established that same year. In 2003, he was appointed to VicePresident, Business Development.
- 79 November 15, 2006
Table 3.4.3-2
ABRIDGED
NAME
Jennifer E. Perkins
Vice-President, Law & Assistant Corporate Secretary – Jennifer E.
Perkins, Ottawa, Ontario, joined Telesat in 1987, and held the
position of Legal Counsel until her appointment as General Counsel
in 1993 with a title change to Vice-President, Law in 2000.
Ms. Perkins was appointed Assistant Corporate Secretary in 2001.
She is a Board member of Infosat Communications Inc. and The
SpaceConnection, Inc. Ms. Perkins holds a Bachelor of Arts degree
and a Bachelor of Law degree from Queen’s University in Kingston,
Ontario.
Roger J. Tinley
Vice-President, Space Systems – Roger J. Tinley, Ottawa, Ontario,
joined Telesat in 1979 and held positions of increasing responsibility
until his appointment to Vice-President, Space Systems in 2001.
Before joining Telesat, Mr. Tinley was employed by Marconi Space
and Defense Systems Ltd., and British Aerospace in England.
Mr. Tinley holds an Honours Bachelor of Science Degree and a
Master of Science Degree from London University. He is registered
as a Professional Engineer with the Association of Professional
Engineers of Ontario, and is a member of the Institute of Electrical
Engineers.
Marilynn A. Wright
Vice-President, Human Resources & Administration – Marilynn A.
Wright, Ottawa, Ontario, joined Telesat in 1981, and since that time
has held increasingly senior positions in finance, administration, and
human resources. Ms. Wright was appointed Vice-President, Human
Resources and Administration in 1995. She holds a Bachelor of
Science degree from McGill University in Montréal, Québec.
Telesat also has a network of more than 700 local Field Service Representatives (FSRs)
under contract spread across North America. These representatives, working closely with
Telesat staff, allow for quick responses to any communications or service issues that may
arise at customers’ remote locations.
Telesat subsidiaries – Infosat Communications Inc., The SpaceConnection Inc., and Telesat
Brasil Limitada – are also involved in the marketing or resale of Telesat services across
North and South America and employ an additional 130 well-qualified individuals.
Telesat is therefore a major employer of a highly-skilled, very-experienced and stronglymotivated work force predominantly located in Canada. These workforce qualities and
characteristics have contributed to making Telesat one of the best and most highly
respected satellite operators in the world today, and position Telesat to continue in that role
well into the future.
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Business Management
Telesat operates in five reportable business segments, covering the full range of satellite
communications services and with operations (including subsidiary operations) in both
North and South America. This reporting structure reflects how Telesat’s business is
organized and managed.
Broadcast Services: These services consist of the distribution or collection of video
and audio signals in the domestic and North American markets and includes television
transmit and receive services, occasional use, bundled DVC and radio services. Video
distribution services include the full-time transmission of Canadian and U.S. television
programming to major Canadian broadcasters, their network affiliates, cable television
companies and other redistribution systems. In addition, bundled, value-added
services that include satellite capacity, digital encoding of video channel and, if
required, uplinking and downlinking services to and from the satellite and teleport
facilities are offered. This business segment also includes the services provided to
Canada’s two DTH service providers. The vast majority of broadcasting signals
originating in Canada are distributed over Telesat’s satellites.
Carrier Services: Telesat provides satellite capacity for voice and data transmission
services to telecommunications carriers located in Canada, the U.S. and South
America. Telephone companies typically utilize these services as part of their
domestic telephone networks to provide telephone and data services to remote areas
(such as Northern Canada).
Business Network Services: Telesat provides satellite-based data networks in Canada
and the U.S. and the related ground segment and maintenance services supporting
these networks which are used in a variety of business functions. Applications include
point-of-sale, electronic banking, airline and travel reservations, retail inventory
management, video conferencing, distance education, LAN-to-LAN connectivity,
Internet and intranet requirements and private voice networks. Telesat is one of the
largest operators of VSAT systems in the world, and provides a wide variety of VSAT
services including satellite network operations, technical services, maintenance
engineering, network administration, engineering documentation and design, and
automated information systems. Also included in this business segment are Telesat’s
Ka-band services.
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Consulting and Other: This segment represents all consulting services related to the
space and earth segments, government studies, satellite control services provided to
other companies and management services. Telesat is a leading consultant in the
establishment, operation and upgrading of satellite systems worldwide, having
provided consulting services to businesses and governments in more than 30 countries.
Telesat has developed a wide range of specialized services designed to assist satellite
operators, spacecraft manufacturers and companies involved in the field of satellite
communications around the world, including satellite consulting services, satellite
operations and tracking services and flight dynamics software development.
Telesat Canada Subsidiaries: This segment includes the operations of Infosat
Communications Inc. (Infosat), Telesat Brasil Limitada, and The SpaceConnection Inc.
(SpaceConnection). Headquartered in western Canada, Infosat is a provider of both
mobile and fixed satellite services for voice, fax, paging, Internet access and broadband
data applications across all of North America. Infosat sells hardware and resells
services provided by Telesat and other carriers such as Mobile Satellite Ventures,
Iridium and Inmarsat. SpaceConnection is a major reseller of full period and
occasional use satellite services to the major networks, other broadcasters and
television entertainment industries in the U.S., purchasing both analog and digital
capacity from most North America satellite operators. Telesat Brazil Limitada is a
holding company which owns 100% of Telesat Serviços de Telecomunicação Limitada
(Telesat Brazil). Telesat Brazil purchases capacity from Telesat through the Brazilian
satellite operator StarOne, who also purchases capacity from Telesat for its own use.
Telesat Brazil provides voice, data and Internet access services from its teleport in
Belo Horizonte to customers within Brazil and throughout South America, along with
hardware sales to Brazilian businesses.
As shown in Table 3.4.3-3, all of Telesat’s business segments posted healthy revenue
increases in 2005, with only the Broadcasting segment not recording double digit gains.
With overall revenue growth of over 30 percent, Telesat is performing exceptionally well in
what is becoming an increasingly competitive and concentrated global satellite
marketplace. This performance indicates that Telesat is well managed and taking
advantage of new satellite business opportunities, both domestically and internationally.
- 82 November 15, 2006
Table 3.4.3-3
ABRIDGED
Telesat Business Segment Revenues
Segmented revenue breakdown
2005
($ M)
2004
($ M)
% Change
Broadcast
Carrier
Business Networks
Consulting and Other
Telesat Canada
Telesat Canada Subsidiaries
Inter-segment Eliminations
Total operating revenues
207.1
35.1
132.5
26.2
400.9
89.4
(15.6)
474.7
200.0
29.5
78.4
23.4
331.3
41.8
(10.9)
362.2
3.6%
19.0%
69.0%
12.0%
21.0%
113.9%
43.1%
31.1%
Marketing and Sales
Telesat markets its services primarily through a direct sales force located at its headquarters
in Ottawa and at regional offices in Montreal, Toronto and Calgary. Telesat also has a
small dedicated sales force based in Brazil to capitalize on opportunities in South America.
In addition to the direct sales approach, Telesat has taken advantage of business alliances
and joint ventures to expand its revenue base in Canada and internationally.
As an integral part of its marketing and sales approach, Telesat uses a sales application
engineering team to provide both pre-sale and post-sale technical consultation and support
to customers. This helps ensure that customers get the service that meets their
requirements right from the start and mitigates any operational issues or difficulties that
may subsequently arise.
Telesat’s focus on mitigating operational issues experienced by the customer extends to the
repair and maintenance of customer premises equipment. Telesat’s Allan Park facility
operates as a logistics and spares handling unit and a state-of-the-art repair facility.
Maintenance and support services include:
- 83 November 15, 2006
ABRIDGED
•
field repair
•
depot repair
•
spare equipment provision or management
•
help desk services
•
database management of site inventory, trouble reports, and trouble resolution reports
•
guaranteed response and repair times
•
trend analysis and continuous improvement programs
•
project management
To further meet customer requirements in the optimal manner, Telesat operates a number of
full-service teleports in major centres across Canada, including Montreal, Toronto, Calgary
and Vancouver. Telesat’s teleports allow broadcasters and business customers to share
services and equipment housed in one central location. This sharing of facilities reduces
their expenses and capital investment.
Since the mid-1990s and launch of its first BSS satellite in the 12 GHz band (Nimiq 1),
Telesat has had considerable experience in the sale and marketing of BSS capacity and
services in Canada. It currently operates four Nimiq satellites (Nimiq 1, 2, 3 and 4i) near
full capacity in this band and has a Canadian customer commitment to take all capacity on
a further two (Nimiq 4 and 5) to be launched over the next few years. These transponder
sale and lease arrangements were ultimately to a single service-provider customer (Bell
ExpressVu). As this marketing approach has proven so effective in serving the BSS market
in Canada, Telesat intends to continue following this approach in the marketing of 17 GHz
BSS capacity from the orbital positions it is awarded by Industry Canada.
3.4.4
Institutional Competency
The Call indicates that applicants should describe relationships and arrangements with
other institutions, such as partners, investors, resellers and customers, necessary to ensure
the success of, or enhance the ability of the applicant to implement, the proposed satellite
projects.
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In implementing its proposed plan for use of the 17 GHz BSS frequencies at this and other
orbital positions covered in this Call for Applications, the cementing of solid relationships
with four key groups is paramount for Telesat to succeed in developing these resources to
their full potential. As described below in more detail, these include Telesat’s relationship
with prospective customers for the 17 GHz BSS capacity, its relationship (or that of its
service provider customers) with vendors supplying necessary network ground segment and
terminal equipment, its relationship with partners in the demonstration and testing of
promising BSS applications, and its relationship with financial institutions.
Customer Relationships
Given that the cost of procuring and launching a 17 GHz BSS satellite runs into the several
hundreds of millions of dollars and that the revenue-generating service life of a satellite is
of limited duration, firm customer commitments or arrangements to take a substantial
portion of the total capacity of the satellite from the start or early in its life are of critical
importance to the satellite operator and will generally determine if the satellite project will
be viable or not. The small overall size of the Canadian marketplace is another important
consideration, and in some instances may necessitate that anchor-tenant or other
arrangements with customers outside of Canada for a significant portion of the payload on
a satellite be pursued.
As described in Telesat’s Canadian Satellite Capacity and Services Plan for this 17 GHz
BSS authorization, Telesat has been consulting with prospective Canadian BSS satellite
service users to ascertain their requirements for this capacity and to firm up capacity
commitments. Telesat’s Canada-first policy has also ensured that the capacity
requirements of these prospective customers have priority access over any requirements
made known to Telesat by non-Canadian interests.
Bell ExpressVu is the Telesat customer taking all of the currently available Nimiq BSS
capacity at 12 GHz at the 91.1° and 82°WL positions. Telesat and Bell ExpressVu have an
excellent working relationship, with Telesat’s Nimiq satellites delivering Bell ExpressVu’s
DTH and SRDU services to close to 1.8 million Canadian households and Canadian cable
TV headends situated all across Canada. The two companies have also recently entered
into an agreement under which Bell ExpressVu will take all 12 GHz BSS capacity at the
72.7°WL position on Telesat’s planned Nimiq 5 satellite.
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With the 12 GHz BSS capacity in this broadcasting neighbourhood now largely committed,
Telesat and Bell ExpressVu have been examining Bell ExpressVu’s need for additional
long term expansion capacity in this neighbourhood using the 17 GHz BSS frequencies.
Bell ExpressVu has made a commitment to take all the capacity on a satellite to be
launched into the 86.5°WL position, and possibly other positions in this neighbourhood.
Regarding possible non-Canadian customer interest in BSS capacity in this neighbourhood,
Telesat has had discussions with a number of U.S. parties, including the U.S. DTH service
providers EchoStar and DIRECTV. Both of these service providers use 12 GHz BSS
satellite capacity in and around this neighbourhood for service into the U.S. and therefore
may have an interest in accessing some 17 GHz BSS capacity at the Canadian positions if
any is surplus to Canadian requirements. Telesat has an excellent working relationship
with both of these parties. Indeed, Telesat currently provides service to DIRECTV at the
72.7°WL position in the 12 GHz BSS band on an interim satellite (DTV 1), and Ku-band
service to EchoStar at the 118.7°WL position using AMC-16 on an interim basis and then
on Anik F3 once it goes into service.
While no formal agreements for any 17 GHz BSS capacity at the 86.5°, 82° or 72.5° GHz
BSS positions have been entered into between Telesat and either of these U.S. parties, the
close business ties that already exist between the parties for this type of capacity would
facilitate the process for reaching similar mutually beneficial arrangements in this band at
one or more of these positions. Any such arrangements would also confer benefits on
Telesat’s Canadian customer taking a portion of this capacity, as a significant portion of the
cost of procuring the satellite would then be borne by the non-Canadian customer(s).
Based on the customer commitments received so far for this 17 GHz BSS capacity and
other interest expressed that is expected to result in firm capacity commitments prior to
launch of these satellites, Telesat is confident that it has the level of customer support
necessary to successfully proceed with phased construction and launch of a 32-transponder
17 GHz BSS satellite into each of the 86.5°, 82°and 72.5° positions.
Vendor Relationships
The 17 GHz BSS band is a new band and so will require the development and manufacture
of new equipment, both on the satellite and on the ground, including customer premises
equipment. These development and manufacturing costs will likely figure prominently in
the overall price of the end-user service.
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What’s more, these costs and the time required to develop new equipment can be
significantly influenced by the relationship the operator or service provider has with these
vendors. For example, operators capable of participating in, or consulting on, the
development of new equipment, or the testing of that equipment, may be able to help bring
the product to market sooner, at a lower cost, with fewer flaws, and/or superior
functionality. The strength and workability of these relationships can thus be an important
determinant in the ultimate success of the new service in the marketplace.
Telesat is exceptionally well positioned here. It has detailed knowledge of all aspects of
the industry and what must be done to successfully develop, test and market new satellite
equipment and services. Indeed, Telesat has a state-of-the-art R&D facility at its
headquarters in Ottawa and routinely works with equipment vendors in the development
and testing of new equipment and applications.
Also, as a result of its size and standing in the satellite industry and good relationships with
other service providers, Telesat may be in a position to command MFN pricing, volume
discounts or other favourable terms from equipment vendors for itself or on behalf of its
partners. A recent example involving new equipment in a new satellite market is the
arrangement Telesat and its U.S. partner WildBlue have structured with Raven, the UKbased vendor of the Ka-band antenna used by the two companies. Under the existing
arrangement, the price of these units decreases appreciably to Telesat and WildBlue based
on the total number of terminals shipped to the two companies.
Particularly in emerging new markets like Ka-band and 17 GHz BSS, Telesat has found
that, by building close working relationships with equipment vendors, it can positively
influence the design or functionality of the product to better suit its needs and/or those of its
customers, or speed new product development, testing and commercial service
introduction.
Building such strong relationships with equipment vendors has long been a Telesat priority
and has been a major contributing factor to Telesat’s success in bringing affordable and
innovative new services to Canadian satellite service users. Telesat is strongly motivated to
continue this practice with its 17 GHz BSS service activities.
- 87 November 15, 2006
ABRIDGED
R&D Partner Relationships
Telesat has made its world-class R&D lab available to equipment vendors and customers
for demonstration and testing as they evolve their products and services to take advantage
of emerging technologies. A significant portion of this activity over the past several years
has focused on the demonstration and testing of new broadcasting technologies and
applications, and on HDTV in particular. These studies have been undertaken with a host
of partners, notably Communications Research Canada (CRC) and the CBC, as well as the
Canadian Digital Television (CDTV) association, which includes most of Canada’s major
broadcasters. The World Broadcasting Union, which is comprised of many networks and
programmers from around the world, also participated in these studies.
Telesat’s HDTV research activities have largely focused on video encoding and modulation
over satellite. The results of these studies suggest that the use of these new techniques will
increase the number of signals over an equivalent amount of bandwidth by a factor of two
to six times. This increased efficiency would translate into significant cost reductions for
broadcast distributors and programmers. Less satellite capacity for each signal would be
required than would otherwise be the case, but Telesat’s experience (e.g., the
implementation of digital video compression technologies) has been that such
enhancements stimulate the introduction of many new services, leading to an overall
increase in satellite capacity demand, and improve the commercial viability of these
customers, which in turn has a positive long term effect on Telesat.
Telesat and its partners have also been investigating the delivery of video signals to
platforms other than television. For example, signals can be transmitted in digital format
over a 2 megabit-per-second Internet connection and yet maintain remarkable picture
quality. This delivery method is not suitable for the broadcasting industry today, but
indicates what future market opportunities may be made available to the industry with a
concomitant increase in satellite capacity demand.
Telesat has also been involved in the evaluation of video signal delivery for industries
which are not directly related to broadcasting, but could have implications nonetheless. For
example, satellite delivery of digital movies to theatres is an innovative way to increase the
efficiency and minimize the cost of film delivery. Films are transmitted and then stored on
a file server at the theatre, rather than the distributor having to physically transport a movie.
Not only does this reduce costs, but it makes it faster and easier for the theatre to change
the movies it offers in response to market demand. It also creates a new market
opportunity for satellite.
- 88 November 15, 2006
ABRIDGED
These joint development activities involving Telesat and its partners have helped build a
strong foundation for long term cooperation within the industry, and have been
instrumental in proving a variety of broadcasting and other technological advancements
and new service concepts now being introduced in the Canadian marketplace and abroad.
Telesat has every intention of keeping its R&D lab and facilities available to its customers
and partners and further strengthening its cooperative relationships with these important
satellite industry participants, and expects that this will significantly enhance Telesat’s and
its partners’ ability to make the most of new satellite orbital authorizations, including the
17 GHz BSS authorizations at 86.5°, 82° and 72.5°WL.
Financial Community Relationships
With new satellites costing in the hundreds of millions of dollars to construct and launch,
and this investment generally required prior to the generation of any customer revenue
stream, the satellite operator must have a credible standing and strong working
relationships with members of the financial community to move ahead with the
development of any given orbital resource in a timely manner. Telesat has this standing in
the financial community and has developed these strong working relationships over its
35+ years of satellite procurement and operation.
This standing includes a bank line of several hundreds of millions of dollars with a
syndicate of foreign and Canadian banks and a BBB- corporate rating from Dominion
Bond Rating Service Limited (DBRS) and Standard and Poor’s (S&P) Rating Group, a
division of McGraw Hill Inc. A credit rating of BBB- qualifies Telesat as investment
grade, and therefore benefits it in terms of lower borrowing rates and greater market
accessibility than non-investment-grade companies.
Telesat also has extensive experience in implementing substantial capital expenditure
programs. Indeed, over the past three-plus decades Telesat has successfully financed the
construction and launch of 16 of its own satellites, and currently has two other satellites
under construction and a third in the planning stages. Telesat has proven to be resourceful
and creative in its approach to financing. By selling capacity on a condominium basis in
appropriate circumstances, for example, it has been able to decrease its overall financing
requirements and reduce its exposure to business risk.
- 89 November 15, 2006
ABRIDGED
Telesat also enjoys the confidence of the insurance industry as it has consistently been able
to obtain adequate coverage of its satellite fleet at attractive rates. Telesat also has
extensive internal expertise and ready access to expert advice to support this key risk
management function. For many years Telesat has provided technical advice, on a
consulting basis, to a variety of satellite insurers.
Telesat therefore has the key institutional relationships and arrangements in place, or well
in hand, with customers, equipment vendors, R&D partners and the financial community
necessary for the optimal development of the 17 GHz BSS resources in this Canadian
broadcasting neighbourhood.
- 90 November 15, 2006
4.0
ABRIDGED
BUSINESS PLAN AND AGREEMENTS
To address anticipated capacity requirements in the Canadian BSS broadcasting
neighbourhood stretching from 91° to 72.5°WL, Telesat is proposing the phased launch of
four new BSS satellites, one to operate in the 12 GHz BSS band, and the other three to
operate in the 17 GHz BSS band. The 12 GHz BSS satellite (Nimiq 5) would be launched
into the 72.7°WL position in next few years. Telesat already has the Industry Canada
authorization for this position at this band. The three additional 17 GHz BSS satellites
(referred to herein as BSS1, BSS2 and BSS3) required to meet the demand requirement
would be launched and placed into service at two-year intervals following the launch of
Nimiq 5 (i.e., in service in 2012, 2014 and 2016 respectively) at 86.5°, 82°, and 72.5°WL.
The following constitutes the business plan for the launch of these three additional 17 GHz
BSS satellites.
4.1
4.1.1
The Canadian television broadcasting sector is comprised of a variety of private and public
services that provide general and specialty programming in English, French, Aboriginal
and a number of other languages. In its 2006 Broadcasting Policy Monitoring Report, the
CRTC stated that there are 659 television services currently available in Canada, comprised
of 467 English-language and Aboriginal services, 106 French-language services, and
86 third-language services. In addition, the Commission reported that there were
1,223 Canadian radio and audio services, consisting of 913 English-language services,
275 French-language services, and 35 third-language services.
- 91 November 15, 2006
Table 4.1.1-1
ABRIDGED
Television Services Available in Canada - 2006
English
French
Third
Language Language Language
Total
•
Owned & operated
•
15
4
8
4
-
23
8
Private Commercial
Religious
Educational
Aboriginal
74
5
4
9
9
23
3
3
4
2
101
5
7
9
14
30
15
47
5
9
13
14
3
3
2
2
-
5
25
5
-
49
18
75
12
11
13
133
11
1
33
1
1
-
166
12
2
83
6
45
134
467
106
86
659
Pay television
VOD services
Community channels
Non-Canadian satellite services authorized for
distribution in Canada
Source:
CRTC Broadcasting Policy Monitoring Report (June 2006)
This programming includes HDTV services. In 2005, viewers had access to up to
27 HDTV services, consisting of 16 Canadian services and 11 foreign ones. This number
has since crept up to over 30 services but is expected to rise dramatically over the next
several years.
- 92 November 15, 2006
Table 4.1.1-2
Station
ABC East
ABC West
A&E
CBC
CBS East
CBS West
CityTV
CTV
Discovery
Equator HD
Fox East
Fox West
Global
Movie Central
Movie Central2
Mpix HD
NBC East
NBC West
Oasis HD
Omni 1
Omni 2
PBS
Raptors
Rush HD
Score
SunTV
Sportsnet
CBC French
Movie Network
Treasure HD
TSN
WGN
PPV Channels
*
Bell
Express
Vu
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
4
ABRIDGED
HD Lineups of Major BDUs in Canada (September 2006)
Star
Choice
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Cogeco
Eastlink
Rogers
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
n/a
n/a
Y
Y
Y
Y
Y
Y
n/a
n/a
Y
Y
Y
Y
Y
n/a
n/a
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
1
Shaw
2
Vidéotron
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
n/a
n/a
n/a
Y
Y
Y
Y
Y
n/a
Y
Y
Y
Y
Y
2
In addition, Access Communications offers 12 and MTS one.
Source: www.digitalhomecanada.ca, Canadian HD Channel Lineups (September 2006)
Independent research studies show that, on a per viewer basis, Canadians aged 2 years and
over watched an average of more than 28 hours of television per week over the past few
- 93 November 15, 2006
ABRIDGED
years.8 These studies also estimate that 12.6 million Canadian households have at least
one television set9, including some 2.6 million households having HD televisions, with this
latter number expected to jump to approximately 8.1 million sets by 2009.10 Canadians are
therefore avid television viewers and appear intent on enhancing their viewing experience
with the purchase of the most up-to-date equipment.
While many of these television signals are delivered free over the air, the vast majority of
Canadians obtain their television programming through broadcast distribution undertakings
(BDUs) subscription services. As shown in Table 4.1.1-3, these BDUs currently include
approximately 1,960 cable TV companies, two national, satellite direct-to-home (DTH)
service providers, and close to 40 Multipoint Distribution Systems (MDS) and Subscription
Television Systems (STV).
Table 4.1.1-3
Number of Canadian BDUs
Number of BDUs
Cable
Cable class 1
146
Cable class 2
104
Cable class 3
1713
Sub-total
1963
DTH
2
MDS
27
STV
11
Total
2,003
Source: CRTC Broadcasting Policy Monitoring Report (June 2006)
8
9
10
BBM Television Databook 2005-2006
Canadian Media Research Inc. (August 2006)
- 94 November 15, 2006
ABRIDGED
As shown in Table 4.1.1-4, over the period 2001 to 2005, the aggregate number of
subscribers to Class 1 cable, DTH, MDS and STV services increased by close to 630,000,
to just under 9.1 million subscribers. However, over this time period the number of Class 1
cable subscribers actually fell by approximately 250,000, while DTH subscriptions
increased by more than 930,000 to just under 2.5 million. MDS and STV subscriptions
also fell over this time period, and now total just a little over 30,000.
In terms of market share, the Class 1 cable companies’ share dropped some 8.3 percent
points over this period from 81 to 72.7 percent, and the combined MDS and STV share was
cut by more than half to approximately 0.4 percent. DTH market share rose nine
percentage points, from 18 percent in 2001 to 27 percent in 2005.
Table 4.1.1-4
Number of Basic Subscribers (‘000)
Year
Cable-Class 1*
DTH
MDS & STV
Total
2001
6,857
81.0%
1,501
18.0%
87
1.0%
8,465
100.0%
2002
6,704
76.9%
1,960
22.5%
57
0.7%
8,723
100.0%
2003
6,581
74.9%
2,152
24.5%
50
0.6%
8,783
100.0%
2004
6,642
74.1%
2,277
25.4%
39
0.4%
8,958
100.0%
2005
6,607
72.7%
2,455
27.0%
32
0.4%
9,094
100.0%
Source:
CRTC financial database
* Note:
Class 2 & 3 cable undertakings are not included in these CRTC estimates as most are
exempt from regulation due to their small size. However, Statistics Canada figures indicate
that there were approximately 1 million subscribers to these exempt systems in 2004.
Statistics Canada figures provide consistent subscription and market share numbers.
Specifically, figures released in October 2005, which include the three classes of cable
undertakings, show that there were 9.9 million subscribers to cable and DTH and other
multipoint distribution services. Cable accounted for approximately 7.6 million of this
total, or 76.7 percent, while DTH and the other systems had just over 2.3 million
subscribers, or 23.2 percent.
- 95 November 15, 2006
ABRIDGED
The rapid growth of Canada’s two DTH service providers, Bell ExpressVu and Star Choice
Television Network Inc. (Star Choice), has also placed them third and fifth, respectively, in
terms of number of subscribers among all Canadian BDUs. As of 31 March 2006, Bell
ExpressVu had approximately 1,739,000 subscribers, while Star Choice had close to
862,000, for a combined total of just over 2.6 million subscribers.
Table 4.1.1-5
Largest Canadian BDUs
Number of Basic Subscribers (‘000)
2004
2005
2006
Rogers Cable
2,266
2,249
2,260
Shaw Communications
2,074
2,138
2,179
Bell ExpressVu
1,403
1,532
1,739
Vidéotron Ltée
1,428
1,455
1,520
Star Choice
814
830
862
Cogeco Cable
829
831
836
8,814
9,035
9,396
Total
Source:
CRTC - Corporate Quarterly Reports
The competitive inroads being made by the DTH service providers in the television
broadcasting sector are also reflected in the revenue growth numbers for basic and nonbasic programming services. As shown in Table 4.1.1-6, for DTH (including other
multipoint distribution service providers which account for a small portion of these
combined revenue numbers) annual revenues more than doubled for these types of
programming services (i.e., from $666 million to $1.4 billion) between 2001 and 2005,
whereas these same revenues for the Class 1 cable companies increased just 13 percent
(i.e., from $2.9 billion to $3.3 billion). The cable companies have done much better with
the growth of non-programming services (e.g., Internet service provision) over this time
period, but these are markets not currently targeted by the DTH companies.
- 96 November 15, 2006
Table 4.1.1-6
ABRIDGED
BDU Revenues ($M)
2001
2002
2003
2004
2005
1,693
1,664
1,709
1,810
1,843
91
280
356
458
505
1,784
1,944
2,065
1,295
1,360
1,394
1,475
1,538
575
650
811
871
931
1,869
2,009
2,205
2,346
2,469
Cable - Class 1
440
685
1,053
1,270
1,188
DTH, MDS, STV
13
16
36
28
32
Sub-Total
453
702
1,089
1,298
1,220
3,427
3,709
4,156
4,555
4,569
679
946
1,204
1,357
1,468
4,106
4,656
5,360
5,912
6,037
Basic Programming Revenue:*
Cable - Class 1
DTH, MDS, STV
Sub-Total
2,268
2,348
Non-Basic Programming Revenue: **
Cable - Class 1
DTH, MDS, STV
Sub-Total
Non-Programming Revenue: ***
Total Revenue:
Cable - Class 1
DTH, MDS, STV
Total
Source:
CRTC financial database
*
revenue from basic programming service packages
**
revenue from discretionary programming service packages (i.e., programming services not on
the basic service)
***
revenue derived from exempt & non-programming services such as the Internet
- 97 November 15, 2006
ABRIDGED
While the Canadian DTH companies compete against one another and with the cable
companies, both groups also compete in Canada with the U.S. DTH service providers
through the grey market. Estimates vary, but it is widely believed that some 140,000 to
200,000 Canadian consumers obtain their DTH service from this source and that the
resulting revenue loss to the Canadian broadcasting system exceeds $400 million a year.11
Canadian Satellite Broadcasting Neighbourhoods & Present Capacity Situation
The Canadian broadcasting market is an extremely important market to Telesat. Indeed,
broadcast sales account for over 50 percent of Telesat’s revenues, and the revenues
associated with the carriage of Canadian television signals, and particularly those from the
two Canadian DTH service providers, make up the bulk of these broadcast sales.
The Telesat satellites used by the Canadian broadcasting sector effectively define two
Canadian broadcasting neighbourhoods, based on two distinct satellite service platforms.
One of these neighbourhoods is the Nimiq BSS platform at 91.1° and 82°WL, where
Telesat currently operates four Nimiq 12-GHz BSS satellites (Nimiq 1, 2, 3 and 4i) and all
the capacity is used for the Bell ExpressVu service. This neighbourhood will soon be
expanded to include the 72.7°WL position where Nimiq 5, another 12 GHz BSS satellite,
will go into service in 2010, with Bell ExpressVu committing to taking all the capacity.
The Bell ExpressVu service at 91.1° and 82°WL is currently transmitting approximately
500 television signals, and is using all available frequencies on the Nimiq satellites
currently located at these positions.
The other Canadian broadcasting neighbourhood is based on an FSS satellite platform, and
includes the 107.3° and 111.1°WL positions, currently occupied by the Anik F1, F1R and
F2 satellites. Capacity at these positions is used by a number of Canadian broadcasters and
by Star Choice in the delivery of its DTH service at Ku-band. In a separate application in
response to this Call for Applications, Telesat has outlined its plan to meet Canadian
capacity expansion requirements in this neighbourhood.
The Bell ExpressVu and Star Choice platforms operating in these two neighbourhoods are
also used to deliver programming services to cable TV company headends situated all
across Canada (i.e., satellite relay distribution undertaking (SRDU) services).
11
The Coalition Against Satellite Signal Theft (2005)
- 98 November 15, 2006
ABRIDGED
It has taken Telesat and its customers years, at considerable cost, to develop these Canadian
broadcasting neighbourhoods to the point where there are now in excess of 2.6 million
antennas trained on satellites located at these positions. Telesat’s investment in developing
these positions has been enormous. This includes the multi-billion dollar investment in
seven generations of satellites and associated ground segment infrastructure, as well as the
investment in building strong customer relationships by providing these customers with the
capacity and services they require, at the time they need them, to grow their businesses.
The economic and strategic importance to Telesat of acquiring additional spectrum
resources at these positions in the bands most suitable to addressing its customers’
emerging requirements is therefore enormous.
The ability for Telesat to aggregate spectrum in these neighbourhoods has ramifications for
its Canadian broadcasting customers as well. They are looking for expansion capacity and
back-up for their service in these neighbourhoods, and generally they will be able to satisfy
these requirements more effectively and at a lower cost if they can deal with a single
operator. For example, larger total capacity commitments (even if spread over more than
one satellite or different bands) will generally lead to lower prices to the customer.
Similarly, their ability to manage their service or to respond quickly and most effectively to
emergency situations will be greatly enhanced if they are dealing with only one operator.
4.1.2
BSS capacity. In particular, Telesat believes that there are three principal drivers of new
capacity demand which will largely have to be addressed using new BSS frequencies (i.e.,
17 GHz BSS) in this broadcasting neighbourhood. These drivers include: the growth in the
number of programming services available, the conversion of SDTV services to high
definition television HDTV or HD format, and the development and widespread
deployment of new broadcasting applications.
Growth in the Base of Available Programming Services
Over the past few years the number of certain types of Canadian programming services has
increased significantly. For example, as shown in Table 4.1.2-1 (which also appears in
Telesat’s Canadian Satellite Capacity and Services Plan as Table 3.1.1-1), following the
CRTC’s decision to licence Category 2 digital specialty services on a more competitive,
open-entry basis, the number of new Category 2 digital specialty services now available in
Canada has more than doubled since 2002, going from 32 to 75 services.
- 99 November 15, 2006
Table 4.1.2-1
ABRIDGED
2006
2005
2004
2003
2002
31
101
5
7
9
14
28
101
5
7
10
11
25
100
5
7
10
9
40
91
5
7
10
-
46
81
5
7
10
-
49
18
75
12
11
13
49
18
58
12
11
13
49
18
48
7
12
11
49
15
41
8
12
9
51
16
32
7
12
4
166
12
2
235
11
2
235
12
2
251
-
246
-
134
108
107
93
93
659
679
657
631
610
481
433
410
380
364
Private Commercial
Religious
Educational
Aboriginal
Pay television
VOD services
Community channels
Source:
- 100 November 15, 2006
ABRIDGED
In this regard it should be noted that the number of Category 2 specialty services identified
in this table are those that have been launched and are therefore available, whereas the total
number of these services that have actually been approved by the Commission now
numbers in the hundreds. Lack of financing and distribution capacity are two of the main
reasons why so many of these services have failed to launch. However, the availability of
new spectrum resources (e.g., the 17 GHz BSS band) will mitigate the capacity constraint,
at least for satellite DTH and SRDU services.
Similarly, the number of video-on-demand (VOD) services has increased markedly over
this period, from 4 services to 13. VOD services have been available for some time but the
market has been slow to develop. This appears to be changing as more service providers
with more content have been entering the market. The ‘any time’ nature of this service is
also becoming an increasing better fit with the viewing needs of the time-strapped public.
Indeed, Pricewaterhouse Coopers forecast that the North American VOD market will be
worth approximately $3.9 billion by 2010, with Canadian revenues, prorated by market
size, accounting for approximately $370 to $390 million of that total.12
Table 4.1.2-2
Major Canadian VOD Groups and Area of Interest
PROGRAMMING AND CONTENT
DISTRIBUTION
Corus
Alliance Atlantis
CBC/Radio Canada
Astral
CABLE PROVIDERS
Compton
Mountain
Rogers
Shaw
Vidéotron/TVA/illico Cable
TELECOMMUNICATIONS
Telus
MTS
Saskatchewan Telecommunications
12
Pricewaterhouse Coopers Annual Entertainment and Media Report (2006)
- 101 November 15, 2006
ABRIDGED
Over the same 2002 to 2006 time period, the number of non-Canadian satellite services
authorized to broadcast in Canada, many of which are carried as part of the Canadian DTH
and SRDU service packages, also grew significantly. In 2002, the Commission had
approved 93 of these services for distribution, and this number has since increased by
44 percent to 134 services.
More generally, although the total number of all types of television services available in
Canada has only crept up by approximately 8 percent since 2002, if local community
channels and programming services are netted out of this total to better reflect carriage
opportunities for satellite, then the number of available services has increased by four times
this amount to 32 percent, rising from 364 to 481 services (see Table 4.1.2-1).
Conversion of the Base of Programming Services to HD Format
With its vastly superior picture and sound quality, television programming in HDTV
format will greatly enhance the viewing experience for consumers. The advent of these
next-generation services has been long anticipated by television service providers and
viewers alike. Yet the delivery of these services has been delayed by technological
challenges and incompatible standards. The development of new, open standards is now
quickly removing these hurdles.
Table 4.1.2-3
HD Trend Drivers
Technology
Market Response
HD Screens, Cameras, and Studios
become more advanced and ready
All major TV monitor manufacturers increase production of
HD sets, causing prices to fall.
Lower production and camera costs from studios allow for
more content to be created.
Consumers witness quality improvement, leading to
increased for demand for HD sets & content.
Improvement in modulation &
compression technologies
Allows broadcasters and distributors to begin launching
new HD services with some of the capital expenditure
being offset by more efficient transmission technologies.
- 102 November 15, 2006
ABRIDGED
Delivering the true HD experience to Canadians requires that programming and content to
be created in HD, and that homes be HD-ready. Programmers and content distributors are
responding to this challenge by creating strategies to upgrade their production, editing,
master control and transmitter facilities with new digital equipment that is capable of wide
screen presentation and HDTV pass-through. Their objective is to position themselves so
that, when the consumer is fully ready to receive HDTV content, they will have the
infrastructure and product in place.
These requirements are consistent with what is being observed in the market. For example,
Rainmaker Entertainment Group in Vancouver reports that about 75 percent of what they
produce is now in HD format and that this trend has grown significantly in the past two
years.13 In addition, industry reports indicate that, as of September 2006, there were
approximately 32 High Definition channels being broadcast in Canada across the two main
satellite companies and the five major cable companies (see Table 4.1.1-2). The adoption
rate of HD channels to satellite is significant with Bell ExpressVu carrying 28 of those
32 channels, or more than 85 percent of available channels. Bell ExpressVu recently
announced that it added four new French-language HD channels to its HD line up.14 This
DTH service provider also offers four PPV channels in HD format.
It is expected that the increased availability of HD programming, and increased recognition
of the superior picture and sound quality of this programming, will further stimulate
consumer demand for more and a faster deployment of HD services. Increasing awareness
that U.S. viewers have access to a greater number of HD services will have a similar
demand augmenting effect in Canada. Canadian service providers also realize that they
must keep pace with their U.S. DTH counterparts in the introduction of this content, or they
will risk losing Canadian subscribers to the grey market.
Complementing the trend of increased HD production and channel transmission is the
significant growth in the amount of Canadian households that are ‘HD Ready’. It is
estimated that approximately 2.6 million households currently have HD television sets, and
that this number will grow to 8.13 million by 2009.15
13
14
15
Canada Broadcast and Production Journal.
Bell Canada press release: Bell adds four new French High-Definition channels to its crowd-pleasing lineup of
programming. (31 October 2006)
- 103 November 15, 2006
ABRIDGED
All of the required elements for the wholesale conversion of programming services into HD
format are therefore rapidly coming together. Indeed, as shown in Table 4.1.2-4,
information supplied in the consultation process by the CSUA confirms that the Canadian
broadcasting industry is gearing up for the complete conversion of programming signals
into HDTV format. As shown below, the new BSS satellite capacity that will be required
to effect this wholesale conversion is enormous.
Table 4.1.2-4
CSUA HDTV Demand Estimate
Timeframe
Next 2-3 years:
30-50 %
In 5 years:
75 %
In 10 years:
100 %
Deployment of New Broadcasting Applications
New technologies are fundamentally changing the way people watch television and
enhancing their viewing experience, giving rise to the expectation among consumers that
they can have access to an ever growing number of these services ‘any time, any place and
on any device’ they find to be most convenient at the moment. These new technologies
have the potential to evolve quickly into must-have consumer services, particularly among
certain segments of the consuming public.
For example, new mobile phones and other portable devices are being developed that allow
people to watch video content virtually ‘anywhere’ they want. Figure 4.1.2-1 illustrates the
evolution to date of mobile TV, from downloading and streaming to full broadcasting,
while Figure 4.1.2-2 illustrates the various trials underway, as of July 2006. These trials
include all the standards that are presently being considered in Canada including Digital
Video Broadcasting Handheld (DVB-H), Digital Multimedia Broadcasting (DMB), as well
as MediaFlo (a Qualcomm standard).
- 104 November 15, 2006
ABRIDGED
Network Bandwidth
And Scalability Required
Source: Telia Sonera
Figure 4.1.2-1
Mobile TV Evolution
Source: Rethink Research Associates 2006
Figure 4.1.2-2
Mobile Television Technology Trials
- 105 November 15, 2006
ABRIDGED
In Europe and Asia, mobile television, most notably Digital Video Broadcasting Handheld
(DVB-H), is being widely tested and has already reached the commercialization stage on
terrestrial networks. SES Global and Eutelsat Communications have just announced plans
phones, PDAs, laptops and vehicle receivers, using an S-band payload on a satellite to be
launched in 2009. As these satellite operators note, mobile broadcasting services represent
a large and currently underdeveloped market, which is well suited for the universal
coverage a satellite service can deliver.16
New networks for the delivery of mobile TV services are starting to appear in the U.S. The
early entrants into the field include Modeo (formally Crown Castle), Hiwire and MobiTV.
Modeo has the stated goal of reaching 99 percent of Americans with its service utilizing
both terrestrial and satellite networks.17
In Canada, Telesat anticipates working with one or more of the telecommunications
companies to develop a similar national network. To this end, Telesat has designed a
network topology (see Figure 4.1.2-3) and is presently in testing trials with prospective
partners. A factor that could speed the full commercialization of these services is the recent
ruling by the CRTC, where it was affirmed that mobile TV services through handhelds are
exempt from regulation.18
16
17
18
Services in Europe, REDORBIT NEWS, 30 October 2006.
Modeo Annual Report 2005
CRTC, Broadcasting Public Notice CRTC 2006-47–Regulatory Framework for Mobile Broadcasting Services (12
April 2006)
- 106 November 15, 2006
Figure 4.1.2-3
ABRIDGED
DVB-H Broadcast System
Independent research studies predict that worldwide demand for mobile broadcasting
services could reach 108 million subscribers by 2010 or soon thereafter, with close to
50 million of those subscribers located in North America and a revenue potential
approaching of $5 billion.
Table 4.1.2-5 Mobile TV Market Potential
¾
108 million worldwide Subscribers by 2010
¾
48.6 million Subscribers in North America by 2010
¾
As of mid 2006, North American Subscribers approximately 1 million
¾
Global mobile TV service revenue $24.7 B in 2005 to 2010 period
¾
North American mobile TV service revenue $4.7 B in 2005-2010
¾
Latin American market: 4.2 million Subscribers and $.7B in 2005-2010
Source:
The market has not been adequately measured in Canada, but given the progression of
events in Europe, Asia, and the U.S., Telesat anticipates that this market could well start to
develop in the 2010-2011 timeframe, likely based on a satellite/terrestrial hybrid network.
- 107 November 15, 2006
ABRIDGED
4.1.3
The new demand associated with the three drivers identified above will, in aggregate,
require a considerable amount of new satellite capacity to satisfy. In this section these
anticipated demand requirements are converted into approximate satellite transponder
capacity equivalents.
Starting with the new demand associated with additions to the base of available television
programming services (e.g., new specialty services), as shown in Table 4.1.2-1 the number
of new services (net of changes to community channels and community programming
services) increased by 117 services from 2002 to 2006. This increase averages out to
approximately 29 new services a year over this four year period. If this trend continues
even assuming that most would launch in SDTV format (up to a maximum of 10 to
12 channels per transponder with MPEG 2), an additional two to three transponders per
year would be required to transmit the new services.
Table 4.1.3-1
Increase in Number
of Available
Television Services*
*
Net Increase in Available Television Services
2006/
2005
2005/
2004
2004/
2003
2003/
2002
Aggregate
New Services
over the
Period
Average
Annual
Increase in
New Services
48
23
30
16
117
29.25
Net of Community Channels & Community Programming Services
The availability of a new service does not mean that it will be added to the program line-up
of a BDU. In fact, few new services are added to these line-ups in any given year. It is
expected that those few new services that are added to the line-up will be launched in, or
eventually converted to, HD format. Even the launch of a small number of new
programming services could quickly drive capacity requirements up. More specifically, the
present transmission standard used for HDTV is MPEG-2 with DVB-S, and with this
combination only one to two HDTV signals can typically be transmitted over a
transponder.
- 108 November 15, 2006
ABRIDGED
Next generation transmission and coding standards, H.264 (MPEG-4-AVC) with DVB-S2,
will mitigate this situation somewhat. H.264 promises to be two to three times more
powerful than the existing MPEG-2 standard. Using the conservative factor of two, H.264
will be able to carry twice as much information per unit of bandwidth as the MPEG-2
standard, which, when combined with the DVB-S2 modulation standard, will be able to
carry up to four times the information per unit of bandwidth that is carried with current
techniques. MPEG-2 can encode an HDTV signal at about 20 Mbps, including video,
audio, and transport stream overhead, while H.264 should be able to do the same with
10 Mbps. The number of HDTV signals that can be transmitted over a transponder with
H.264 coding and DVB-S2 transmission will therefore be in the range of four to six. This
is consistent with the CSUA estimate provided in the consultation process of bit rates of
6-8 Mbps per HDTV signal in five years.
Table 4.1.3-2 HDTV Technology Comparisons
MPEG-2 with DVB-S
H.264 with DVB-S2
0.6 m
0.6 m
Channel Information Capacity
20 Mbps
40 Mbps
Number of Signals per Channel
1-2
4-6
Receive Antenna Size
Accordingly, for every four to six new programming services added to the existing base,
one additional transponder, using next generation transmission and coding standards, will
be required to transmit those signals.
Regarding the new capacity requirement associated with conversion of the existing base of
programming services into HD format, the Bell ExpressVu DTH service currently consists
of several hundred signals (including some 30 HD signals). To deliver these signals it
currently has 61 transponders on the Nimiq satellites at its disposal, and is averaging
approximately eight signals per transponder. The launch of Nimiq 4 in 2008 will restore
Bell ExpressVu to the full complement of 64 available transponders.
In developing a realistic forecast of future transponder demand, and consistent with the
CSUA’s target conversion percentages provided in Table 4.1.2-4, the assumptions in
Table 4.1.3-3 were used regarding the new transponders required to complete the HDTV
conversion of Bell ExpressVu’s existing base of programming signals.
- 109 November 15, 2006
Table 4.1.3-3
ABRIDGED
Technology Adoption Assumptions
2010
Percentage of existing signals converted to
HDTV (based on CSUA targets)
MPEG-2 & DVB S (existing format)
Signals per Transponder: 2
MPEG-4 & DVB S2
Signals per Transponder: 5
*
2012
2014*
2016
50%
75%
85%
100%
25% of HD
signals
20% of HD
signals
20% of HD
signals
20% of HD
signals
75% of HD
signals
80% of HD
signals
80% of HD
signals
80% of HD
signals
CSUA did not provide a specific HDTV conversion target for 2014. The 85% target is an assumption,
conversion that would likely be complete by this date.
Telesat anticipates eventual widespread migration to MPEG-4 and DVB-S2 technologies
once they have matured. However, these new technologies will require the replacement of
equipment at transmit and receive sites. Due to the large amount of existing equipment in
place today, and the large capital replacement cost, Telesat believes that the migration will
occur over a number of years. For the next several years, because of business
considerations or regulatory requirements, programming converted to HD format will also
have to be broadcast in SD format as well (i.e., simulcasting). This duplication of signals
will increase capacity requirements, but this factor is not directly factored into the analysis
which follows.
As shown in Table 4.1.3-4, based on the above assumptions, to meet the CSUA conversion
targets the number of transponders that will be used to transmit HD signals will increase
from 68 to 130 between 2010 and 2016, which, when combined with the number of
transponders required to continue transmitting the declining number of remaining SDTV
signals, will result in a transponder deficit rising from 29 in 2010 to 71 transponders in
2016, assuming no new capacity is introduced in this period.
- 110 November 15, 2006
Table 4.1.3-4
ABRIDGED
Transponder Requirements Due to HDTV Conversion
2010
(50% overall
conversion to
HD)
2012
(75% overall
conversion to
HD)
2014
(85% overall
conversion to
HD)
2016
(100%
overall
conversion
to HD)
Transponders using
MPEG-2 & DVB-S
(existing format)
2 HD signals per transponder
31
37
42
50
Transponders using
MPEG-4 & DVB-S2
5 HD signals per transponder
37
60
68
Transponders Required
for HDTV
68
97
110
130
Transponders Required
for Remaining SDTV**
25
12
10
5*
BSS Transponders
Available (post Nimiq 4)
64
64
64
64
Transponder Deficit
(cumulative)
29
45
56
71
Transponder Requirements
Based on CSUA HDTV
conversion estimates
80
*
Telesat assumes that a small programming bundle would need to remain available in both SDTV &
HDTV format at least until this date.
**
Telesat assumes that the number of SDTV signals transmitted per transponder will increase slightly
over time.
Regarding the third demand driver and anticipated capacity requirements, as the
development of satellite-based mobile broadcasting networks remain in the formative
stages, it is difficult to forecast satellite capacity requirements at this time. That said, HD
format will likely be the industry standard for these new services and applications.
Consequently, even if mobile broadcasting service providers were to start by offering only
a limited number of programming services and add more as the market develops,
transponder capacity requirements would quickly mount up.
- 111 November 15, 2006
ABRIDGED
4.2
The objective of Telesat’s plan for the optimal development of the 17 GHz BSS
frequencies at the 86.5°WL position, in combination with the 82° and 72.5°WL positions,
is to meet two primary requirements:
•
introduce in a timely and cost effective manner new BSS capacity that is sufficient to
address the anticipated demand requirements over the next ten years resulting from the
introduction of new programming services, the required conversion of signals to HD
format, as well as new demand expected to arise from the widespread deployment of
new broadcasting applications
•
ensure that satellite diversity and emergency back-up capabilities are available in this
neighbourhood in the 17 GHz BSS band in the event of a catastrophic failure or serious
degradation in a 17 GHz BSS satellite at one or more of these positions
As a contingency measure, all three of the planned 17 GHz BSS satellites would be
designed to have switchable Canada and U.S. footprints, on a transponder by transponder
basis. Accordingly, if Canadian demand for some significant portion of the new capacity
introduced in this neighbourhood on one or another of these satellites did not materialize,
that surplus capacity could be sold to one or more U.S. customers.
4.2.1
neighbourhood, four new 32-transponder BSS satellites, phased in over the next 10 years,
will have to be launched. These satellites will include: a 12 GHz BSS satellite (Nimiq 5) to
be launched into the 72.7°WL position to commence service in 2010, plus three additional
17 GHz BSS satellites (BSS1, BSS2 and BSS3) to be placed in service at the 86.5°, 82° and
72.5°WL positions in 2012 , 2014 and 2016, respectively.
Telesat is already authorized to launch Nimiq 5 into the 72.7°WL position, and Bell
ExpressVu has committed to taking all capacity on this satellite. This new capacity is more
than sufficient to accommodate CSUA’s demand estimate for HDTV conversion of ’30 to
50 percent of channels’ by the target date of 2010. In fact, the equivalent of only 29 of
these 32 new transponders will be needed at this time to fulfill this anticipated demand
requirement to the 50 percent level.
- 112 November 15, 2006
ABRIDGED
The three remaining transponders would be available to serve the other new sources of
Canadian demand identified above, including the launch of new programming services, or
possibly for use with new applications such as mobile TV, or to accelerate the HDTV
conversion process. If Bell ExpressVu chose to use this capacity for the launch of new
services, it could do so in either SDTV or HDTV format.
The launch of BSS1 for service in 2012 at the 86.5°WL position introduces sufficient new
capacity in this neighbourhood to satisfy CSUA’s HD conversion target of ’75 percent of
channels in 5 years time’. After meeting this target, the equivalent of 16 new additional
transponders would remain available to address the other identified Canadian capacity
requirements, or to accelerate the HDTV conversion process. This additional capacity
would also be coming on stream at the time when Telesat expects significant satellite
demand to support new broadcasting market applications, such as mobile television, will
start to ramp up in the Canadian marketplace. These new broadcasting service applications
will almost certainly require service launch in HD format, and therefore require significant
blocks of transponder capacity to offer even modest service packages.
The launch of BSS2 for service in 2014 at the 82°WL position would meet the an assumed
target of 85 percent conversion of the existing base of programming services to HDTV
format, accounting for approximately 11 transponders on this satellite. The capacity of a
further 15 transponders would still be required to meet CSUA’s 100 percent HD conversion
target by 2016, which could be met either on an accelerated basis by capacity made
available with the launch of BBS2 or on schedule with the launch of BSS3 for service in
the 72.5°WL position in 2016.
If BSS2 capacity is not used to accelerate the HDTV conversion process, the equivalent of
21 transponders of capacity would become available to address other Canadian demand
requirements at that time, and a further 17 transponders would become available following
the launch of BSS3 two years later.
While Telesat expects that the launch of new Canadian programming services or further
capacity to support new broadcasting applications reaching the commercialization stage at
this time will require a significant amount of capacity, blocks of capacity in this
neighbourhood in the 17 GHz band would also likely be appealing to potential U.S.
customers. For example, both EchoStar and DIRECTV operate in this BSS neighbourhood
and Telesat has entered into capacity arrangements for DTH service into the U.S. in the
past with both of these service providers.
- 113 November 15, 2006
ABRIDGED
Table 4.2.1-1 (which also appears as Table 3.1.1-3 in Telesat’s Canadian Satellite Capacity
and Services Plan) summarizes this matching of Canadian demand for additional BSS
spectrum in this Canadian broadcasting neighbourhood with the phased introduction of the
four new satellites.
Table 4.2.1-1
Year
2010
2012
2014
2016
Neighbourhood
CSUA HDTV
Conversion
Target*
New
Transponders
Required to
Meet CSUA
HDTV
Conversion
Targets**
New
Transponders
Available to
Address Other
Demands
(Including
Simulcasting)
(Cumulative)
(Cumulative)
New Satellite
In Service
New
Transponders
Available
(band/location)
(Cumulative)
Nimiq 5
(12 GHz/72.7°WL)
32
50 %
29
3
BSS1
(17 GHz/86.5°WL)
64
75 %
45
19
BSS2
(17 GHz/82°WL)
96
85 %
56
40
BSS3
(17GHz/72.5°WL)
128
100 %
71
57
*
**
- 114 November 15, 2006
ABRIDGED
All told, the straight conversion of the existing base of programming services to HDTV
will account for some 71 of the new 128 transponders Telesat proposes to introduce into
this Canadian broadcasting neighbourhood over a six year period. This essentially
represents a near-guaranteed minimum fill-factor of 55 percent for the four new satellites to
be launched into these positions. The remaining 45 percent of this new aggregate capacity
would then be available for the launch of new programming services (which the CRTC is
currently licencing at a rate of close to 30 new services a year), emerging broadcasting
applications such as mobile TV (which also will likely require launch in high-capacity
demand HD format), and/or for use in the U.S. (in a neighbourhood where major U.S.
service providers are already operating).
Forecasting the actual number of transponders that would be used to address these other
Canadian demands over a planning horizon stretching out to 2016 is difficult. However,
given the rate at which new programming services are currently being licenced by the
CRTC and the assumption that new broadcasting services such as mobile TV will require
blocks of transponders to launch even a small service in HD format, Telesat estimates that
the use of four to six transponders a year, averaged over the next ten years, would be
required to satisfy these new demand requirements. Over and above the 70 new
transponders required to effect the conversion of the existing base of programming services
to HD format, an additional 40 to 60 transponders will be required to meet these other new
Canadian demand requirements over this timeframe. Meeting total anticipated Canadian
demands would therefore require between 110 and 130 new BSS transponders be
introduced into this Canadian broadcasting neighbourhood by 2016.
ITU Timing Considerations
ITU bringing-into-use dates are a factor requiring careful attention in the launch of the
three 17 GHz BSS satellites, particularly in the case of BSS1 at 86.5°WL position and
BSS2 at 82°WL.
Table 4.2.1-2 details all the networks filed in these bands with the ITU within 4 degrees of
the 86.5°WL position. The Canadian satellite filing CAN-BSS-85.0, with an expiry date of
1 April 2009, establishes Canadian rights to the 17 GHz BSS band at the 86.5°WL position.
The UK satellite filing on behalf of SES, AM-SAT-85W, is next in the queue for operation
in the 17 GHz BSS band at 85°WL with an expiry date of 11 July 2009. It would be
extremely difficult for either of these two network filings to be brought into use before their
expiry date in 2009.
- 115 November 15, 2006
ABRIDGED
The next filing in the queue is MEASAT-89.5W with a priority date of 31 December 2004,
and an expiry date of 11 June 2011. Intelsat’s filing INTELSAT KAEXT 89W with a
priority date of 14 September 2005 is next. CAN-BSS9 with a later priority date of 18
November 2005, and a network expiry date of 18 May 2012, comes after these two
networks. The Canadian licensee for the 86.5°WL position must assess carefully the
likelihood of either of these U.S. and Malaysian filings being implemented ahead of the
Canadian network. It should be noted that Intelsat owns and operates a multi-band (C, Ku,
and Ka-band) satellite at the 89°WL position.
Table 4.2.1-2
Administration
ITU Network Name
17 GHz BSS Networks Filed within 4° of 86.5°WL
Sat. Name or Operator Orbit Slot
SES
SES
Priority Date
Expiry Date
RES49 Due Date
89.8
89.8
-
8-Feb-2007
9-Jun-2008
-
Luxembourg
LUX-G4-61
LUX-G5-61
Malaysia
MEASAT-89.5W
89.5
31-Dec-2004
11-Jun-2011
11-Jun-2011
USA
INTELSAT KAEXT 89W
89.0
14-Sep-2005
14-Mar-2012
14-Mar-2012
Canada
CAN-BSS-85.0
CAN-BSS9
86.5
86.5
1-Oct-2002
18-Nov-2005
1-Apr-2009
18-May-2012
1-Apr-2009
18-May-2012
Luxembourg
LUX-G4-62
LUX-G5-62
SES
SES
85.3
85.3
-
8-Feb-2007
9-Jun-2008
-
United Kingdom
AM-SAT-85W
SES
85.0
28-Jan-2003
11-Jul-2009
11-Jul-2009
As the successful applicant for the 17 GHz BSS and feeder link frequencies at the 86.5ºWL
position, Telesat would expect to use both Canadian satellite network filings of
CAN-BSS-85.0 and CAN-BSS9 to establish international protection for its satellite service.
Telesat is aware that there is a risk that Canada will not have ITU priority at the time BSS1
is brought into use, but is prepared to accept the risk, given the stated preference of its
customer Bell ExpressVu for the 86.5°WL position. However, should it not be possible to
satisfactorily coordinate the network at 86.5°WL, it may be necessary to locate the first
17 GHz satellite for Bell ExpressVu at either the 82° or 72.5°WL orbital positions.
Telesat views May of 2012 as the critical date to bring the 17 GHz network at 86.5°WL
into use to preserve Canada’s ITU priority status. The critical date for 82°WL, into which
Telesat proposes to place its BSS2 satellite, is also May 2012, and the critical date for
72.5°WL, into which Telesat proposes to place its BSS3 satellite, is November 2012.
- 116 November 15, 2006
ABRIDGED
As the capacity is not required on all of these satellites by these critical ITU dates, Telesat
would proceed as follows. BSS1 would be launched in early 2012 and used to bring the
networks at the 82° and 72.5°WL positions into use, before being placed in service at its
planned position of 86.5°WL before 18 May 2012. Telesat would then have two years
from the date BSS1 brought the 82° and 72.5°WL networks into use to launch BSS2. Near
the end of this two-year time period (early 2014), BSS2 would be launched and temporarily
located at 72.5°WL to preserve Canada’s priority at that position, following which it would
be placed in service at 82°WL. Within two years of the date of BSS2’s temporary
placement at 72.5°WL (i.e., by early 2016), BSS3 would be launched into this position as
its permanent home.
This plan preserves Canada’s ITU status at each of the 17 GHz BSS positions in the
neighbourhood, yet allows for the required phase-in of 17 GHz BSS capacity to meet
anticipated Canadian demand.
The construction of the three 17 GHz BSS satellites to be located at 86.5°, 82° and
72.5°WL would be virtually identical. Each would carry 32 BSS transponders of 27 MHz,
using the 24.75 to 25.25 GHz spectrum on the uplink and 17.3 to 17.8 GHz on the
downlink. The full 500 MHz of spectrum, in both polarizations, at each of these positions
would therefore be used. The satellites would be designed for 15 year service lives.
Construction of each satellite through to in-orbit delivery would take approximately 30
months from the date of contract signature with the satellite manufacturer, and would be
staggered to bring the satellites into service at two year intervals (i.e., in 2012, 2014 and
2016).
Each of the satellites would be designed for optimal coverage of all areas of Canada from
its orbital position. However, the beam coverage would also be switchable between the
Canadian and U.S. coverage footprints, on a transponder-by-transponder basis. This design
will provide flexibility for Telesat to provide service on any of these satellites to one or
more U.S. customers should there be any capacity truly surplus to the needs of Telesat’s
Canadian customers or other Canadian users.
- 117 November 15, 2006
ABRIDGED
OFT
9.00
44
8.00
49
49
52
52
44
54
7.00
54
52
49
6.00
44
5.00
4.00
3.00
-5.00
-4.00
-3.00
-2.00
Figure 4.2.1-1
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
4.00
5.00
Coverage of Canada at 86.5WL
SATSOFT
9.00
8.00
49
7.00
51
51
49
54
53
52
6.00
52
5.00
52
51
53
54
52
49
4.00
3.00
-5.00
-4.00
-3.00
-2.00
Figure 4.2.1-2
Note:
-1.00
0.00
1.00
2.00
3.00
Coverage of the U.S. at 86.5WL
The Canada/U.S. coverage patterns would be similar for the satellites at 82°and 72.5°WL
- 118 November 15, 2006
ABRIDGED
4.2.2
Telesat’s primary focus for the marketing of the 17 GHz BSS capacity will be Canada, with
U.S. customer interest solicited only if it becomes apparent that there will be a significant
amount of capacity on these satellites that would exceed Canadian customer requirements.
Telesat expects that this capacity will be sold largely, if not exclusively, on a wholesale
basis. That is, customers will combine the satellite capacity with other value-added
services (such as DTH and mobile broadcasting service offering) for resale directly to enduser consumers. This is the approach that Telesat has followed since the mid-1990s and
launch of its first BSS satellite in the 12 GHz BSS band (Nimiq 1), and it has proven very
effective in serving the BSS market in Canada.
Telesat will continue to provide contractual flexibility with regard to contract term and
other business arrangements. Space segment can generally be procured from Telesat for as
short a term as one month and for as long as fifteen years (i.e., life of the satellite).
Discounts typically apply for full period channels under contract for 1, 3, 5, 10 and
15 years terms, with a higher level of savings offered for longer term commitments.
Customers can expect significant savings depending on the contract length and the number
of channels purchased.
4.2.3
Telesat will use its existing sales team and support staff to market 17 GHz BSS capacity
and to service its customers. This includes a sales application engineering team to provide
both pre-sale and post-sale technical consultation and support to customers, as required.
To further meet customer requirements in an optimal manner, Telesat has established a
comprehensive network of earth stations, teleports and broadcast hubs. This extensive
infrastructure across all regions of Canada delivers local, regional and national program
signals and is supported by a team of technology and satellite service specialists. Telesat’s
teleports and hub facilities allow broadcasters and business customers to share services and
equipment housed in one central location. This sharing of facilities reduces their expenses
and capital investment.
- 119 November 15, 2006
ABRIDGED
Telesat’s 35+ years of operating history has resulted in an efficient organization capable of
launching and maintaining the anticipated fleet of 17 GHz BSS satellites. Telesat
employees have extensive experience in multiple areas of the satellite communication
business. Telesat’s satellite engineers have been awarded international recognition for
innovation and for technical expertise. Telesat’s earth station engineering and operations
organizations have enabled the implementation of numerous satellite networks ranging
from a few sites to thousands of sites.
Telesat’s existing infrastructure is designed to accommodate the addition of new satellites
and new applications and services. Satellite owners worldwide choose Telesat to help them
design their satellite programs. This customer confidence is the result of Telesat’s solid
reputation in the satellite industry as a premier satellite operator.
This existing wealth of Telesat experience and expertise will be available to all existing and
future Telesat customers. Satellite industry partners can rely on Telesat to work with them
to find new innovative ways to bring new services to all parts of Canada and North
America.
4.2.4
Revenues and expense projections relating to the operation of BSS1 at the 86.5°WL
position, with supporting assumptions, are contained in Table 4.2.4-1.
- 120 November 15, 2006
Table 4.2.4-1
ABRIDGED
Projected Revenues and Expenses
Projected Revenues and Expenses
17 GHz Reverse BSS: 86.5º W
$ Millions (CDN)
Year
1
Year
2
Year
3
Year
4
Year
5
Year
6
Year
15
Capital Cost
Satellite
120.7
Launch Vehicle
85.3
Insurance Prem.
59.4
TT&C
8.0
Engineering
7.1
Capitalized Interest
24.6
Total
305.1
Transponders Utilized
32
32
32
32
32
32
32
Revenues
77
77
77
77
77
77
77
Operations - Space
17
17
17
17
17
17
10
Operations – Earth
-
-
-
-
-
-
-
Operations – Gen. & Admin.
3
2
2
2
2
2
3
(17)
(44)
(24)
(10)
(1)
6
22
(232)
101
82
68
59
52
42
Expenses
Taxes
Total
Cash Flow
Assumptions:
•
In-orbit insurance 2.5% annually.
•
Space segment common costs + TT&C capital recovery $8.5 M/yr.
•
Tax rate 38%, return on equity 20%.
•
Revenues are contracted for the life of the satellite.
•
Space segment operations include 6 person-years plus direct administrative capital recovery.
•
Capital taxes are calculated at 0.3% of satellite cost.
- 121 November 15, 2006
ABRIDGED
4.2.5
Over the next decade, there will be substantial demand for additional capacity in this
Canadian BSS broadcasting neighbourhood. Three primary demand drivers have been
identified, consisting of the conversion of existing programming services into HDTV
format (100 percent conversion by 2016); the launch of new programming services
(currently being authorized by the CRTC at a rate of close to 30 new services a year), and
the launch of new broadcasting applications such as mobile TV (also likely to be launched
in HD format).
The first driver will dominate demand growth, and on its own will require approximately
70 additional transponders of capacity over the next 10 years, based on very aggressive
assumptions as to the adoption of next generation encoding and transmission technologies
(MPEG-4 and DVB-S2). The capacity requirement of the other two drivers is more
difficult to quantify, but, conservatively, is expected to account for a further four to six
transponders a year, averaged over the next ten years (i.e., an additional 40 to 60
transponders). Over this timeframe, Telesat expects that an additional 110 to 130 BSS
transponders will be required to meet new Canadian BSS demand requirements.
With capacity on the existing Nimiq satellites near full utilization, Telesat’s plan is to
launch an additional four 32-transponder satellites to meet this demand, phased in over a
six year period. Bell ExpressVu has already made commitments to take all the capacity on
two of these planned satellites, including Nimiq 5, which would go into the 72.5°WL
position by 2010, and BSS1, which would go into the 86.5°WL position by 2012. BSS2
and BSS3 would follow, the first launched in 2014 into 82°WL, and the second launched in
2016 into 72.5°WL. An addition 128 BSS transponders would therefore be available to
address the new Canadian demand requirements.
In the event that new Canadian demand does not grow as expected over this time period,
there are number of U.S. service providers with interests in this portion of the North
American arc that could be approached to contract surplus capacity.
With the phased introduction of the 17 GHz BSS satellites as proposed, ITU bringing into
use requirements should be met at each position, as required.
- 122 November 15, 2006
ABRIDGED
Telesat has all the resources in place to implement the plan, and should have no difficulty
obtaining the necessary financing. Significant net positive cashflows are generated over
the life of the satellite, and the target return on equity of 20 percent would be achieved.
4.3
Since the mid 1990s Telesat and Bell ExpressVu have worked closely to develop the
Canadian BSS broadcasting neighbourhood, to the point that Bell ExpressVu is now
delivering some several hundred programming signals over Telesat’s four Nimiq satellites
to a customer base of 1.8 million Canadian households and cable TV headends, situated in
all regions of Canada. This neighbourhood started with the 91°WL position, added the
82°WL position, and will soon encompass the 72.5°WL position as well. New capacity is
required to meet the expansion of that service and to provide critical back-up.
To this end, the two partners have entered into an agreement under which Bell ExpressVu
will provide exclusive support to Telesat in its efforts to obtain valuable 17 GHz spectrum
in this neighbourhood. Bell ExpressVu has also made a commitment to contract for all
capacity on first of the three satellites that will be required to address the new demand
requirements. Bell ExpressVu’s support letter is attached in Appendices 3.
- 123 November 15, 2006
5.0
ABRIDGED
APPENDICES
Appendix 1 Declaration of Ownership and Control
Appendix 2
Appendix 3 Letters of Support
Appendix 4 Financial Statements Telesat Canada 2003-2005
Appendix 5 Financial Statements BCE Inc. 2003-2005
- 124 November 15, 2006
APPENDIX 2
(IC Licence No. 6)
APPLICANT: Telesat Canada
Pursuant to Canada Gazette Notice DGRB-001-06, Telesat is pleased to provide the
following Canadian Satellite Capacity and Services Plan for its proposed 17 GHz satellite,
BSS1, at the 86.5°WL orbital location.
Introduction
As part of each application, applicants are to provide a stand-alone Canadian Satellite Capacity and
Services Plan which will be posted on Industry Canada’s website for public comment. These plans
are to include:
•
a description of the consultation undertaken with Canadian satellite users in the
development of the plan
•
the requirements for capacity and services being addressed
•
the amount and characteristics of the satellite capacity that will be available to the
Canadian market over the lifetime of the satellite project
•
a description of the mechanisms or processes the applicant will use to make capacity
and services available to Canadian satellite users
To address anticipated intermediate and longer term demand requirements in the Canadian BSS
neighbourhood, Telesat is proposing the phased launch, in 2012, 2014 and 2016, of three 17 GHz
satellites, into the 86.5°, 82° and 72.5° WL orbital positions. An overview of Telesat’s plan involving
BSS1 at 86.5°WL follows.
-1-
November 15, 2006
A
Description of the Consultation Undertaken
Shortly after Industry Canada issued the Call for Applications to Licence Satellite Orbital
Positions in July of this year, Telesat contacted its Canadian Broadcasting, Business and
Government customers, informing them of this event and requesting a follow-up meeting to
discuss the Call in more detail and their long-term satellite requirements in all frequency
bands addressed in the Call. Various Canadian industry groups and associations
(e.g., CSUA, Canadian Association of Broadcasters (CAB), and Canadian Cable System
Alliance (CCSA)) were contacted at the same time for the same basic purpose. Telesat also
reviewed the Canadian Satellite User Registration List posted on Industry Canada’s website
in response to the Call to make sure that all parties on that list were directly contacted in
regard to their capacity requirements as well.
At the preliminary meetings that were held with these satellite service users and industry
associations, the primary focus was on recent developments in the industry (including
details of the Call), key issues facing the industry or likely to arise in the foreseeable future,
and the customers’ anticipated medium and long-term capacity needs and growth
requirements. Telesat intentionally avoided discussing in detail any specific capacity
expansion plans of its own at these meetings. Indeed, at the time of these initial meetings,
Telesat had no firm plan as to precisely how many, or which authorizations it should apply
for in response to the Call. For Telesat, the primary intent of these meetings was to get a
better understanding of where its customers thought the industry was heading and what
capacity, at what frequency bands, they might need to meet these challenges and growth
opportunities. The CSUA assisted in this information gathering and exchange process by
issuing a memo to potential applicants providing “broad gauge estimates” concerning the
collective demand requirements of its members.
With this better understanding of customers’ requirements, Telesat then formulated its
preliminary plan for which positions would best meet its customers’ anticipated
requirements and what would be required to implement this plan (e.g., financing, customer
commitments, basic satellite design, etc.).
In subsequent meetings with individual customers who expressed an interest in further
discussions, Telesat presented details on its preliminary plan that were relevant to that
particular customer. Telesat did this to ensure that it was on track to fully address that
customer’s specific requirements, or to revise or fine-tune the plan as appropriate.
-2-
November 15, 2006
With more specific plans on the table, Telesat and the customer were also in a better
position to explore the level of commitment the customer was prepared to make at this time
to make the proposed plan a reality. Telesat also had subsequent discussions regarding its
overall satellite plans with the CSUA.
Based on the customer information provided in these discussions, Telesat’s own analysis of
future broadcasting industry capacity requirements, and the level of commitment received
from prospective customers, Telesat then finalized its plans for the authorizations requested
in response to the Call.
It was during these customer consultations that Bell ExpressVu voiced a strong interest in
using the full complement of the 17 GHz BSS frequencies at the 86.5°WL position, and
possibly other 17 GHz BSS positions, to expand and augment its existing BSS business in
this neighbourhood. Telesat and Bell ExpressVu subsequently reached an agreement under
which Bell ExpressVu will provide exclusive support to Telesat in its efforts to secure
17 GHz BSS authorizations in this Canadian broadcasting satellite neighbourhood. The
two companies will continue to work closely to conclude and implement capacity
arrangements that will fully address Bell ExpressVu’s long term BSS requirements in this
neighbourhood.
B
Requirements for 17 GHz BSS Capacity and Service at the 86.5°WL Position
The 91.1° and 82°WL orbital positions currently constitute Canada’s core BSS
neighbourhood, and this neighbourhood will soon be expanded to include the 72.7°WL
position. Telesat launched Canada’s first BSS satellite, Nimiq 1, into the 91.1°WL position
in May 1999, with all capacity on the satellite sold to Bell ExpressVu. Shortly thereafter,
Bell ExpressVu’s existing DTH service was migrated from an Anik E (FSS) platform to the
Nimiq 1 (12 GHz BSS) platform. With the phenomenal growth of this service it soon
became apparent that a single BSS satellite would not be enough to satisfy this customer’s
capacity requirements. It was also recognized that a single BSS satellite left this customer
– and its approximately one-million Canadian end-user subscribers at that time – in an
extremely vulnerable position in the event of a satellite failure or malfunction. To address
these critical service expansion and emergency back-up and restoration requirements,
Telesat launched a second 12 GHz BSS satellite, Nimiq 2, in December 2002. Nimiq 2 is
currently in operation at the 82°WL position with all capacity again taken by Bell
ExpressVu.
-3-
November 15, 2006
Nimiq 2 suffered a partial failure shortly after going into commercial service and as a result
can no longer operate using the full complement of 32 BSS frequencies in the 12 GHz BSS
band available at its orbital location. This prompted Telesat to acquire two spare in-orbit
12 GHz BSS satellites from a U.S. service provider. These satellites were re-named
Nimiq 3 and 4i, with the former currently co-located with Nimiq 2 at 82°WL and the latter
co-located with Nimiq 1 at the 91.1°WL position. These additional satellites currently
allow Bell ExpressVu to use almost all of the BSS frequencies available at each of these
locations (with some transponders operated in high power mode to enhance the service
capacity), and provide in-orbit, on-station emergency back-up and restoration capabilities
for this customer’s service.
The Bell ExpressVu DTH service carried by Telesat’s four Nimiq satellites at these two
orbital positions now consists of several hundred programming channels (including some
30 HDTV services), delivered to a customer base now approaching 1.8 million Canadian
subscribers. A large number of cable television companies located all across Canada also
rely on delivery of these programming signals to their headends as part of Bell
ExpressVu’s satellite relay distribution undertaking (SRDU) service.
With virtually all of the 12 GHz BSS capacity at the 91.1° and 82°WL positions now being
used, Canadian interest in this band at the 72.7°WL position is growing. Telesat currently
operates DTV 1 on an interim basis at this position to provide DTH service into the U.S. by
an American service provider, and will be launching a new 12 GHz BSS satellite, Nimiq 5,
into this position near the end of the decade. Bell ExpressVu recently committed to taking
all capacity on Nimiq 5, and has also indicated an interest in gaining access to capacity at
this position on an interim satellite until the new satellite is available.1
The 72.7°WL position will therefore become an integral part of the Canadian BSS
neighbourhood. Further capacity expansion in this neighbourhood will therefore require
the development of other suitable frequency bands. The ideal candidate for this expansion
in this BSS neighbourhood is the 17 GHz BSS band, as evidenced by the strong interest
shown by Bell ExpressVu in 86.5°WL and possibly other nearby positions.
1
-4-
November 15, 2006
Demand Drivers
BSS capacity. New technologies, for example, are fundamentally changing the way people
watch television and enhancing their viewing experience, giving rise to the expectation
among consumers that they can have access to an ever growing number of these services
‘any time, any place and on any device’ they find to be most convenient at the moment.
For instance, new mobile phones and other portable devices are being developed that allow
people to watch video content – from downloading and streaming to full broadcasting –
‘any place’ they want. New satellite/terrestrial hybrid networks for the delivery of mobile
television services are starting to appear in the U.S. (e.g., Modeo, Hiwire and MobiTV).
These services are also being widely tested and have reached commercialization in Europe
and Asia, most notably in Digital Video Broadcasting Handheld (DVB-H) standard over
terrestrial networks. SES Global and Eutelsat Communications recently announced plans
phones, PDAs, laptops and vehicle receivers, using the S-band payload on a satellite to be
launched in 2009. As these satellite operators noted, mobile services represent a large and
currently underdeveloped market, and a market which is ideally suited for the universal
coverage benefit a satellite solution can offer.2 Indeed, independent research studies predict
that worldwide demand for mobile broadcasting services may reach 108 million subscribers
by 2010 or soon thereafter, with close to 50 million of those subscribers located in North
America and a revenue potential approaching $5 billion.3
Similarly, video-on-demand (VOD) services are increasingly allowing people to watch
their programming choices ‘any time’ they want. These services have been available for
some time in North America but the market has been slow to develop. However, this
appears to be changing as more service providers with more content have been entering the
market, and as the ‘any time’ nature of this service is becoming a more appealing and better
fit with the viewing needs of time-strapped consumers.
2
3
Services in Europe, REDORBIT NEWS (30 October 2006)
-5-
November 15, 2006
It is forecast that the North American VOD market will be worth approximately $3.9
billion by 2010, with Canadian revenues, prorated by market size, to account for some
$370 to $390 million of that total.4
The television viewing experience is being further augmented by the proliferation of other
new broadcasting services, providing an ever wider range of specialty programming and
more choice of programming within the various specialty genres. The CRTC decision to
licence Category 2 digital specialty services on a more competitive, open-entry basis
sparked much of this increase in programming options and it is continuing unabated.
Indeed, as shown in Table 2-B1, since 2002 the number of new Category 2 digital specialty
services that have been licensed has more than doubled, going from 32 to 75 services.
It should be further noted that the number of Category 2 specialty services identified in
Table 2-B1 are those that have actually launched, whereas the total number of these
services that have been authorized by the Commission now run into the several hundred.
Two of the main reasons why so many of these services have so far failed to launch are
lack of financing and lack of distribution capacity. However, the availability of new
spectrum resources (e.g., the 17 GHz BSS band) will mitigate this latter constraint, at least
for satellite DTH and SRDU services. To remain competitive with DTH service providers,
cable TV and other terrestrial companies will also be forced to find new capacity to carry
more of these new services over their facilities and to augment their subscription to SRDU
services.
Table 2-B1
2006
2005
2004
2003
2002
31
101
5
7
9
14
28
101
5
7
10
11
25
100
5
7
10
9
40
91
5
7
10
-
46
81
5
7
10
-
49
49
49
49
51
Private Commercial
Religious
Educational
Aboriginal
4
Pricewaterhouse Coopers Annual Entertainment and Media Report (2006))
-6-
November 15, 2006
Table 2-B1
2006
2005
2004
2003
2002
18
75
12
11
13
18
58
12
11
13
18
48
7
12
11
15
41
8
12
9
16
32
7
12
4
166
12
2
235
11
2
235
12
2
251
-
246
-
134
108
107
93
93
659
679
657
631
610
481
433
410
380
364
Pay television
VOD services
Community channels
Source:
Similarly, the number of non-Canadian satellite services (many of which are carried on
Telesat satellites as part of Canadian DTH and SRDU service packages) has risen from
93 to 134, a 44 percent increase, over this same 2002 to 2006 time period. Moreover,
although the total number of television services available in Canada has only been creeping
up since 2002, if local community channels and programming services are netted out of this
total to better reflect national or regional viewing options (and carriage opportunities for
satellite), then the number of available services has actually risen dramatically from 364 to
481, an increase of 117 services, or just over 32 percent.
-7-
November 15, 2006
With its vastly superior picture and sound quality, television programming in
High Definition TV (HDTV) format will also greatly enhance the viewing experience for
consumers. Indeed, while at present only some 30 channels in a channel universe
numbering in the several hundred are being broadcast in Canada in HDTV format by the
major BDUs, Canadian viewers are fast embracing this technology and looking for more
HDTV content. As of September 2006 it is estimated that approximately 2.6 million
Canadian households have purchased HD television sets and this number is expected to
jump to more than 8 million households by 2009.5
Wholesale conversion to HDTV format is therefore a trend that Canadian broadcasters and
BDUs can ill afford to miss or ignore, and it does not appear that they have done so. As
shown in Table 2-B2, information supplied in the consultation process by the CSUA, as
agreed to by its members, confirms that the Canadian broadcasting industry is gearing up
for the complete conversion to HDTV format.
Table 2-B2
CSUA HDTV Demand Estimate Targets
Timeframe
Next 2-3 years:
30-50 %
In 5 years:
75 %
In 10 years:
100 %
There are thus three principal drivers of new capacity demand which will largely have to be
addressed using new BSS frequencies in this broadcasting neighbourhood, and this total
new demand requirement promises to be huge:
•
5
Conversion of the existing base of programming services to HD format: While the
HDTV picture quality is vastly superior to that of Standard Definition TV (SDTV), the
total transponder capacity required to effect the full conversion of Bell ExpressVu’s
existing base of programming signals to HD format will be enormous and will
dominate new BSS satellite capacity requirements over the next several years.
Specifically, a transponder can transmit up to a maximum of 10 to 12 SDTV channels,
but this number drops to 1 to 2 HDTV channels using current transmission standards
(MPEG 2 with DVB-S).
-8-
November 15, 2006
This number will likely increase to a maximum of only 4 to 6 channels per transponder
with the full development and deployment of next generation transmission standards
(MPEG 4-AVC or H.264 with DVB-S2). Depending on the mix of transmission
standards actually used, the HDTV conversion will therefore require, at the very least,
twice as many transponders to handle today’s number of signals than are currently used
to transmit these signals in SDTV format. Requirements for dual illumination of
channels (i.e., simulcasting in SD and HD) through the transition period will add
further to the overall capacity requirement and likely slow the conversion process until
new capacity becomes available.
•
Growth in the existing base of programming services: Over the past several years
the base of available programming services (net of community channels and
programming services) has been steadily growing, with no suggestion that this trend is
about to end or reverse itself any time soon. Indeed, over the past four years some 117
new services have been added to this total, averaging close to 30 new services a year.
If this trend continues, then, even assuming conservatively that most would launch in
SDTV format, an additional two to three transponders per year will be required to
transmit the additional new services. And while it is true that a significant number of
the newly authorized services may never be launched commercially, the eventual
conversion into HDTV format of those that are will again drive this capacity
requirement upwards.
•
Development and deployment of new broadcasting services: Mobile television is a
new broadcasting application that is evolving into a must-have consumer service,
particularly among certain segments of the consuming public. Terrestrial networks
have so far been able to accommodate the bulk of the carriage requirements associated
with this emerging service, but the expectation is that satellite, with its inherent
advantages in the delivery of broadcasting services over wide geographic areas, will
have a prominent role to play in the carriage of these services, likely as part of a hybrid
network. As these satellite/hybrid networks are still in the early stages of development,
it is difficult to precisely forecast satellite capacity requirements at this time. That said,
HD format will likely be the industry standard; consequently, even if service
providers were to start by offering only a limited number of programming services and
add more as the market develops, whole transponder capacity requirements will
quickly mount up.
Taken together these drivers indicate that substantial new Canadian BSS capacity demand
will materialize over the next several years and will require the phased introduction of new
satellite capacity in the 17 GHz BSS band at a number of orbital locations, and particularly
in Canada’s established BSS neighbourhood stretching from 91.1° to 72.7°WL.
-9-
November 15, 2006
C
Telesat’s 17 GHz BSS Capacity and Service Plan for the 86.5°WL Position
Telesat’s 12 GHz BSS Nimiq satellites enabled Bell ExpressVu to introduce affordable
DTH and SRDU services to all areas of Canada, the far North included. They have helped
establish the 91.1° and 82°WL positions as a Canadian broadcasting neighbourhood where
several hundred programming signals are currently being delivered to some 1.8 million
Canadian DTH subscribers and hundreds of cable television company headends.
As noted above, Telesat and Bell ExpressVu are in the process of expanding this Canadian
neighbourhood to include the 72.7°WL 12 GHz BSS position where Nimiq 5 will go into
service for Bell ExpressVu’s use by 2010. All available 12 GHz BSS capacity at these
three orbital locations is therefore committed, with full utilization of this capacity expected
to be reached in the first few years of Nimiq 5 going into service. Expansion capacity in a
complementary band, such as 17 GHz BSS, will therefore need to be introduced and
developed in a timely manner to address the huge emerging demand requirement identified
above.
Experience has shown that a single-satellite solution to meet all demand requirements in a
given frequency band is not optimal. It leaves service providers and their customers in an
extremely vulnerable position should that one satellite malfunction or fail completely. This
is an especially troublesome situation where, as in the present case, the satellite service
involves DTH and the end-user customer number is in the millions.
As a significant number of these Canadian DTH customers would be in rural and remote
areas where there is no terrestrial service alterative, a satellite malfunction could mean that
these customers would be deprived of television service completely, with little likelihood
of having their service quickly restored. Satellite diversity and emergency back-up is
therefore a critical component of any responsible Canadian satellite service plan.
The priority and main thrust of Telesat’s 17 GHz BSS capacity and service plan for the
86.5°WL position, in combination with the 82° and 72.5°WL positions, is therefore to meet
these two requirements head on, and specifically to provide:
•
phased-in growth capacity at the three orbital positions comprising this Canadian
broadcasting neighbourhood
•
a back-up scenario in the event of a catastrophic failure or serious degradation in a 17
GHz BSS satellite at any of these positions
- 10 -
November 15, 2006
Growth Capacity
neighbourhood, Telesat is proposing to launch four new 32-transponder BSS satellites,
phased in over the next 10 years.
Nimiq 5, a 12 GHz BSS satellite which Telesat is already authorized to launch into the
72.5°WL position, would be the first of the four satellites to go into service. Bell
ExpressVu recently committed to taking all capacity on this satellite and thus will have
access to 32 new BSS transponders for Canadian customer use in this neighbourhood. This
new capacity, with traffic allocated by Bell ExpressVu across this and the other Nimiq
(12 GHz BSS) satellites as appropriate, is more than sufficient to accommodate CSUA’s
demand estimate for HDTV conversion of ‘30-50% of channels’ by 2010. Based on
aggressive assumptions regarding the deployment of next generation transmission
standards, Telesat estimates that the equivalent of approximately 29 of these 32 new
transponders will be needed by that time to fulfill this conversion estimate to the 50 percent
level. The capacity of the three remaining transponders would be available to serve the
other new sources of Canadian demand identified above (i.e., to launch new programming
services, or for use with new applications such as mobile TV), or to accelerate the HDTV
conversion process.
Telesat’s first 17 GHz BSS satellite (BSS1) in this Canadian broadcasting neighbourhood
would go into service in early 2012 at the 86.5°WL position. This will introduce another
32 transponders of BSS capacity into this neighbourhood. Telesat estimates that the new
capacity on this satellite would be sufficient to satisfy CSUA’s demand estimate for HDTV
conversion of ‘75% of channels in 5 years time’, possibly leaving up to 16 of the new
transponders available to address the other identified new Canadian capacity requirements
or to accelerate the HDTV conversion process. Realistically, however, business decisions
or on-going regulatory requirements concerning simulcasting of television programming in
SD and HD format will impact the maximum number of transponders that would remain
available to address these other new demands.
Telesat would launch its second proposed 17 GHz BSS satellite (BSS2) into the 82°WL
position to commence service in 2014, and its third (BSS3) into the 72.5°WL position to
commence service in 2016.
- 11 -
November 15, 2006
The capacity of these two additional satellites would be sufficient to meet the CSUA’s
demand estimate for complete conversion to HD format of the existing base of
programming signals ‘in 10 years time’, leaving approximately half of the new capacity
available to address the other new Canadian demand requirements mentioned above.
Again, however, simulcasting requirements will impact the actual number of new
transponders available to address these other demands.
Table 2-C1 summarizes this matching of Canadian demand for additional BSS spectrum in
this Canadian broadcasting neighbourhood with the phased introduction of the four new
satellites.
Table 2-C1
Neighbourhood
New Satellite
In Service
New Transponders
Available
(band/location)
(Cumulative)
2010
Nimiq 5
(12 GHz/ 72.7°WL)
32
2012
BSS1
(17 GHz/ 86.5°WL)
2014
2016
Year
CSUA HDTV
Conversion
Target*
New
Transponders
Required to
Meet CSUA
HDTV
Conversion
Target**
New
Transponders
Available to
Address Other
Demands
(Including
Simulcasting)
(Cumulative)
(Cumulative)
50 %
29
3
64
75 %
45
19
BSS2
(17 GHz/
82°WL)
96
85 %
56
40
BSS3
(17GHz/ 72.5°WL)
128
100 %
71
57
*
**
- 12 -
November 15, 2006
The 57 transponders shown cumulatively as available over and above the HD conversion
process would be introduced staggered over a six year period (i.e., starting in 2010
following the launch of Nimiq 5 and ending in 2016 with the launch of BSS3). Over this
timeframe some of these transponders would be required to simulcast television
programming.
However, a significant number of these transponders would remain available to address
new Canadian demand requirements, including the launch of new programming services,
which the CRTC is currently licencing at a rate of close to 30 new services a year, and new
broadcasting applications such as mobile TV.
Should no Canadian requirement for some portion of these available transponders at any of
these locations materialize, Telesat would consider marketing them outside of Canada.
However, Telesat’s proposed phased introduction of new capacity in this neighbourhood
with four new BSS satellites appropriately spaced over the next ten years best ensures that
this capacity will be used to the maximum extent possible to meet Canadian broadcasting
industry requirements. Launching new satellites into each of these positions in a shorter
timeframe, let alone all at once, would simply swamp the then current Canadian demand
requirements and lead to a much greater portion of this capacity having to be marketed
outside of Canada, with little likelihood of it ever being repatriated.
The three 17 GHz BSS satellites Telesat proposes to build to fulfill Canadian demand
requirements in this neighbourhood would be virtually identical. Each would carry 32
27 MHz BSS transponders, using the 24.75 to 25.25 GHz spectrum on the uplink and
17.3 to 17.8 GHz on the downlink. The full 500 MHz of spectrum, in both polarizations, at
each of these positions would therefore be used. The satellites would be designed for
15 year service lives. Construction of each satellite through to in-orbit delivery would take
approximately 30 months from the date of contract signature with the satellite
manufacturer.
- 13 -
November 15, 2006
OFT
9.00
44
8.00
49
49
52
52
44
54
7.00
54
52
49
6.00
44
5.00
4.00
3.00
-5.00
-4.00
-3.00
Figure 2-C1
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
EIRP Coverage of Canada at 86.5°WL
The coverage pattern for BSS1 located at its proposed position of 86.5°WL is shown in
Figure 2-C1. Each of the new satellites would be designed for optimal coverage of all
areas of Canada from its orbital position. However, the beam coverage on each of these
satellites will be switchable between the Canadian and (continental) U.S. footprint, on a
transponder-by-transponder basis. This design will provide the maximum flexibility for
Telesat to provide service on any of these satellites to one or more U.S. customers should
there be any capacity surplus to the needs of Canadian customers.
Allowing non-Canadian customers to access such surplus capacity spreads satellite
construction and operation costs over a broader base, and thus will make the capacity used
by Canadian customers even more affordable.
Marketing Approach
Regarding the marketing of 17 GHz BSS capacity at the three orbital locations, Telesat is
following the same approach it has used in the marketing of DTH capacity on the
Nimiq and Anik satellites. Under this approach customers have generally committed to
taking blocks of capacity, under long term contracts, to develop their own end-user service.
This approach has proven extremely successful in the development of DTH markets in
Canada.
- 14 -
November 15, 2006
As indicated above, Bell ExpressVu has expressed a strong interest in taking all the
capacity on the BSS1 satellite launched into the 86.5°WL position, and possibly at other
17 GHz BSS positions in the neighbourhood. Telesat is working to fully accommodate this
customer’s requirements.
As also indicated above, in the event that capacity surplus to Bell ExpressVu’s or other
Canadian customers’ requirements remains on a planned satellite, that capacity will be
made available to a U.S. customer(s) based on the same marketing approach (i.e., sale of
blocks of unused transponders).
Other Near-Term BSS Capacity Enhancements
In addition to procuring four new state-of-the-art 12 and 17 GHz BSS satellites for the
86.5°, 82° and 72.5°WL orbital positions to satisfy growth requirements, there are other
important elements in Telesat’s overall plan to effectively develop this neighbourhood for
the immediate and long term benefit of the Canadian broadcasting industry.
The 17 GHz BSS frequency band is a new band and so there are no spare in-orbit satellites
operating in this band that Telesat can acquire for interim use at any of these positions.
However, Telesat has acquired spare 12 GHz BSS satellites over the past few years to
maximize the number of BSS frequencies in this band available for use in Canada at the
91.1° and 82°WL positions (Nimiq 4i and Nimiq 3 respectively) and/or to enhance service
performance of the BSS signals at these positions.
Moreover, Telesat has a state-of-the-art replacement 12 GHz BSS satellite under
construction (Nimiq 4) scheduled for launch in 2008 into the 82°WL position. In addition
to the full complement of 32 BSS transponders, this satellite is being equipped with
8 Ka-band transponders which could also be used in the delivery of Bell ExpressVu’s
BSS service.
Telesat is also very active in the development of new technologies and improved
compression and modulation techniques geared towards enabling service providers to
increase the number of TV signals on a satellite per unit of bandwidth. This development
is continuing and promises to allow service providers to add new television services
without compromising digital quality.
- 15 -
November 15, 2006
This increased efficiency would also translate into significant cost reductions for broadcast
distributors and programmers and would assist their transition to HDTV format in the near
term while capacity remains tight. However, as Bell ExpressVu has observed, even with
the adoption of these more efficient techniques, there will still be a need for more satellite
capacity to accommodate Canadian broadcasters’ transition to HD.6
Satellite Diversity and Emergency Back-up
Over the years customers have consistently voiced concerns that single-satellite approaches
to satisfying their capacity needs can leave them in an extremely vulnerable position.
Should anything go wrong with the one satellite, their entire business on that satellite could
be irreversibly lost or take years to re-establish. This concern is particularly troublesome
for individual broadcasters and broadcasting distribution undertakings requiring large
blocks of capacity or whole satellites for their service, as finding sufficient capacity capable
of satisfying their immediate requirements from another operator on such short notice
would be extremely difficult, if at all possible. In the development of new frequency
bands, the likelihood of finding suitable emergency or back-up capacity from another
source is further diminished by the fact that there will be few operating satellites in the new
band. Indeed, in the case of 17 GHz BSS, no satellite operating in this band has yet been
built, or to Telesat’s knowledge is currently under construction.
Dealing with an operator that can offer satellite diversity and emergency back-up is
therefore an important customer consideration, and in the present context of 17 GHz BSS
can only be addressed if the operator launches more than one satellite in a short timeframe.
This is precisely what Telesat is proposing under its plan to launch three such satellites into
the 86.5°, 82° and 72.5°WL 17 GHz BSS positions. As described above, Telesat’s plan is
to launch its BSS1 17 GHz BSS satellite into the 86.5°WL position in 2012, as this is the
preferred initial position of its customer Bell ExpressVu. Within two years of that date,
Telesat would launch its second 17 GHz BSS satellite, BSS2, into the 82°WL position to
back-up BSS1. Within another two years, BSS3 would be launched into the 72.5°WL
17 GHz BSS position, providing critical back-up for both BSS1 and BSS2, as well as for
service expansion in its own right.
6
- 16 -
November 15, 2006
Telesat will therefore have three full-capacity 17 GHz BSS satellites in service in the 86.5°,
82° and 72.5°WL neighbourhood within the space of four years. A failure or significant
malfunction of any of these satellites would be damaging but contingency arrangements
could be implemented to mitigate the impact of the problem. Without this satellite
diversity and back-up, options would be severely limited, if available at all, and a failure or
significant malfunction of a single-service satellite in this neighbourhood could devastate a
service.
Other Customer Requirements Addressed
During the consultation process undertaken by Telesat, a number of parties expressed the
importance of continued access to reliable and reasonably priced satellite communications
services. In response, Telesat would note that, with a network service availability
performance level that has consistently been above 99.9 percent, it has established itself as
one of the most reliable satellite operators in the world.
Telesat has also established itself as being a low-cost supplier of satellite services, and its
transponder capacity prices remain amongst the most competitive in the North American
marketplace. Perhaps more importantly, Canada has always been Telesat’s core base of
operations and most important market. Telesat has no intention of risking its position in
this market, as would occur if it were to abandon its commitment to being the low-cost
supplier of reliable satellite services to all areas of Canada.
D
Procedure for Customers to Obtain Capacity/Services
Telesat will operate its proposed 17 GHz BSS satellites as a Canadian telecommunications
common carrier, offering service from each of these satellites on a non-discriminatory,
first-come, first-served basis. This first-come, first-served capacity reservation process is
open now, conditional on Telesat ultimately being awarded the licence for the 17-GHz BSS
frequencies at these positions. To date, only one customer, Bell ExpressVu, has indicated
strong interest in taking capacity on the 17 GHz BSS satellite to be launched into the
86.5°WL position, as well as possible interest in capacity on other 17 GHz BSS satellites in
this neighbourhood. Canadian satellite service users are therefore strongly encouraged to
keep Telesat fully informed as to their anticipated requirements for service on these
satellites and to enter into the appropriate arrangements for service, once they have a firm
understanding of their actual requirements.
- 17 -
November 15, 2006
If capacity remains available on any of these satellites at the time Telesat is awarded the
authorizations, Telesat will consider initiating a public “call for interest” for 17 GHz BSS
capacity, first for the remaining capacity on the satellite to be launched into the 86.5°WL
position, followed at the appropriate time by similar calls for the remaining capacity on the
other two planned 17 GHz BSS satellites.
Throughout these processes, Telesat would continue to operate as a Canadian
telecommunications common carrier, offering service on the satellite on a
non-discriminatory, first-come, first-served basis.
- 18 -
November 15, 2006
COM DEV Ltd.
155 Sheldon Drive
Cambridge Ontario
N1R 7H6
Tel: 519 622-2300 X2289
Fax 519 622-3975
[email protected]
November 14, 2006
The Honorable Maxime Bernier, P.C., M.P.
Minister of Industry
235 Queen Street
Ottawa, On
K1A 0H5
Dear Minister:
I have been following events surrounding Industry Canada’s Call for Applications to License Satellite
Orbital Positions, Notice DGRB-001-06 (July 2006) with interest and concern. While COM DEV, as
Canada’s largest designer/manufacturer of space hardware, does not use orbital slots; we are profoundly
affected by government policy that determines how they are managed. We were extremely disappointed by
Industry Canada’s decision to eliminate direction to bidders that expressed a clear preference for
Canadian-made hardware on satellites that are to be launched into Canadian orbital slots. As I outlined in
my letter to you on July 7, 2006, our concerns focused on the potential negative impact on our global
competitive position; where we frequently face protective restrictions imposed by other governments. As a
result, in Canada’s satellite sector, the only remaining competitive advantage that we still enjoy is the
strong relationship among and between members of the Canadian space industry (Space Team Canada),
including between manufacturers of hardware, such as ourselves, and buyers of satellite systems, the
service providers, such as Telesat.
Over the past 30-years, Telesat Canada has developed a close working relationship with other members of
Canada’s space team by working closely with the Canadian space hardware industry as follows:
•
As a strong ally in the space telecommunications sector, Telesat has been a source of advice and
guidance on the evolving needs of the international satellite services market, including intelligence
on emerging specifications and performance standards required by next generation satellites, which
have been particularly germane to our efforts to succeed against our international competitors;
•
As a cooperative provider of “first-flight” opportunities for new Canadian space technologies,
Telesat has frequently provided the critical flight heritage needed for new Canadian space products
to achieve acceptance in global space markets; and
•
As a strong advocate of Canadian space hardware for use on the satellites of other countries;
particularly those where Telesat has been hired to provide consulting services in the systems
design, architecture and performance specifications of new satellites.
Telesat has thus played a very direct role as a catalyst fostering the success of Canada’s space industry,
and has contributed greatly to our success as the most export oriented space industry in the world.
As the government contemplates its options for the award of the 29 licenses in four frequency bands,
spread over 16 orbital positions, it is my strong recommendation that the government carefully consider
Telesat’s track record of working positively with Canadian industry before decisions to award selected
orbital slots are made. From this perspective, it is my belief that:
•
Telesat’s ability to grow and provide cost-efficient services to Canadians can only be achieved by
retaining unfettered access to existing spectrum at the orbital slots it currently occupies and by
retaining its ability to continue to build on that foundation with new spectrum that enables expansion
and thus supports more efficient satellite designs; and
•
That no new licenses should be granted that risk interference, degradation or otherwise
compromises Telesat’s ability to fully utilize for future expansion, any of the orbital slots Telesat
currently occupies.
Please be assured that I fully understand the government’s desire to introduce more competition into the
satellite service market in Canada. However, I also strongly believe that Canada’s remaining orbit assets
must be recognized as a limited resource and carefully allocated in such a way so as to foster Canadian
service providers and in particular Telesat as Canada’s flagship satellite service provider.
In summary, Telesat continues to work closely with Canadian manufacturers to leverage our technologies
into the highly competitive international satellite market. I strongly support Telesat’s efforts to broaden its
service offerings from its current orbit allocations and wish to acknowledge the positive contributions that
Telesat has made to Canada’s telecommunications infrastructure and our own success in international
markets.
Yours truly,
John Keating
Chief Executive Officer
Cc
DM Richard Dicerni
ADM Spectrum & Information Technology
Michael Binder
~p
Bell
14th November, 2006
Mr. Daniel S. Goldberg
President & Chief Executive Officer
Telesat
1601 Telesat Court
Ottawa (Ontario)
K1B 5P4
Dear Mr. Goldberg:
Subject: Applications to License Satellite Orbital Positions
I am pleased to provide this letter of support for Telesat's applications for additional
spectrum pursuant to Industry Canada's July 7, 2006 Call for Applications to License
Satellite Orbital Positions (Gazette Notice No. DGRB-001-06). By issuing this Call,
Industry Canada is making available a significant amount of valuable spectrum - spectrum
which is critical to the growth of our DTH business for many years into the future. The
outcome of Telesat's applications will have a direct impact on Bell ExpressVu's future
capacity provisioning plans.
Bell ExpressVu is pleased to express its exclusive support for Telesat's applications to
develop satellite positions at the Canadian DBS neighbourhood. Specifically, our priority
is to support Telesat's application at 86.5°W. In addition, and to ensure that ExpressVu
has ample opportunity to expand and augment our services at the orbital locations where
our current and planned satellites operate, we support Telesat's applications for the
development of 91° W, 72.5°W and 82°W.
These applications represent the next chapter in a very successful collaboration between
Bell ExpressVu and Telesat since its inception in 1995. In addition to the existing four
satellites licensed to Telesat located in the 91° Wand 82° W positions, Bell ExpressVu
has committed to capacity on the Nimiq 4 satellite, which is expected to enter service in
2008 at 82°W. Nimiq 4 will restore the full slate of 32 12 GHz BSS frequencies as well as
add new Ka-band FSS frequencies. In addition, we are in the process of procuring
through Telesat capacity on a new satellite, Nimiq 5, to be in service at 72.5°W in the
2010 timeframe. The Nimiq 5 contract is expected to be concluded between Bell
ExpressVu and Telesat before the end of November 2006.
.../2
Bell ExpressVuL.P.
100 Wynford Drive, Suite 300
Toronto (Ontario) M3C 4B4
www.bell.ca
Telephone: (416) 383-6600
Facsimile: (416) 383-6692
1-888-SKY-DISH
As we have discussed extensively, Bell ExpressVu will require additional capacity, beyond
our plans for Nimiq 4 and Nimiq 5 because of the developing demand. The primary driver
of this increased demand is HDTV, which alone will increase bandwidth requirements
from between two to five times, depending on the encoding technology used and the type
of programming signal. Bell ExpressVu has determined that the 17 GHz BSS band offers
the best alternative for our future capacity requirements. To carry our current roster of
signals, we will need to increase our existing supply of BSS transponders through the
addition of capacity on Nimiq 5, and by a further 32 transponders by 2012 through the 17
GHz BSS frequencies at 86.5°W, which is our overriding priority in this Call for
Applications process. While less certain at this time, Bell ExpressVu may still require
further capacity beyond 2012 in order accommodate further conversion to HDTV, enhance
our service restoration capabilities, or to introduce additional innovative service offerings.
Having carefully examined our needs for future capacity, we generally endorse the plan
developed by Telesat which allows for a phasing-in of capacity in our broadcasting
neighbourhood in such a manner that Bell ExpressVu will be able to take full advantage of
this capacity over a long-term period. In addition to the expansion benefits which
Telesat's plan will bring to us in terms of new capacity, a multi-satellite procurement
program as outlined by Telesat would provide us with backup to safeguard our business
against satellite failures as well as a myriad of alternatives for future service offerings in
the future if justified by our customers' requirements.
In this regard, we note Telesat's plans to further develop the 91° W position with a hybrid
Ka/17 GHz BSS satellite. As Industry Canada is aware, this orbital position is
Bell ExpressVu's prime location. Telesat's plan provides opportunities for Bell ExpressVu
to potentially participate in the distribution of programming content at the 17 GHz BSS
band, possibly in conjunction with broadband Internet applications. In addition, the
Ka-band payload may provide opportunities for expansion of applications we will be
developing on Nimiq 4 Ka-band at the 82°W position. For these reasons, and beyond the
development of 86.5°W (which is our priority), ExpressVu supports a plan that enables
Telesat to build on its existing orbital locations for expansion and back-up services.
Telesat's success in gaining access to this additional spectrum - and in particular 86.5°W
-- is critical to Bell ExpressVu's growth and its ability to meet the needs of the Canadian
broadcasting system consistent with the objectives of the Broadcasting Act. We fully
support Telesat's application for 17 GHz BSS at 86.5°W as well as Telesat's plans in the
neighbouring locations. Bell ExpressVu's service is an integral part of the lives of some
1.8 million Canadian households, and we are committed to developing our platform to
serve our viewers for the long term. Critical to continued growth is our ability to secure
sufficient and appropriate capacity, and to make this significant capital investment step
with a trusted partner.
Yours truly,
~
7' St-bt
Gary Smith
President
Bell ExpressVu
November 14, 2006
Paul Bush
Vice President
Broadcasting and Corporate Development
Telesat Canada
1601 Telesat Court
Gloucester, Ontario K1B 5P4
Dear Mr. Bush:
Re:
Telesat Canada's Applications for Orbital Positions (Gazette Notice DGRB-001-06)
Aboriginal Peoples Television Network Incorporated ("APTN") is pleased to offer this letter of
support for Telesat Canada's applications to develop and operate satellite facilities in certain orbital
locations. We understand that these applications will be made to Industry Canada pursuant to the
above-referenced call for applications.
APTN, in its current form and under its former name, Television Northern Canada, has operated an
extensive network to serve remote communities across Canada's North since 1992. This network
has relied extensively on Telesat Canada's in-orbit and earth station facilities and services. Over
the years, APTN has obtained services and facilities from Telesat Canada both directly and
indirectly by means of resale arrangements.
Telesat Canada's long-standing commitment to provide service throughout Canada is critical to
APTN. Without Telesat's commitments to provide coverage to remote, Northern and other
underserved communities, which includes many Aboriginal communities, the delivery of
traditional satellite broadcasting services, satellite telecommunications services and, more recently,
newer satellite broadband services to these communities would not have been possible. Telesat's
commitments have helped the North and remote communities elsewhere to become connected to
the national broadcasting system in a way that would simply have been inconceivable otherwise.
Some high capacity alternatives to satellite telecommunications infrastructure are becoming
increasingly available across the Southernmost part of Canada – to serve the most densely
populated areas. It doesn't seem possible for this kind of terrestrial network to be replicated in the
North and to serve many other remote Aboriginal communities in the near term. Satellite services
will continue, we believe, to play a key role in connecting these communities to the national
telecom network, and in promoting community and regional development. Telesat Canada's future
plans, therefore, to offer Ka-band services must be viewed as providing significant potential
benefits to Northern and remote communities.
-2It is of course the case that Canada's two licensed DTH providers rely on Telesat Canada's
facilities and services. APTN is exploring ways in which this existing satellite infrastructure can
be leveraged to help APTN address an emerging problem. APTN uses a network of local
terrestrial transmitters to provide a distinctive service to Northern communities. APTN feeds this
Northern programming service to these transmitters using Telesat Canada's C-band capacity
(which APTN purchases on a resale basis). Unfortunately, APTN's network of terrestrial
transmitters employs analog rather than digital over-the-air technology and, in any event, is aging
and nearing replacement age. APTN cannot afford on its own to replace its terrestrial network
(which consists of 96 different transmitters). Instead, APTN hopes that the DTH platform can be
used to provide replacement service to provide APTN's Northern programming service directly to
residents in Northern and remote areas. APTN is pleased to report that Bell ExpressVu already
offers APTN's Northern programming service on its DTH platform and is working with APTN to
examine how DTH service could replace terrestrial transmission.
Telesat Canada's existing coverage of the Northern portions of Canada is a critical element of this
transition plan. The DTH platform should be viewed as a key service platform to ensure that
remote and Northern communities receive a full range of broadcasting services – including the
service provided by APTN.
In addition, APTN understands that the additional facilities proposed as a part of this process by
Telesat Canada at its existing orbital positions will be beneficial to the broadcasting industry as a
whole (including APTN), which relies on Telesat Canada's existing facilities. APTN, together
with other broadcasters, continues to explore its options for the ongoing transition to HD service.
It seems apparent that additional capacity will be required to support the demands of the
broadcasting industry for HD compatible services, and that it would be beneficial if these services
were to be provided using technologies and orbital positions that are already in use by cable and
satellite service providers. APTN understands that Telesat Canada appreciates the need to work
collaboratively with the Canadian broadcasting industry to ensure that the roll out of HD service
occurs as efficiently as possible, and that the benefits of HD technology are made available in all
areas of Canada.
Telesat Canada's experience in providing satellite services to Northern and other remote
communities is, we believe, unparalleled in Canada and maybe the world. APTN supports Telesat
Canada in its applications to obtain additional orbital positions to build on the fruits of this long
experience. We look forward to watching this application process as it unfolds.
Yours truly,
Jean LaRose
Chief Executive Officer
Auditors Report
Consolidated Financial Statements
(in Canadian dollars)
The financial statements contain the results and financial history for the past two years. The notes are an important part
of understanding the financial results. They explain how the numbers in the financial statements were arrived at, describe
significant events or changes that affect the numbers, and explain certain items in the financial statements. They also include
details about the financial results that do not appear in the financial statements.
Management’s Report
The accompanying consolidated financial statements of Telesat Canada (Telesat or the Company) consist of the financial
information of Telesat’s various holdings which are presented as one “consolidated” company. These financial statements form
the basis for all financial information that appears in this annual report, are the responsibility of the management of Telesat and
have been approved by the Board of Directors. The Board of Directors is responsible for ensuring that management fulfills its
financial reporting responsibilities. Deloitte & Touche LLP, Chartered Accountants, the shareholders’ auditors, have audited
the financial statements.
Management has prepared the financial statements according to Canadian generally accepted accounting principles. 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 Telesat’s consolidated financial position, results of
operations and cash flows.
To ensure the accuracy and completeness of the financial statements, management has a system of internal controls which
includes communication to employees about policies for ethical business conduct. Management believes that the internal
controls provide reasonable assurance that the financial records are reliable and form a proper basis for preparing the financial
statements, and that the assets are properly accounted for and safeguarded.
The Board of Directors has appointed an Audit Committee, 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. The shareholders’ auditors have free and independent access to
the Audit Committee.
Laurier J. Boisvert, President and Chief Executive Officer
Ted H. Ignacy, Chief Financial Officer
Auditors’ Report to the Shareholders
We have audited the consolidated balance sheets of Telesat Canada (Telesat or the Company) as at December 31, 2005
and 2004 and the consolidated statements of earnings, retained earnings and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at
December 31, 2005 and 2004 and the results of its operations and its cash flows for the years then ended in accordance with
Canadian generally accepted accounting principles.
Deloitte & Touche LLP
Chartered Accountants
January 31, 2006, except for note 24 which is as of February 1, 2006 21
Consolidated Statements of Earnings
for the years ended December 31, 2005 and 2004
(in thousands of dollars, except per share amounts)
Notes
2005
2004
Operating revenues
Operating expenses
Amortization
Operations and administration
Cost of equipment sales
(2)
474 741
362 166
(2)
Earnings from operations
Other expense (income)
Interest expense
Other income
(2)
111 809
160 964
45 705
318 478
156 263
84 301
117 660
18 918
220 879
141 287
29 526
26 486
(14 739)
14 787
141 476
50 782
90 694
1 780
88 914
(18 296)
8 190
133 097
47 840
85 257
1 840
83 417
12.99
12.19
399 505
399 505
90 694
(1 780)
( 110)
488 309
316 348
( 304)
316 044
85 257
(1 840)
44
399 505
Earnings before income taxes
Income taxes
Net earnings
Dividends on preferred shares
Net earnings applicable to common shares
(4)
(5)
Basic and diluted net earnings per common share
Consolidated Statements of Retained Earnings
(in thousands of dollars)
Balance at beginning of year, as previously reported
Adjustment for change in accounting policies
Balance at beginning of year, as restated
Net earnings
Other
Balance at end of year
22
(1)
Consolidated Balance Sheets
as at December 31, 2005 and 2004
Assets
Current assets
Cash and cash equivalents
Short term investments
Receivables
Current future tax asset
Other current assets
Total current assets
Capital assets, net
Investments
Other assets
Intangible assets
Goodwill
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Other current liabilities
Debt due within one year
Total current liabilities
Debt financing
Future tax liability
Other long-term liabilities
Commitments and contingent liabilities
Shareholders’ equity
Capital stock - common shares
Contributed surplus
Retained earnings
Cumulative translation adjustment
Total common equity
Capital stock - preferred shares
Total shareholders’ equity
Total liabilities and shareholders’ equity
Notes
2005
2004
(18)
113 477
51 058
59 380
3 737
36 177
263 829
30 897
130 500
83 180
3 594
15 005
263 176
1 335 442
15 537
17 063
8 843
23 595
1 664 309
1 171 837
15 628
34 756
527
16 537
1 502 461
38 905
111 244
152 838
302 987
132 202
193 742
387 019
1 015 950
33 844
111 838
2 613
148 295
284 636
145 083
365 591
943 605
111 898
1 002
488 309
(2 850)
598 359
50 000
648 359
111 898
640
399 505
(3 187)
508 856
50 000
558 856
1 664 309
1 502 461
(6)
(5)
(7)
(8)
(10)
(11)
(9)
(1)
(12)
(14)
(15)
(5)
(16)
(22)
(17)
(17)
On behalf of the Board:
Director Richard J. Currie
Director T. C. O’Neill
23
Consolidated Statements of Cash Flow
Notes
2005
2004
Cash flows from operating activities
90 694 85 257
Net earnings
Items not affecting cash:
Amortization
Capitalized interest
Future income taxes
Unrealized foreign exchange
Deferred milestone interest
Other items
Net change in non-cash balance sheet accounts
Cash flows from investing activities
Satellite programs
Property additions
Maturity (purchase) of short term investments
Business acquisition
Proceeds on disposal of assets
Insurance proceeds
Payments and deposits on transponders
Cash flows from financing activities
Repayment of debt financing and bank loans
Promissory notes repayments
Capital lease payments
Satellite performance incentive payments
Customer prepayments on future satellite services
Preferred dividends paid
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures of cash flow information
Interest paid
Income taxes paid
24
(18)
111 809
(14 974)
36 756
(1 315)
5 170
806
(25 022)
203 924
84 301
(17 642)
28 789
(1 878)
1 104
1 359
4 025
185 315
(229 675)
(15 789)
79 442
(4 363)
5 353
30 407
(134 625)
(210 534)
(21 121)
(130 500)
- 113
179 427
4 800
(177 815)
(2 209)
20 503
(4 461)
(5 351)
6 130
(1 331)
13 281
(96 130)
5 409
(12 279)
(1 218)
127 333
(1 840)
21 275
82 580
30 897
113 477
28 775
2 122
30 897
31 207
13 056
26 486
15 041
44 263
41 527
Notes to Consolidated Financial Statements
(all amounts in thousands of Canadian dollars, except where otherwise noted)
December 31, 2005 and 2004
1. Summary of significant accounting policies
Financial statement presentation
The consolidated financial statements of Telesat Canada (Telesat or the Company) have been prepared in accordance with
Canadian generally accepted accounting principles (GAAP). Telesat consolidates the financial statements of its wholly
owned subsidiaries Infosat Communications Inc. (Infosat), Telesat Brasil Limitada (Telesat Brazil), The SpaceConnection,
Inc. (SpaceConnection) and 3484203 Canada Inc. All transactions and balances between these companies have been
eliminated on consolidation. Some of the figures for the comparative period have been reclassified in the consolidated
financial statements to make them consistent with the current period’s presentation. Certain 2004 short term liquid
investments with original maturities of more than 90 days have been reclassified from cash and cash equivalents into short
term investments.
Regulation
The Company operates Canada’s domestic fixed satellite telecommunication system and is subject to regulation by the
Canadian Radio-television and Telecommunications Commission (CRTC). Under the current regulatory regime, Telesat
has pricing flexibility subject to a price ceiling on certain Full Period Fixed Satellite Services (FSS) offered in Canada
under minimum five-year lease arrangements. Telesat’s Direct Broadcast Services offered within Canada are also subject
to CRTC regulation, but have been treated as separate and distinct from Telesat’s FSS and facilities. The Commission has
approved the specific customer agreements relating to the sale of the capacity on the Nimiq satellites, including the rates,
terms and conditions of service set out therein. Telesat’s ground network services have been forborne from regulation
since 1994. The Commission has the right of examination of the Company’s accounting policies.
Use of estimates
When preparing financial statements according to GAAP, management makes estimates and assumptions relating to the
reported amounts of revenues and expenses, assets and liabilities and the disclosure of contingent assets and liabilities.
Actual results could be different from these estimates.
Revenue recognition
Telesat recognizes operating revenues when earned, as services are rendered or as products are delivered to customers. There
must be clear proof that an arrangement exists, the amount of revenue must be fixed or determinable and collectibility
must be reasonably assured. In particular, broadcast, carrier and business networks revenues are generally pre-billed to the
customers and recognized in the month for which the service is received. Equipment sales revenues are recognized when
the equipment is delivered to the customer and accepted. Consulting revenues for cost plus contracts are recognized after
the work has been completed and accepted by the customer. The percentage of completion method is used for fixed price
contracts. Deferred revenues consist of remuneration received in advance of the provision of service and are brought into
income over the period to which the prepayment applies. When a transaction involves more than one product or service,
revenue is allocated to each based on its relative fair value.
All highly liquid investments with an original maturity of 90 days or less are classified as cash and cash equivalents. For
the purposes of the cash flow statement, bank overdrafts are also classified as cash and cash equivalents.
Capital assets
Property, which is carried at cost less accumulated amortization, includes the contractual cost of equipment, capitalized
engineering and, with respect to satellites, the cost of launch services, launch insurance and capitalized interest during
construction. Capitalized interest provides a return on capital invested in new assets and is not currently realized in cash,
but is expected to be realized over the life of the asset. In the event of a satellite failure, any insurance proceeds received
are netted against the cost of the satellite.
Amortization is calculated using the straight line method over the respective estimated service lives of the assets based
on equal life group procedures. The annualized composite rate of amortization was 7.5% in 2005 (8.11% in 2004). The
unrecovered cost of a satellite from a partial operational failure is amortized in accordance with the straight line method.
The expected useful lives of satellites are 12 to 15 years, earth stations are 8 to 15 years, transponders under capital lease are
12 to 15 years, office buildings are 19 to 30 years and all others are 5 to 16 years. The estimate of useful lives are reviewed
every year and adjusted if necessary.
25
The Company shares equally with a developer, the ownership, cost and debt of the Company’s headquarters land and
building. The Company has leased the developer’s share of the building which is accounted for as a capital lease.
Capital assets are assessed for impairment when events or changes in circumstances indicate that the carrying value
exceeds the total undiscounted cash flows expected from the use and disposition of the assets. An impairment loss is
determined by deducting the asset’s fair value (based on discounted cash flows expected from its use and disposition)
from its carrying value.
The investment in each satellite will be removed from the property accounts when the satellite has been fully amortized
and is no longer in service. When other property is retired from operations at the end of its useful life, the amount of the
investment and accumulated amortization are removed from the accounts. Earnings are credited with the amount of any
net salvage and charged with any net cost of removal. When an item is sold prior to the end of its useful life, the gain or
loss is recognized in earnings immediately.
Translation of foreign currencies
Assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rates in effect
as of the balance sheet dates. Operating revenues and expenses, and interest on debt transacted in foreign currencies are
reflected in the financial statements using the average exchange rates during the year. The translation gains and losses are
included in Other income in the statement of earnings.
Telesat Brazil and Space Connection (see note 10) are considered to be self-sustaining foreign operations as they are
largely independent of Telesat. Assets and liabilities are translated at the exchange rate in effect on the balance sheet date.
Revenues and expenses are translated at average exchange rates during the year. The resulting unrealized gains or losses
are reflected as a currency translation adjustment in shareholders’ equity.
Accounting for investments
Telesat uses the equity method to account for investments that are not consolidated where it has significant influence on
the operating, investing and financing activities. The cost method is used for all other non-consolidated investments.
Goodwill
The goodwill was recorded on the acquisition of Infosat and SpaceConnection. An assessment for impairment is
undertaken in the fourth quarter of every year and when events or changes in circumstances indicate that the carrying
amount of goodwill exceeds the fair value of goodwill. To date, Telesat has not recognized any permanent impairment
in value.
Derivative financial instruments
The Company uses derivative financial instruments to hedge against foreign exchange rate risk. The use of derivatives
is expected to generate enough cash flows and gains or incur losses to offset this risk. Telesat does not use derivative
financial instruments for speculative or trading purposes. The Company documents all relationships between derivatives
and the items they hedge, and the risk management objective and strategy for using various hedges. This process includes
linking every derivative to a specific asset or liability on the balance sheet, or to a specific firm commitment or to an
anticipated transaction.
The effectiveness of the derivative in managing risk is assessed when the hedge is put in place and on an ongoing basis.
Hedge accounting is stopped when a hedge is no longer effective. When accounting for derivatives, Telesat follows these
policies:
deferred gains or losses relating to derivatives that qualify for hedge accounting are recognized in earnings when
the hedged item is sold or the anticipated transaction is ended
gains and losses related to hedges of anticipated transactions are recognized in earnings or are recorded as
adjustments of carrying values when the transaction takes place
any premiums paid for financial instrument contracts are deferred and expensed to earnings over the term of the
contract
Telesat recognizes gains and losses on forward contracts the same way as the gains and losses on the hedged item.
Unrealized gains or losses are included with the related assets or liabilities.
Employee benefit plans
26
As of January 1, 2000, the costs of post-employment and post-retirement benefits other than pensions are accrued over
the working lives of the employees, whereas previously the costs were generally charged to earnings as incurred. Telesat
has made this change on a prospective basis which provides for a gradual recognition of the fair value of the pension
surplus while at the same time recognizing the liability for costs of non-pension employee future benefits. Telesat is
amortizing the net transitional obligation on a straight-line basis over 14 years (regular plans) and 9 years (designated
plans), which was the average remaining service period of employees expected to receive benefits under the benefit plan
as of January 1, 2000.
Telesat maintains one contributory and three non-contributory defined benefit pension plans which provide benefits based
on length of service and rate of pay. Telesat is responsible for adequately funding these defined benefit pension plans.
Contributions are made based on various actuarial cost methods that are permitted by pension regulatory bodies and
reflect actuarial assumptions about future investment returns, salary projections and future service benefits. Telesat also
provides other post-employment and retirement benefits, including health care and life insurance benefits on retirement
and various disability plans, workers compensation and medical benefits to former or inactive employees, their beneficiaries
and covered dependents, after employment but before retirement, under certain circumstances. The Company accrues
its obligations under employee benefit plans and the related costs, net of plan assets. Actuaries determine pension costs
and other retirement benefits using the projected benefit method prorated on service and management’s best estimate of
expected investment performance, salary escalation, retirement ages of employees and expected health care costs.
Pension plan assets are valued at fair value which is also the basis used for calculating the expected rate of return on plan
assets. The discount rate is based on the market interest rate of high quality long-term bonds. Past service costs arising
from plan amendments are amortized on a straight-line basis over the average remaining service period of the employees
active at the date of amendment. The Company deducts 10% of the benefit obligation or the fair value of plan assets,
whichever is greater, from the net actuarial gain or loss and amortizes the excess over the average remaining service period
of active employees. The actuaries perform a valuation at least every three years to determine the actuarial present value of
the accrued pension and other retirement benefits. The 2005 pension expense calculation is extrapolated from an actuarial
valuation performed as of January 1, 2004. The accrued benefit obligation is extrapolated from an actuarial valuation as of
January 1, 2004. The most recent actuarial valuation of the pension plans for funding purposes was as of January 1, 2004,
and the next required valuation will be as of January 1, 2007.
Stock-based compensation plans
The Company’s stock-based compensation plans consist primarily of an employees’ savings plan (ESP), long-term
incentive programs which can include special compensation payments (SCP), deferred share units (DSU) and starting in
2005, a restricted share unit plan (RSU). Awards that are settled in BCE Inc. (BCE) stock are recorded as contributed
surplus. Awards that are settled in cash are recorded as liabilities. Telesat recognizes a compensation expense or recovery
relating to SCPs and a compensation expense for any contributions under the ESP.
For each RSU granted the Company records a compensation expense that equals the market value of a BCE common
share at the date of grant prorated over the vesting period. The compensation expense is adjusted for future changes in
the market value of BCE common shares until the vesting date and an assessment of the number of RSUs that will vest
in the future. The cumulative effect of the change in value is recognized in the period of the change. Vested RSUs will
be paid in BCE common shares purchased on the open market or in cash, as the holder chooses, as long as the minimum
share ownership requirements are met.
For each DSU granted Telesat records a compensation expense that equals the market value of a BCE common share at
the grant date. The compensation expense is adjusted for subsequent changes in the market value of BCE common shares
with the effect of this change in value recognized in the period of the change. DSUs are paid in BCE common shares
purchased on the open market following the cessation of the participant’s employment.
The Company has adopted the fair-value based method for measuring the compensation cost of employee stock options
using the Black-Scholes pricing model. This method has been used for options granted on or after January 1, 2002.
Income taxes
Current income tax expense is the estimated income taxes payable for the current year before any refunds or the use of
losses incurred in previous years. The Company uses the asset and liability method to account for future income taxes.
Future income taxes reflect:
the temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the
amounts used for tax purposes, on an after-tax basis
the benefit of losses and non-refundable tax credits that will more likely than not be realized and carried forward
to future years to reduce income taxes.
The Company calculates future income taxes using the rates enacted by tax law and those substantively enacted. A tax
law is substantively enacted when it has been tabled in the legislature but may not have been passed into law. The effect
27
of a change in tax rates on future income tax assets and liabilities is included in earnings in the period when the change
is substantively enacted.
Recent changes to accounting standards
Asset retirement obligations
Effective January 1, 2004 Telesat implemented CICA Handbook section 3110, Asset retirement obligations (ARO).
Liabilities related to the legal obligation of retiring property, plant and equipment are initially measured at fair value
and are adjusted for any changes resulting from the passage of time or to the amount of the original estimate of the
undiscounted cash flows. The cumulative amortization expense for the asset and accretion expense for the liability of $0.3
million for years prior to 2004 were recorded as an adjustment to the opening retained earnings for 2004, with offsets
to the ARO liability, ARO asset and to the future tax liability. The impact of the current expense and liability on the
consolidated financial statements for the years ended December 31, 2005 and 2004 was negligible.
2. Segmented information
The Company operates in the five reportable business segments described below. This reporting structure reflects how the
business is managed and how operations are classified for planning and measuring performance.
- Broadcast – distribution or collection of video and audio signals in the domestic and North American markets
which include television transmit and receive services, occasional use, bundled Digital Video Compression and radio
services.
- Carrier – satellite voice and date transmission services sold to other carriers located in Canada, the United States or
South America.
- Business Networks – provision of satellite capacity and ground network services for voice, data, and image
transmission and internet access in Canada, the United States and South America.
- Consulting and Other – all consulting services related to space and earth segments, government studies, satellite
control services, R&D projects as well as management services for TMI Communications and Company, Limited
Partnership.
- Telesat Canada Subsidiaries – includes the financial results of Infosat, SpaceConnection and Telesat Brazil.
Business segments
2005
2004
207 131
199 983
30 504
28 168
121 555
68 749
26 171
23 439
Total Telesat Canada
400 958
331 264
Inter-segment eliminations
( 15 597 )
( 10 925 )
474 741
362 166
Broadcast
45 598
51 666
Business Networks
40 580
14 826
Operating revenues
Broadcast - external
Broadcast - inter-segment
Carrier - external
Carrier - inter-segment
Business Networks - external
Business Networks - inter-segment
Consulting and Other - external
Consulting and Other - inter-segment
Amortization expense
Carrier
28
22
4 580
10 965
30
89 380
11 454
2 417
11 760
111 809
-
1 280
9 645
-
41 827
14 030
1 902
1 877
84 301
Earnings from operations
Broadcast
Carrier
Business Networks
2005
2004
129 431
106 551
12 910
4 142
( 5 835 )
9 439
18 250
7 103
Total Telesat Canada
145 945
136 046
Total earnings from operations
156 263
141 287
Interest expense
( 29 526 )
( 26 486 )
Net earnings
90 694
85 257
Other income
Income taxes
10 318
14 739
( 50 782 )
5 241
18 296
( 47 840 )
Total assets
50% of the Company’s capital assets are attributable to the Broadcast segment and 36% are attributable to the Business
Networks segment.
Geographic information
Revenues – Canada
Revenues – United States
Revenues – Brazil
Revenues – all others
Capital assets – Canada
Capital assets – United States
Capital assets – Brazil
Capital assets – Other
Goodwill – Canada
Goodwill – United States
2005
2004
299 228
287 245
17 683
9 160
138 824
52 925
19 006
474 741
12 836
362 166
1 268 570
1 169 011
3 596
2 826
1 335 442
1 171 837
16 537
7 058
23 595
16 537
16 537
57 592
5 684
-
The point of origin of revenues (destination of billing invoice) and the location of capital assets determine the
geographic areas. The Anik and Nimiq satellites have been classified as located in Canada for disclosure purposes.
Major customers
For the year ended December 31, 2005, two customers from the Broadcast segment aggregated 34% of consolidated
revenues. In 2004, two Broadcast segment customers aggregated 44% of consolidated revenues.
3. Business acquisition
On January 4, 2005, Telesat acquired 100% of the outstanding common shares of The SpaceConnection, Inc.
(SpaceConnection). SpaceConnection is a provider of programming-related satellite transmission services to all the
major US television networks and cable programmers. The purchase price was determined based on the fair value of
assets acquired and the liabilities assumed at the date of acquisition. As part of the purchase consideration, a contingent
payment of US $2.25 million was due based on achieving certain performance criteria by December 2005. This condition
was satisfied and an additional CAD $2.6 million was accrued in December 2005.
29
The acquisition has been accounted for using the purchase method of accounting and results from operations have been
included in the consolidated financial statements from the date of acquisition.
The allocation of the purchase price consists of the following:
Acquisition date
Current assets
Capital assets
Intangible assets (Note 9)
Goodwill
Other assets
Total assets acquired
Current liabilities
3 213
11 777
2 631
80 035
2 631
( 2 838 )
( 59 538 )
Total liabilities assumed
( 74 139 )
Net assets acquired
59 918
4 427
700
4. Other income
Foreign exchange gains (losses)
Interest income
Gain (loss) on disposal of assets
Performance incentive payments and milestone interest expense
Other
11 777
7 058
700
82 666
( 2 838 )
( 59 538 )
( 11 763 )
5 896
Total
3 213
59 918
Long-term debt
Future income tax liability
Contingent
consideration
( 11 763 )
2 631
2005
14 974
( 74 139 )
8 527
2004
17 642
1 317
( 2 669 )
123
( 196 )
6 849
( 8 529 )
5
14 739
3 379
( 3 468 )
3 608
18 296
Other in 2004 includes a $2.6 million recovery of a previously written off receivable.
5. Income taxes
A reconciliation of the statutory income tax rate, which is a composite of federal and provincial rates, to the effective
income tax rate is as follows:
2005
2004
Statutory income tax rate
35.3%
35.3%
Permanent differences
( 1.2% )
( 0.9% )
Other
( 0.5% )
0.2%
Effective income tax rate
35.9%
35.9%
Future
36 756
28 789
Total income tax expense
50 782
47 840
Large corporations tax
Adjustment for substantively enacted tax rate changes
1.3%
1.0%
1.3%
0.0%
The components of the income tax expense are as follows:
Current
30
14 026
19 051
The tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and
the amounts used for tax purposes are presented below:
2005
2004
Future tax assets
Investments
12 857
12 752
3 114
5 991
Performance incentive payments
18 861
15 802
Less: valuation allowance
( 2 669 )
( 2 647 )
Total future tax assets
44 177
35 331
195 720
147 136
14 774
15 532
Total future tax liabilities
234 182
176 820
Total future income taxes
190 005
141 489
3 737
3 594
Loss carry forwards
Reserves
Lease obligations
Other
Future tax liabilities
Capital assets
Insurance proceeds
Other
6 202
2 001
3 811
2 362
21 326
61
2 765
607
3 449
10 703
Total future income taxes are comprised of:
Net future income tax asset – current portion
Net future income tax liability – long-term portion
193 742
145 083
190 005
141 489
2005
2004
Trade receivables - net of allowance for doubtful accounts
46 894
50 010
Promissory note receivable
13 054
6. Receivables
Less: long-term portion of trade receivables
Liquidated damages receivable
( 568 )
-
59 380
( 1 500 )
19 331
15 339
83 180
The long-term portion of trade receivables includes items that will not be collected during the subsequent year and
is included in other assets in note 11. The long-term portion of the promissory note receivable is included in other
promissory notes receivable in note 11.
7. Other current assets
Inventories
Income taxes recoverable
Investment tax credit benefits
Prepaid expenses and other
Inventories are valued at lower of cost or market.
2005
2004
19 180
7 291
7 373
-
231
9 393
36 177
440
7 274
15 005
31
8. Capital assets
2005
Satellites
Earth stations
Transponders under capital lease
Office buildings and other
Construction in progress
2004
Satellites
Earth stations
Office buildings and other
Construction in progress
Cost
Accumulated
amortization
Net book
value
1 221 985
250 799
971 186
57 201
5 523
51 678
285 600
146 294
139 306
89 130
60 145
1 798 203
462 761
1 335 442
1 491 584
671 823
819 761
90 592
60 890
29 702
144 287
266 676
194 823
2 043 675
-
139 125
-
871 838
28 985
144 287
127 551
194 823
1 171 837
The cost of assets under capital lease, including satellite transponders, was $75.4 million at December 31, 2005 and $19.6
million at December 31, 2004. At December 31, 2005 the net book value of these assets was $55.0 million (2004 - $4.8
million). See note 22 for a description of the insurance proceeds received in 2005 and 2004 for Anik F1.
9. Intangible assets
2005
Non-competition agreement (Note 3)
Long-term contracts and customer lists (Note 3)
Cost
Accumulated
amortization
Net book
value
6 991
1 165
5 826
3 858
8 843
5 710
2 693
827
300
12 701
2004
Customer lists
827
300
3 017
527
527
The non-competition agreement is being amortized on a straight-line basis over six years beginning January 1st, 2005.
The long-term contracts are being amortized at variable rates based on the associated revenue until 2009. The customer
lists are being amortized on a straight-line basis over 3 to 4 years.
10. Investments
2005
2004
WildBlue Communications, Inc. - at cost
14 526
14 526
Hellas-Sat Consortium Limited - at cost
315
315
15 537
15 628
TMI Communications and Company, Limited Partnership - at cost
696
787
Telesat has a portfolio interest in WildBlue Communications, Inc. (WildBlue), a US-based company offering high-speed
satellite-based Internet services to the United States using the Anik F2 satellite. The initial investment in preferred shares
was acquired in 2000 as partial consideration for the grant of an exclusive license to WildBlue for the use and access of
the Ka-band payload on Anik F2.
32
In 2001, Telesat acquired a portfolio interest in Hellas-Sat Consortium Limited. The consortium has one satellite which
provides regional coverage to Greece, Cyprus and the Balkans.
Telesat holds 100% of the shares of 3484203 Canada Inc. which in turn holds 100% of the limited partner units of TMI
Communications and Company, Limited Partnership (TMI). The TMI general partner units are held indirectly by BCE.
TMI holds an interest in the Mobile Satellite Ventures (MSV) group of companies, which operate satellite systems for
the purpose of remote and mobile communication services in both Canada and the US.
Telesat holds 100% of the shares of Infosat Communications, Inc. and consolidates its results. Infosat is a full service
provider of satellite-based voice, fax, paging, and data communications.
Telesat holds 100% of the shares of Telesat Brasil Limitada and consolidates their results. The holding company holds
100% of Telesat Serviços de Telecomunicação Limitada, which is being used to provide services in the Brazilian market
using Anik F1.
Telesat holds 100% of the shares of The SpaceConnection Inc. and consolidates their results. Spaceconnection is a
provider of C-Band and Ku-Band space segment for video, audio, data and internet services. See note 3 for details of
the acquisition.
11. Other assets
Promissory notes receivable from TMI Communications and
Company, Limited Partnership (a)
Other promissory notes receivable (b)
2005
2004
3 840
3 840
-
14 227
-
7 373
Long term portion of trade receivables
568
Accrued pension benefit (see note 21)
8 104
Income taxes recoverable
Deferred charges
Other
3 834
717
17 063
1 500
7 003
678
135
34 756
(a) During 1998 Telesat renegotiated the repayment terms of the TMI promissory notes (discounted at the time of the
original transactions, gross value of $37.8 million) whereby $22.8 million was ranked prior to any indebtedness of
the Partnership. TMI has made partial repayments of $10.0 million in 2001, $5.0 million in 2003 and $4.0 million
in 2004.
(b) In October 2004, a new promissory note (Other promissory notes receivable) was issued bearing interest at 0.9968%
per month and is payable in monthly installments with the final payment due August 1, 2006.
12. Other current liabilities
2005
2004
Deferred revenues and deposits (see note 16)
30 314
24 193
Deferred milestone payments (see note 16)
32 276
52 029
Income taxes payable
16 895
16 408
449
-
Capital lease liabilities (see note 16)
Satellite performance incentive payments (see note 16)
Dividends payable
Other liabilities
4 748
10 569
15 993
111 244
846
9 130
9 232
111 838
33
13. Bank loans
The unused bank lines of credit available to Telesat at December 31, 2005 amounted to $164.3 million (2004 - $124.2
million). The unused bank line of credit available to Infosat at December 31, 2005 amounted to $8.5 million (2004 - $8.7
million).
14. Debt due within one year
7.4% Notes due June 28, 2006
Other debt financing
2005
2004
150 000
-
2 838
2 613
2005
2004
-
150 000
7 202
9 636
152 838
15. Debt financing
7.4% Notes due June 28, 2006
8.2% Notes due November 7, 2008
2 613
125 000
Other debt financing
125 000
132 202
284 636
Other debt financing includes the financing for the Company’s headquarters building. With respect to the headquarters
building, the Company shares equally with the developer, the ownership, cost and debt of the building. The Company
has leased the developer’s share for twenty years beginning January 25, 1989 for an annual rent, excluding operating costs,
of $1.8 million. Total headquarters financing of $9.5 million (2004 - $12.0 million) includes the amount owing under
this capital lease of $4.6 million at December 31, 2005 (2004 - $5.9 million). The imputed interest rate for the capital
lease is 10.69% per annum.
Mortgage financing for the Company’s share of the facility has been arranged by the developer for a twenty-year term
coincident with the lease with interest at 11% per annum and with annual payments of principal and interest of $1.8
million.
The outstanding short and long term debt financing at December 31, 2005 of $285 million is repayable as follows:
2006
152 838
16. Other long-term liabilities
Deferred revenues and deposits (a)
Deferred satellite performance incentive payments (b)
Deferred milestone payments (c)
Capital lease liabilities (d)
Other liabilities
2007
2008
2009
3 378
128 528
296
2005
2004
261 771
274 341
21 678
50 755
42 427
49 749
11 394
387 019
35 635
883
3 977
365 591
(a) Deferred revenues represent the Company’s liability for the provision of future services. The prepaid amount is
brought into income over the period of service to which the prepayment applies. The net amount outstanding at
December 31, 2005 will be reflected in the Statements of Earnings as follows: $30.3 million in 2006, $30.7 million
in 2007, $22.5 million in 2008, $21.6 in 2009, $21.3 in 2010 and $165.7 million thereafter.
34
(b) Deferred satellite performance incentive payments are payable over the lives of the Nimiq 1, Anik F1, Anik F2 and
Anik F1R satellites. The present value of the payments is capitalized as part of the cost of the satellite, recorded as
a liability, and charged against operations as part of the normal amortization of the satellite. The amounts payable
on the successful operation of the transponders are US $6.6 million in 2006, US $6.2 million in 2007, US $3.1
million in 2008, US $2.9 million in 2009, US $3.1 million in 2010, and US $20.9 million thereafter.
(c) Deferred milestone payments represent the present value of liabilities associated with the Anik F2 satellite. Payments
of principal and interest over the next two years are US $27.6 million in 2006 and US $21.1 million in 2007.
(d) Future minimum lease payments payable under capital leases are $4.8 million in 2006, $4.7 million in 2007, $4.8
million in 2008, $5.3 million in 2009, $5.8 million in 2010 and $29.1 million thereafter.
17. Capital stock
The authorized capital of the Company is comprised of 10,000,000 common shares and 5,000,000 preferred shares.
Ownership by non-residents in the common shares of the Company is limited to twenty percent.
At December 31, 2005 and 2004 there were 6,842,547 common shares outstanding with a stated value of $111.9 million.
At December 31, 2005 and 2004 there were 5,000,000 non-voting preferred shares outstanding with a stated value of
$50.0 million.
For the period March 31, 2002 to March 30, 2004 the cumulative preferred share dividend rate was fixed at an annual rate
of 4.00%. For the period March 31, 2004 to March 30, 2007 the dividend rate has been fixed at an annual rate of 3.56%.
The shares are redeemable at the option of the Company at $10 per share plus any accrued dividends payable. Telesat has
agreed not to exercise its rights of redemption during the period terminating March 30, 2007.
18. Cash flow information
Cash and cash equivalents is comprised of:
Cash
Bank overdrafts
Short term investments, original maturity 90 days or less
Net change in non-cash balance sheet accounts is comprised of:
Receivables
Other assets
Accounts payable
Income taxes payable
Other liabilities
Contributed surplus
2005
2004
-
10 352
117 668
20 545
( 4 191 )
113 477
6 406
( 18 294 )
( 747 )
-
30 897
( 53 908 )
9 066
1 789
622
11 312
361
395
( 13 370 )
( 25 022 )
35 371
4 025
19. Financial instruments
Telesat uses derivative instruments to manage the exposure to foreign currency risk and does not use derivative instruments
for speculative purposes. Since there is no active trading in derivative instruments, there is no exposure to any significant
liquidity risks relating to them.
Credit risk
Financial instruments that potentially subject the Company to a concentration of credit risk consists of cash and cash
equivalents and short term investments. Investment of these funds is done with high quality financial institutions and is
governed by the Company’s corporate investment policy, which aims to reduce credit risk by restricting investments to
high-grade US dollar and Canadian dollar denominated investments.
Telesat is exposed to credit risk if counterparties to its derivative instruments are unable to meet their obligations. It is
expected that these counterparties will be able to meet their obligations as they are institutions with strong credit ratings.
Telesat regularly monitors the credit risk and credit exposure. There was no credit risk relating to derivative instruments
at December 31, 2005.
35
Telesat has a number of diverse customers, which limits the concentration of credit risk. The Company has credit
evaluation, approval and monitoring processes intended to mitigate potential credit risks. Anticipated bad debt losses
have been provided for in the allowance for doubtful accounts.
Currency exposures
Telesat uses forward contracts to hedge foreign currency risk on anticipated transactions. At December 31, 2005, the
Company had $92.2 million (2004 - $164.2 million) of outstanding foreign exchange contracts which require the
Company to pay Canadian dollars to receive US dollars for future capital expenditures. The fair value of these contracts
is $83.6 million (2004 - $149.8 million). The forward contracts are due between March 2006 and May 2007.
Fair value
Fair value is the amount that willing parties would accept to exchange a financial instrument based on the current market
for instruments with the same risk, principal and remaining maturity. Fair values are based on estimates using present
value and other valuation methods.
These estimates are affected significantly by the assumptions for the amount and timing of estimated future cash flows
and discount rates, which all reflect varying degrees of risk. Potential income taxes and other expenses that would be
incurred on disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are
not necessarily the net amounts that would be realized if these instruments were actually settled.
The carrying amounts for cash and cash equivalents, short term investments, receivables, other current liabilities, accounts
payable and accrued liabilities approximate fair market value due to the short maturity of these instruments. The carrying
value of the debt financing is an approximation of the fair market value due to the Company’s intention to hold the debt
and pay it out at maturity.
20. Stock-based compensation plans
Employee savings plans (ESPs)
The ESP enables Telesat employees to acquire BCE common shares through payroll deductions of up to 10% of their
annual base earnings and target bonus plus employer contributions of up to 2%. The trustee of the ESPs buys BCE
common shares for the participants on the open market, by private purchase or from BCE (where shares are issued
from Treasury). BCE chooses the method the trustee uses to buy the shares. Compensation expense for ESPs was $0.6
million in 2005 (2004 - $0.6 million).
Stock options
Under the long-term incentive programs, options may be granted to key employees of Telesat to purchase BCE common
shares. The subscription price is usually equal to the market value of the shares on the last trading day before the grant
comes into effect. For options granted before January 1, 2004, the right to exercise the options generally vests or accrues
by 25% a year for four years of continuous employment from the date of grant, except where a special vesting period
applies. Options become exercisable when they vest and can be exercised for a period of up to 10 years from the date of
grant.
For options granted after January 1, 2004, the right to exercise options vests after two to three years of continuous
employment from the date of grant, if specific performance targets are met. Options become exercisable when they vest
and can be exercised for a period of up to six years from the date of grant. Subject to achieving specific performance
targets, 50% of the options will vest after two years and 100% after three years.
36
The following tables are a summary of the status of Telesat’s portion of the BCE stock option programs at December
31, 2005.
Outstanding, beginning of year
Granted
Expired/forfeited
418 457
31
33 050
16
( 20 375 )
16
32
516 598
261 826
29
41
34
Options outstanding
Weighted- WeightedNumber
average
average
remaining
exercise
life
price ($)
38 375
$20 to $29
344 115
$40 and over
151 394
$30 to $39
31
543 884
Exercisable, end of year
Below $20
516 598
6 888
Outstanding, end of year
Range of exercise price
Number
of shares
2004
Weightedaverage
exercise
price ($)
2004
67 224
Exercised
At December 31, 2005
Number
of shares
2005
Weightedaverage
exercise
price ($)
2005
10 000
543 884
152 776
( 34 260 )
251 066
30
37
31
32
Options exercisable
WeightedNumber
average
exercise
price ($)
3.39
17
38 375
17
4.52
35
10 000
35
5.39
4.66
5.03
29
41
32
62 057
151 394
261 826
28
41
34
The assumptions used to determine the stock-based compensation expense under the Black-Scholes option pricing
model were as follows:
Compensation cost
Number of stock options granted
2005
2004
408
353
67 224
152 776
Dividend yield
4.6%
4.0%
Risk-free interest rate
3.0%
3.1%
Weighted-average fair value per option granted ($)
Assumptions:
Expected volatility
Expected life (years)
3.0
24%
3.5
3.7
27%
3.5
During 2005, stock options were granted under the stock-based compensation plan and an expense of $0.4 million (2004
- $0.4 million) was charged to contributed surplus.
37
Restricted share units (RSUs)
In 2005, RSUs were granted to Telesat executives. The value of an RSU is always equal to the value of one BCE common
share. Dividends in the form of additional RSUs 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. Each executive is granted a specific number
of RSUs for a given performance period, based on his or her position and level of contribution. At the end of each given
performance period, RSUs will vest if performance objectives are met or will be forfeited.
Vested RSUs will be paid in BCE common shares purchased on the open market, in cash or through a combination of
both, as the holder chooses, as long as individual share ownership requirements are met.
The table below is a summary of the status of RSUs:
Outstanding, January 1, 2005
Number of RSUs
-
Granted
73 777
Dividends credited
2 460
-
Expired/forfeited
Outstanding, December 31, 2005
76 237
Vested, December 31, 2005
-
For the year ended December 31, 2005 a compensation expense for RSUs of $1.7 million was accrued as a liability.
Special compensation payments (SCPs)
Before 2000, when options were granted to employees, related rights to SCPs were also often granted. SCPs are cash
payments representing the amount that the market value of the shares on the date of exercise exceeds the exercise price
of these options.
The number of SCPs for BCE common shares outstanding at December 31, 2005 was 38,375. All of the outstanding
SCPs cover the same number of shares as the options to which they relate. It is Telesat’s responsibility to make the
payments under the SCPs. The annual compensation expense for the SCP was an expense of $0.2 million in 2005 (2004
– recovery $0.1 million).
Deferred share units (DSUs)
DSUs are granted to executives when they choose to receive their bonuses in the form of DSU units instead of cash.
The value of a DSU is always equal to the value of one BCE common share. 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 dividend paid
on BCE common shares. DSUs are paid in cash when the holder chooses to exercise their units.
The table below is a summary of the status of the DSUs:
Number of DSUs
Outstanding, January 1
Granted
Dividends credited
Exercised
Outstanding, December 31
2005
965
2004
-
3 283
934
-
-
151
4 399
31
965
For the year ended December 31, 2005, the company recorded a compensation expense for DSUs of $0.1 million (2004
– negligible).
38
21. Employee benefit plans
The Company’s funding policy is to make contributions to its pension funds based on various actuarial cost methods
as permitted by pension regulatory bodies. Contributions reflect actuarial assumptions concerning future investment
returns, salary projections and future service benefits. Plan assets are represented primarily by Canadian and foreign
equity securities, fixed income instruments and short-term investments.
The changes in the benefit obligations and in the fair value of assets and the funded status of the defined benefit plans
were as follows:
Change in benefit obligations
Benefit obligation, beginning of year
Current service cost
Interest cost
Actuarial (gains) losses
Benefit payments
Employee contributions
Benefit obligation, end of year
Change in fair value of plan assets
Fair value of plan assets, beginning of year
Return on plan assets
Benefit payments
Employer contributions
Fair value of plan assets, end of year
Funded status
Plan surplus (deficit)
Unamortized net actuarial (gain) loss
Unamortized transitional (asset) obligation
Accrued benefit asset (liability)
Pension
benefits
2005
Other
benefits
2005
Pension
benefits
2004
Other
benefits
2004
125 646
11 189
118 214
11 577
7 730
684
7 906
767
3 160
394
18 961
2 488
1 707
-
( 3 594 )
( 269 )
3 156
( 1 605 )
( 3 886 )
1 861
368
( 1 243 )
( 280 )
-
153 610
14 486
125 646
11 189
136 165
-
127 666
-
16 193
-
( 3 594 )
( 269 )
468
269
1 707
150 939
-
10 028
( 3 886 )
1 861
496
136 165
-
( 280 )
-
280
-
( 2 671 )
( 14 486 )
10 519
(11 189 )
( 12 209 )
4 943
( 13 663 )
5 561
( 8 434 )
7 003
22 985
8 105
1 109
10 147
( 1 401 )
( 7 029 )
The fair value of the plan assets consists of the following asset categories at December 31:
2005
2004
Equity securities
63%
Fixed income instruments
Short-term investments
Total
64%
34%
2%
100%
35%
2%
100%
Plan assets are valued as at the measurement date of December 31 each year. Equity securities include common shares
of a related party in the amounts of $1.1 million (1% of total plan assets) and $1.2 million (1% of total plan assets) at
December 31, 2005 and 2004 respectively.
39
The significant weighted-average assumptions adopted in measuring Telesat’s pension and other benefit obligations were
as follows:
Accrued benefit obligation as of December 31:
Discount rate
Rate of compensation increase
Benefit costs for years ended December 31:
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
Pension
benefits
2005
Other
benefits
2005
Pension
benefits
2004
Other
benefits
2004
5.2%
5.2%
6.0%
6.0%
6.0%
6.0%
6.5%
6.5%
3.5%
3.5%
4.0%
4.0%
3.5%
7.5%
3.5%
7.5%
3.5%
7.5%
3.5%
7.5%
For measurement purposes, a 10.5% (drugs) / 4.5% (other) annual rate of increase in the per capita cost of covered health
care benefits (the health care cost trend) was assumed for 2005. The drug rate is assumed to gradually decrease to 4.5%
over 6 years and remain at that level thereafter.
The net benefit expense included the following components:
Interest cost
Expected return on plan assets
Amortization of net actuarial (gain)/loss
Amortization of transitional obligation
Net benefit expense
Pension
benefits
2005
Other
benefits
2005
Pension
benefits
2004
Other
benefits
2004
3 160
394
3 156
368
( 10 165 )
-
( 9 548 )
( 1 454 )
618
( 1 454 )
( 633 )
1 674
7 730
96
684
( 22 )
7 906
-
60
767
-
-
618
1 753
22. Commitments and contingent liabilities
Minimum annual commitments under operating leases determined as at December 31, 2005 are $16.7 million in 2006,
$9.9 million in 2007, $9.5 million in 2008, $4.9 million in 2009, $3.8 million in 2010 and $3.7 million thereafter.
Telesat has non-satellite purchase commitments of US $20.9 million (CAD $24.4 million) and CAD $0.5 million with
various suppliers at December 31, 2005 (2004 - US $20.3 million or CAD $24.9).
During the first quarter of 2004, Telesat entered into contracts for the construction and launch of Anik F3, targeted for
launch in 2006. The outstanding commitments at December 31, 2005 on these contracts are US $69.1 million (CAD
$80.5 million).
Telesat has also entered into agreements with various customers for the sale and/or lease of a number of transponders
and for prepaid revenues on the Anik F2, Anik F1R and Anik F3 satellites which take effect on final acceptance of the
spacecraft. Telesat shall be responsible for operating and controlling these satellites. Deposits and accrued interest of
$272.8 million (2004 - $287.4 million), refundable under certain circumstances, are reflected in other liabilities, both
current and long-term.
In the normal course of business, Telesat has executed agreements that provide for indemnification and guarantees
to counterparties in various transactions. These indemnification undertakings and guarantees may require Telesat to
compensate the counterparties for costs and losses incurred as a result of certain events including, without limitation, loss
or damage to property, change in the interpretation of laws and regulations (including tax legislation), claims that may
arise while providing services, or as a result of litigation that may be suffered by the counterparties.
40
Certain indemnification undertakings can extend for an unlimited period and may not provide for any limit on the
maximum potential amount, although certain agreements do contain specified maximum potential exposure representing
a cumulative amount of approximately $16.7 million. The nature of substantially all of the indemnification undertakings
prevents the Company from making a reasonable estimate of the maximum potential amount Telesat could be required
to pay counterparties as the agreements do not specify a maximum amount and the amounts are dependent upon the
outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. To the best
of management’s knowledge, Telesat has not made any payments under such indemnifications.
Telesat reached an agreement with one of its major customers concerning the dispute of the application of the Canadian
Radio-television and Telecommunications Commission contribution levy. Levy payments owing to Telesat have been
recovered.
In August 2001, Boeing, the manufacturer of the Anik F1 satellite, advised Telesat of a gradual decrease in available power
on-board the satellite. Telesat filed an insurance claim with its insurers on December 19, 2002, and in March 2004
reached a final settlement agreement. The settlement calls for an initial payment in 2004 of US $136.2 million and an
additional payment of US $49.1 million in 2007 if the power level on Anik F1 degrades as predicted by the manufacturer.
In the event that the power level on Anik F1 is better than predicted, the amount of the payment(s) will be adjusted by
applying a formula which is included in the settlement documentation and could result in either a pro-rated payment
to Telesat of the additional US $49.1 million or a pro-rated repayment of up to a maximum of US $36.1 million to be
made by Telesat to the insurers. The initial payment has been received. During December 2005, a number of insurers
elected to pay a discounted amount of the proceeds due in 2007. A total of US $26.2 million was received in December
(pre-discount value of US $29.1 million) leaving US $20.0 million to be paid in 2007. The degradation continues as
predicted.
23. Related party transactions
Related parties include BCE, the sole common shareholder, together with its subsidiaries and affiliates, and Telesat
investments.
The following transactions are in the normal course of operations and are measured at the exchange amount, which is the
amount of consideration established and agreed to by the related parties.
Operating revenues for services provided
Operating expenses for services received
Receivables at year end
Deferred revenues and deposits
2005
2004
131 880
133 795
9 273
3 566
159 821
6 811
6 071
156 411
24. Subsequent event
In January 2006, Telesat signed an agreement to build and launch Nimiq 4, a new direct broadcast satellite targeted for
launch in 2008. The outstanding commitments on this contract at the time of signing were US $169.7 million (CAD
$197.9 million) and CAD $14 million with various suppliers.
On February 1, 2006, Telesat’s parent company BCE announced its intention to implement a recapitalization of Telesat
and launch an Initial Public Offering (IPO) of a minority stake for Telesat in the second half of 2006.
41
Telesat Canada Headquarters
1601 Telesat Court
Gloucester, Ontario
K1B 5P4
(613) 748-0123
www.telesat.com
Auditor
Bankers
Bank of Montreal
ING Bank N.V.
Canadian Imperial Bank of Commerce
Royal Bank of Canada
United Overseas Bank Limited
National Bank of Canada
Transfer Agent & Registrar
7.40% Series 99-B Notes
BNY Trust Company of Canada
8.20% Series 2001 Notes
BNY Trust Company of Canada
Sales Offices Canada
Registrar Preferred Shares
Telesat Canada
Attention: Secretary
Montréal
1200, avenue Papineau, Bureau 140
Montréal (Québec) H2K 4R5
514-521-7862
Toronto
100 Sheppard Avenue East, Suite 800
North York, Ontario M2N 6N5
416-733-4032
Calgary
1780 Center Avenue N.E.
Calgary, Alberta T2E 0A6
403-235-5751
South America
Belo Horizonte
Av. Dep. Cristovan Chiaradia, 540 – Buritis
30575-815 - Belo Horizonte – MG
Brazil
011-55-31-3378-9060
42
Trademarks:
“Telesat”, “Anik”, and “Nimiq” are among
the trademarks owned by Telesat Canada
and are protected by applicable laws.
The foregoing list of trade-marks is not
necessarily exhaustive, and Telesat Canada
may own other trade-marks not included
here. Any other trademarks, corporate,
trade or domain name used in this Annual
Report are the property of their respective
owners. You may not use any trademark
displayed in this Annual Report without
the written permission of Telesat or the
relevant owner of the trademark.
BELL CANADA ENTERPRISES
2005 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
About Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . 2
Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . 2
About Our Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Year at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Selected Annual and Quarterly Information. . . . . . . . . . . . . . 16
Financial Results Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Financial and Capital Management . . . . . . . . . . . . . . . . . . . . 34
Evaluation of Disclosure Controls and Procedures . . . . . . . . . 41
Assumptions Made in the Preparation of
Forward-Looking Statements and Risks that
Could Affect Our Business and Results . . . . . . . . . . . . . . . 42
Our Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
Note 21
Note 22
Note 23
Note 24
Note 25
Note 26
Note 27
CONSOLIDATED FINANCIAL STATEMENTS
Management’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . 61
Consolidated Statements of Deficit . . . . . . . . . . . . . . . . . . . . . 61
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . 62
Consolidated Statements of Cash Flow. . . . . . . . . . . . . . . . . . 63
Significant Accounting Policies . . . . . . . . . . . . . . . 64
Segmented Information . . . . . . . . . . . . . . . . . . . . . 71
Business Acquisitions . . . . . . . . . . . . . . . . . . . . . . 73
Restructuring and Other Items . . . . . . . . . . . . . . . 75
Other Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Discontinued Operations . . . . . . . . . . . . . . . . . . . . 79
Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . 80
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . 81
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . 81
Capital Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Other Long-Term Assets . . . . . . . . . . . . . . . . . . . . 82
Indefinite-Life Intangible Assets . . . . . . . . . . . . . . 82
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Accounts Payable and Accrued Liabilities . . . . . . . 83
Debt Due Within One Year. . . . . . . . . . . . . . . . . . 83
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Other Long-Term Liabilities . . . . . . . . . . . . . . . . . 85
Non-Controlling Interest . . . . . . . . . . . . . . . . . . . 85
Financial Instruments . . . . . . . . . . . . . . . . . . . . . . 85
Share Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Stock-Based Compensation Plans . . . . . . . . . . . . . 88
Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . 91
Commitments and Contingencies . . . . . . . . . . . . . 95
Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Supplemental Disclosure for
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . 98
Note 28 Reconciliation of Canadian GAAP
to United States GAAP . . . . . . . . . . . . . . . . . . . . . 98
Board of Directors and Executives . . . . . . . . . . . . . . . . . . . . 102
Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
p. 2
Please refer to the audited
consolidated financial statements when reading this
MD&A. You will find more
information about BCE,
including BCE Inc.’s annual
information form for the
year ended December 31,
2005 (BCE 2005 AIF) and
recent financial reports,
on BCE Inc.’s website at
www.bce.ca, on SEDAR
at www.sedar.com and on
EDGAR at www.sec.gov.
This management’s discussion and analysis of financial
condition and results of operations (MD&A) comments
on BCE’s operations, performance and financial condition for the years ended December 31, 2005 and 2004.
In this MD&A, we, us, our
and BCE mean BCE Inc.,
its subsidiaries and joint
ventures.
All amounts in this
MD&A are in millions of
Canadian dollars, except
where otherwise noted.
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
may include words such
as anticipate, assumption,
believe, could, expect, goal,
guidance, intend, may,
objective, outlook, plan,
seek, should, strive, target
and will.
Non-GAAP Financial
Measures
This section describes
the non-GAAP financial
measures we use in the
MD&A to explain our
financial results. It also
provides reconciliations
of the non-GAAP financial
measures to the most
comparable Canadian
GAAP financial measures.
ABOUT FORWARD-LOOKING STATEMENTS
Securities laws encourage companies to disclose forwardlooking information so that investors can get a better
understanding of the company’s future prospects and
make informed investment decisions.
BCE’s 2005 annual report, including this MD&A,
contains forward-looking statements about BCE’s
objectives, plans, strategies, financial condition, results
of operations, cash flows and businesses. These statements are forward-looking because they are based on
our current expectations, estimates and assumptions
about the markets we operate in, the Canadian economic environment and our ability to attract and
retain customers and to manage network assets and
operating costs. All such forward-looking statements
are made pursuant to the ‘safe harbor’ provisions of
the United States Private Securities Litigation Reform
Act of 1995 and of any applicable Canadian securities
legislation, including the Securities Act of Ontario. It is
important to know that:
• unless otherwise indicated, forward-looking
statements in BCE’s 2005 annual report, including in this MD&A, describe our expectations at
March 1, 2006
• our actual results could differ materially from what
we expect if known or unknown risks affect our business, or if our estimates or assumptions turn out to
be inaccurate. As a result, we cannot guarantee that
any forward-looking statement will materialize and,
accordingly, you are cautioned not to place undue
reliance on these forward-looking statements.
• except as otherwise indicated by BCE, forward-looking statements do not take into account the effect that
transactions or non-recurring or other special items
announced or occurring after the statements are made
may have on our business. Such statements do not,
unless otherwise specified by BCE, reflect the impact
of dispositions, sales of assets, monetizations, mergers,
acquisitions, other business combinations or transactions, asset write-downs or other charges announced or
occurring after forward-looking statements are made.
The financial impact of these transactions and nonrecurring and other special items can be complex and
depends on the facts particular to each of them. We
BELL CANADA ENTERPRISES 2005 ANNUAL REPORT
therefore cannot describe the expected impact in a
meaningful way or in the same way we present known
risks affecting our business.
• we disclaim any intention and assume no obligation
to update any forward-looking statement even if new
information becomes available as a result of future
events or for any other reason.
A number of assumptions were made by BCE in making forward-looking statements in BCE’s 2005 annual
report, including in this MD&A, such as certain Canadian economic assumptions, market assumptions,
operational and financial assumptions, and assumptions about transactions. Certain factors that could
cause results or events to differ materially from our
current expectations include, among others, our ability to implement our strategies and plans, our ability
to implement the changes required by our strategic
direction, the intensity of competitive activity and the
ability to achieve customer service improvement while
significantly reducing costs. Assumptions made in the
preparation of foward-looking statements and risks
that could cause our actual results to differ materially
from our current expectations are discussed throughout this MD&A and, in particular, in Assumptions
Made in the Preparation of Forward-Looking Statements
and Risks that Could Affect Our Business and Results.
NON-GAAP FINANCIAL MEASURES
EBITDA
The term EBITDA does not have any standardized
meaning according to Canadian generally accepted
accounting principles (GAAP). It is therefore unlikely
to be comparable to similar measures presented by
other companies. EBITDA is presented on a consistent
basis from period to period.
We use EBITDA, among other measures, to assess
the operating performance of our ongoing businesses
without the effects of amortization expense, net benefit
plans cost, and restructuring and other items. We
exclude amortization expense and net benefit plans
cost because they largely depend on the accounting
methods and assumptions a company uses, as well as
non-operating factors such as the historical cost of
capital assets and the fund performance of a company’s
pension plans. Excluding restructuring and other items
does not imply they are necessarily non-recurring.
p. 3
EBITDA allows us to compare our operating performance on a consistent basis. We believe that certain
investors and analysts use 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.
The most comparable Canadian GAAP financial
measure is operating income. The tables below are
reconciliations of operating income to EBITDA on a
consolidated basis for BCE and Bell Canada.
BCE
Operating income
Net benefit plans cost
Restructuring and other items
EBITDA
BELL CANADA
Operating income
EBITDA
2005
2004
4,048
3,114
380
55
7,597
2,894
3,056
256
1,224
7,430
2005
2004
3,755
2,989
389
54
7,187
2,695
2,962
235
1,219
7,111
OPERATING INCOME BEFORE
RESTRUCTURING AND OTHER ITEMS
The term operating income before restructuring and
other items does not have any standardized meaning
according to Canadian GAAP. It is therefore unlikely
to be comparable to similar measures presented by
other companies.
We use operating income before restructuring and
other items, among other measures, to assess the operating performance of our ongoing businesses without
the effects of restructuring and other items. 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 necessarily non-recurring.
measure is operating income. The tables below are
reconciliations of operating income to operating income
before restructuring and other items on a consolidated
basis for BCE and Bell Canada.
BCE
Operating income
Operating income before
restructuring and other items
BELL CANADA
Operating income
Operating income before
restructuring and other items
2005
2004
4,048
55
2,894
1,224
4,103
4,118
2005
2004
3,755
54
2,695
1,219
3,809
3,914
NET EARNINGS BEFORE
RESTRUCTURING AND OTHER ITEMS
AND NET GAINS ON INVESTMENTS
The term net earnings before restructuring and other
items and net gains on investments does not have any
standardized meaning according to Canadian GAAP. It
is therefore unlikely to be comparable to similar measures presented by other companies.
We use net earnings before restructuring and other
items and net gains on investments, among other
measures, to assess the operating performance of our
ongoing businesses without the effects of after-tax
restructuring and other items and net gains on investments. 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
necessarily non-recurring.
measure is net earnings applicable to common shares.
The following table is a reconciliation of net earnings
applicable to common shares to net earnings before
restructuring and other items and net gains on investments on a consolidated basis and per BCE Inc. common share.
2005
TOTAL
Net gains on investments
Net earnings before restructuring and other items
and net gains on investments
EBITDA
We define EBITDA (earnings
before interest, taxes, depreciation and amortization)
as operating revenues less
operating expenses, meaning
it represents operating
income before amortization
expense, net benefit plans
cost, and restructuring and
other items.
2004
PER SHARE
TOTAL
PER SHARE
1,891
38
(28)
2.04
0.04
(0.03)
1,523
772
(423)
1.65
0.83
(0.46)
1,901
2.05
1,872
2.02
p. 4
Free Cash Flow
We define free cash flow
as cash from operating
activities after capital expenditures, total dividends
and other investing activities.
FREE CASH FLOW
The term free cash flow does not have any standardized meaning according to Canadian GAAP. It is
therefore unlikely to be comparable to similar measures presented by other companies. Free cash flow is
presented on a consistent basis from period to period.
We consider free cash flow to be an important indicator of the financial strength and performance of our
business because it shows how much cash is available to
repay debt and reinvest in our company. We present
free cash flow consistently from period to period,
which allows us to compare our financial performance
on a consistent basis.
We believe that certain investors and analysts use free
cash flow to value a business and its underlying assets.
measure is cash from operating activities. The table
below is a reconciliation of cash from operating activities to free cash flow on a consolidated basis.
revenues for the year ended December 31, 2005. Some
of these revenues vary slightly by season. Business segment revenues tend to be higher in the fourth quarter
because of higher levels of voice and data equipment
sales. Revenues for the Other BCE segment tend to be
highest in the fourth quarter and lowest in the third
quarter because of seasonal patterns in advertising
spending in the fall and summer, respectively. Our
operating income can also vary by season. Residential
segment operating income tends to be lower in the
fourth quarter due to the higher costs associated with
greater subscriber acquisition during the holiday season.
OPERATING REVENUES
31%
40%
2005
10%
10%
2005
Cash from operating activities
Capital expenditures
Total dividends paid
Other investing activities
Free cash flow
5,559
(3,428)
(1,473)
4
662
2004
5,443
(3,319)
(1,381)
127
870
9%
40% Residential
10% Other BCE
31% Business
10% Aliant
9% Other Bell Canada
ABOUT OUR BUSINESS
RESIDENTIAL SEGMENT
BCE is Canada’s largest communications company.
Our primary focus is Bell Canada, which encompasses
our core business operations and represents the largest
component of our business. Bell Canada is the nation’s
leading provider of wireline and wireless communications services, Internet access, data services and video
services to residential and business customers. We
report Bell Canada’s results of operations in four
segments. Each reflects a distinct customer group:
Residential, Business, Aliant and Other Bell Canada.
All of our other activities are reported in the Other
BCE segment. Our reporting structure reflects how
we manage our business and how we classify our operations for planning and measuring performance. We
discuss our consolidated operating results in this
MD&A, as well as the operating results of each segment. See Note 2 to the consolidated financial statements for information about our segments. We also
discuss our results by product line to give further
insight into these results.
The following chart shows the operating revenues
that each segment contributed to total operating
The Residential segment (formerly the Consumer
segment) provides local telephone, long distance, wireless, Internet access, video and other services to Bell
Canada’s residential customers, mainly in Ontario and
Québec. Wireless services are also offered in Western
Canada and video services are provided nationwide.
Local telephone and long distance services are sold
under the Bell brand, wireless services through Bell
Mobility Inc. (Bell Mobility), Internet access under
the Sympatico brand and video services through Bell
ExpressVu.
BUSINESS SEGMENT
The Business segment provides local telephone, long
distance, wireless, data (including Internet access)
and other services to Bell Canada’s large enterprise
(Enterprise) customers and small and medium-sized
businesses (SMB) in Ontario and Québec, as well as to
business customers in Western Canada through Bell
West, our division offering competitive local exchange
carrier (CLEC) services in Alberta and British Columbia.
p. 5
In 2005, Bell Canada acquired a number of small,
specialized service companies, allowing us to broaden
our product suite of information and communications
technology (ICT) solutions (or value-added services
(VAS)) for both Enterprise and SMB customers.
The Business segment also reflects the retail portion of the operations of 360networks Corporation
(360networks) acquired in November 2004 and operating in Western Canada as the Group Telecom unit
within Bell Canada.
ALIANT SEGMENT
The Aliant segment provides local telephone, long
distance, wireless, data (including Internet access) and
other services to residential and business customers in
Atlantic Canada, and represents the operations of our
subsidiary, Aliant Inc. (Aliant). At December 31, 2005,
Bell Canada owned 53% of Aliant. The remaining 47%
was publicly held.
OTHER BELL CANADA SEGMENT
The Other Bell Canada segment includes Bell Canada’s
Wholesale business and the financial results of Télébec
Limited Partnership (Télébec), NorthernTel Limited
Partnership (NorthernTel) and Northwestel Inc.
(Northwestel). Our Wholesale business provides various access and network services to other resale or
facilities-based providers of local, long distance, wireless, Internet, data and other telecommunications
services. Télébec, NorthernTel and Northwestel provide
telecommunications services to less populated areas of
Québec, Ontario and Canada’s northern territories.
At December 31, 2005, Bell Canada owned 100% of
Northwestel and 63% of Télébec and NorthernTel,
with the remaining 37% owned by the Bell Nordiq
Income Fund.
FORMATION OF REGIONAL
TELECOMMUNICATIONS SERVICE PROVIDER
On March 7, 2006, BCE Inc. and Aliant announced
their intention to create a new regional telecommunications service provider in the form of an income trust
which would combine Bell Canada’s regional wireline
operations with Aliant’s wireline operations. The new
trust would also own Bell Canada’s 63.4% interest in
NorthernTel and Télébec indirectly held through Bell
Nordiq Group Inc., an indirect wholly-owned subsidiary of Bell Canada.
By combining these assets, we will create a new
regional telecommunications service provider of significant scale and scope that brings a strong focus on
customer service and regional needs. The new trust
will be controlled by BCE and will remain integral
to Bell Canada’s operations, ensuring that we retain
control of core assets in the most capital efficient way.
The new trust, which will be headquartered in
Atlantic Canada, is expected to own approximately
3.4 million local access lines, have approximately
400,000 high-speed Internet subscribers in six provinces,
and manage the provision of all wireline, legacy data
and Internet products for all residential and business
customers located in its territory. The transition to the
trust will be seamless for customers as products and
services will continue to be sold under the Bell and
Sympatico brands within the trust’s operating territory in Ontario and Québec and under the Aliant and
DownEast brands in Atlantic Canada.
At the same time, in partial exchange for its contribution to a subsidiary of the trust, Bell Canada
will acquire Aliant Mobility and Aliant’s DownEast
Communications retail outlets. Furthermore, approximately $1.25 billion of Bell Canada debt will effectively be transferred to the trust.
Upon closing, BCE will hold a 73.5% indirect interest in the trust, which it expects to reduce to approximately 45% through a distribution of trust units to
holders of BCE Inc. common shares. At closing, Aliant’s
minority shareholders will exchange their common
shares for trust units, retaining a 26.5% interest in the
new trust. Bell Nordiq Income Fund will continue to
trade and operate independently.
BCE plans to establish a governance structure for
the proposed income trust in line with comparable
current income trust precedents, and will control and
consolidate the financial results of the new trust. BCE
will retain the ability to nominate a majority of the
board of trustees of the trust and of the board of directors of the operating entities of the trust as long as it
owns a 30% or more interest in the trust. Also, BCE
will have the ability to veto certain actions of the new
trust and its operating entities as long as it owns a
20% or more interest in the new trust. At closing, Bell
Canada and the trust will enter into a number of outsourcing and commercial agreements pursuant to which
Bell Canada will support the operations of the trust.
Similar agreements will be entered into between the
trust and Bell Canada to support Bell Canada’s wireless operations in Atlantic Canada. The transaction is
expected to close as early as the third quarter of 2006
p. 6
but only once all closing conditions are satisfied and
all necessary approvals and consents are obtained.
OTHER BCE SEGMENT
The Other BCE segment includes the financial results
of our media and satellite businesses, as well as the
costs incurred by our corporate office. This segment
includes Bell Globemedia Inc. (Bell Globemedia) and
Telesat Canada (Telesat).
Bell Globemedia provides information and entertainment services to Canadian customer and access
to distinctive Canadian content. It includes CTV Inc.
(CTV), Canada’s leading private broadcaster, and The
Globe and Mail, Canada’s leading national newspaper. At December 31, 2005, BCE Inc. owned 68.5%
of Bell Globemedia. The Woodbridge Company Limited
(Woodbridge) and an affiliate owned the remaining
31.5%. On December 2, 2005, BCE Inc. announced
a transaction in which it has agreed to sell 20% of
Bell Globemedia to Ontario Teachers Pension Plan
(Teachers), 20% to Torstar Corporation (Torstar)
and an additional 8.5% to Woodbridge, increasing
the stake of Woodbridge and its affiliate to 40%.
Following completion of the transaction, BCE will
retain a 20% interest in Bell Globemedia, which will
be accounted for in our results using the equity
method of accounting. The transaction, which is subject to a number of approvals and closing conditions,
including approval by the CRTC and the Competition
Bureau, as well as other closing conditions that are
customary in this type of transaction, is expected to
close in late 2006.
Telesat is a pioneer in satellite communications and
systems management and is an experienced consultant
in establishing, operating and upgrading satellite
systems worldwide. BCE Inc. owns 100% of Telesat.
On February 1, 2006, BCE Inc. announced its intention to implement a recapitalization and launch a
public offering of a minority stake of Telesat in the
second half of 2006.
BELL CANADA PRODUCTS AND SERVICES
Bell Canada is our primary focus and the largest component of our business. It has six major lines of business:
• local and access services
• long distance services
• wireless services
• data services
• video services
• terminal sales and other.
Local and Access Services
Bell Canada operates an extensive local access network
that provides local telephone services to business and
residential customers. The 12.6 million local telephone lines, or network access services (NAS), we provide to our customers are key in establishing customer
relationships and are the foundation for the other
products and services we offer.
Local telephone service is the main source of local
and access revenues. Other sources of local and access
revenues include:
• VAS, such as call display, call waiting and voicemail
• services provided to competitors accessing our local
network
• connections to and from our local telephone service
customers for competing long distance companies
• subsidies from the National Contribution Fund to
support local service in high-cost areas.
Rates for local telephone and VAS services in our
incumbent territories are regulated by the CRTC.
The local telephone services market became increasingly competitive in 2005 as the major cable operators
in our Québec and Ontario markets began to offer
low-priced cable telephony services. In 2005, we
launched our own voice over Internet protocol (VoIP)
service for residential customers under the name Bell
Digital Voice.
Long Distance Services
We supply long distance voice services to residential
and business customers. We also receive settlement
payments from other carriers for completing their
customers’ long distance calls in our territory.
Prices for long distance services have been declining
since this market was opened to competition. In 2005,
the long distance services market became more competitive with the emergence of cable telephony and
the continuing impact of non-traditional suppliers (i.e.,
prepaid card, dial-around and other VoIP providers).
Wireless Services
We offer a full range of wireless communications services to residential and business customers, including
cellular, personal communications services (PCS) and
paging. PCS customers can get wireless access to the
Internet through our Mobile Browser service or send
text messages. We also provide VAS, such as call display and voicemail, data applications including e-mail
and video streaming, and roaming services with other
p. 7
wireless service providers. Customers can choose to
pay for their cellular and PCS services through a
monthly rate plan (postpaid) or in advance (prepaid).
At the end of 2005, we had approximately 5.8 million
cellular, PCS and paging customers.
The wireless division of each of our incumbent telephone companies provides wireless communications
in its home territory, except for Bell Mobility, which
provides these services in its home territory, as well as
in Alberta and British Columbia.
Our wireless network provides voice services as
well as data services, at typical transmission speeds of
approximately 120 kilobits per second (Kbps) delivered over our existing single-carrier radio transmission
technology (1xRTT) network. In 2005, we launched
Canada’s first Evolution, Data Optimized (EVDO)
wireless data network in Toronto and Montréal. EVDO
technology is the third generation (3G) of wireless
networks delivering average data download speeds of
400–700 Kbps with peaks of up to 2.4 megabits per
second (Mbps). We expect to deploy EVDO in other
major urban centres across Canada in 2006. At the end
of 2005, our wireless network covered:
• 95% of the population in Ontario and Québec
• approximately 90% of the population in Atlantic
Canada
• the major cities in the provinces of Alberta and
British Columbia.
In 2005, we introduced two new brands geared towards the key youth market segment. In February, we
launched our joint venture with the Virgin Group to
offer wireless services under the Virgin brand. In July,
Bell Mobility introduced Solo Mobile, a new brand
featuring custom-built services and unique applications such as a nationwide pay-per-use push-to-talk
(PTT) service and the choice of postpaid or prepaid
options. We are the first Canadian wireless operator to
actively market PTT to the consumer youth segment.
Data Services
High-speed Internet access service provided through
DSL technology for residential and business customers,
particularly SMB, is a growth area for Bell Canada. At
the end of 2005, we had approximately 2.2 million
high-speed Internet customers.
We expanded our DSL high-speed Internet footprint in Ontario and Québec to 85% of homes and
business lines passed at the end of 2005, compared
with 83% at the end of 2004. In Atlantic Canada, DSL
high-speed Internet was available to 81% of homes and
85% of businesses at the end of 2005, compared with
72% and 79%, respectively, at the end of 2004.
During 2005, we enhanced our suite of DSL services
by upgrading our Sympatico DSL Basic offering from
256 Kbps to 512 Kbps and by launching a Basic Lite
DSL service at 128 Kbps. In addition, we increased our
broadband access speed for ultra high-speed users to
5 Mbps from 4 Mbps for residential customers and to
6 Mbps from 4 Mbps for SMB customers.
In 2005, we became a partner in the Inukshuk Joint
Venture (Inukshuk). Inukshuk was launched in 2003
to provide wireless high-speed Internet access across
Canada using spectrum in the 2.5 GHz range. With
Inukshuk, we expect to have the capability to provide
broadband connections to virtually all of our customers, either through DSL or through a fixed wireless
platform, once the network is fully deployed.
We offer a full range of data services to business
customers, including Internet access, Internet protocol (IP) based services, ICT solutions and equipment
sales. While we still offer legacy data services such as
frame relay and asynchronous transfer mode (ATM),
we continued the process of discontinuing the sale of
legacy data services other than to current customers.
Video Services
We are Canada’s largest digital television provider,
broadcasting nationally more than 400 all-digital
video and audio channels and a wide range of domestic
and international programming. We also offer hardware, including personal video recorders (PVRs), interactive TV services and the most extensive line-up of
high definition channels in Canada. We currently distribute our video services to more than 1.7 million
customers through Bell ExpressVu and Bell Canada in
one of three ways:
• direct-to-home (DTH) satellite – we have been offering DTH video services nationally since 1997. We
use four satellites: Nimiq 1, Nimiq 2, Nimiq 3 and
Nimiq 4-Interim, which was added in the first quarter
of 2006 to improve signal strength and reliability
while increasing capacity. Telesat, a wholly-owned
subsidiary of BCE Inc., operates or directs the operation of these satellites.
• very high bit rate DSL (VDSL) – this allows us to
expand our reach to the multiple-dwelling unit (MDU)
market. By the end of 2005, we had signed access
agreements with 757 buildings and had provisioned
464 of them.
p. 8
hybrid fibre co-axial cable – on August 2, 2005, we
acquired the residential assets of Cable VDN Inc.
(Cable VDN), a Montréal-based cable company selling
residential analog and digital TV. Cable VDN has over
12,500 residential cable subscribers in the Montréal
area, representing an approximate 40% penetration
within its current footprint. We believe that Cable
VDN provides us with a more cost-effective way of
addressing the MDU market in Montréal, compared to
VDSL, allowing for quicker access to smaller, harder to
reach MDUs.
In 2006, we intend to continue investing in our
IPTV (video over Internet protocol) platform that will
target urban households in markets within the Québec
City to Windsor corridor. In 2004, we received CRTC
approval of our broadcast licence application to deliver
video services terrestrially to single family units (SFUs).
We started technical trials of our IPTV service in 2005
and expect to begin customer trials in 2006. IPTV will
offer unprecedented interactivity to experience a variety of digital content on your television.
Signal piracy continues to be a major issue facing
all segments of the Canadian broadcasting industry.
During 2005, we completed the deployment of a new
conditional access system (our card swap program)
commenced in the previous year. All new customers
since August 2004 have been supplied with the new
system and, over the past year, we have been replacing
the old smart cards of all remaining customers. As
of July 2005, customers can only receive DTH video
and audio services over the new conditional access
system. In addition to the card swap, we continued
our ongoing efforts against television signal theft,
including sophisticated set-top box (STB) tracking
systems and specific point-of-sale practices such as
obtaining customer photo identification and credit
card information, aggressive measures to investigate
and initiate legal action against persons engaged in
the manufacture, sale and distribution of signal theft
technology, and enforcement of policies with authorized retailers to combat piracy, including a zero tolerance policy for activities related to signal theft.
•
Terminal Sales and Other
This category includes revenues from a number of
other sources, including:
• renting, selling and maintaining business terminal
equipment
• wireless handset and video STB sales
• network installation for third parties
• IT services provided by Aliant.
DISCONTINUED OPERATIONS
In the past two years we have disposed of, or approved
formal plans for disposing of, a number of our businesses, including:
• our decision on December 16, 2005 to sell our investment in CGI Group Inc. (CGI)
• Emergis Inc.’s (Emergis) US Health operations, which
were sold in March 2004
• Emergis, which was sold in May 2004.
Our decision to sell our 29.8% stake in CGI was
made following a review of our investment, which
determined that it was no longer strategically essential
for BCE to hold an equity interest in CGI. On the
closing date of the transaction (January 12, 2006), we
sold 100 million Class A shares to CGI for cash proceeds of $859 million. We intend to dispose of our
remaining 28.3 million Class A shares (representing
8.6% of the outstanding shares of CGI).
All of these business dispositions were treated as
discontinued operations. We therefore restated the
financial results of all previous years to exclude the
results of these businesses. They are presented separately in the consolidated financial statements and are
discussed separately in this MD&A.
OUR STRATEGIC PRIORITIES
We continued to experience profound changes in
our traditional telephone business in 2005. This was
driven primarily by the ongoing shift to IP and wireless technologies and new competitive challenges due
to the emergence of cable telephony.
Our strategy is to deliver unrivalled integrated
communication services to customers, efficiently and
cost-effectively. Over the past two years, we have laid
the operational foundations for the transformation
of the company by returning Bell Canada to its
core communications business. We have also made
significant progress on our three key pillars that support our strategy:
1. Enhance the customer experience by providing superior products and services that build loyalty
2. Provide abundant and reliable bandwidth to enable
the delivery of next-generation services
3. Create next-generation services to drive ongoing
profitable growth.
Advancing this strategy requires us to transform
our cost structure and the way that we serve our customers. These are the guiding principles at the core of
Galileo, our company-wide program designed to save
costs by simplifying and enhancing the customer
p. 9
experience. Resetting the cost base should allow us to
expand our growth services in the future and drive
profitability as we face ongoing erosion of our traditional voice and data businesses. In transforming the
cost structure, we are developing a new financial
foundation that aims to improve margins, increase
profitability and generate higher levels of free cash
flow, creating value for all our stakeholders. We have
outlined four operating priorities for 2006 to help us
achieve this objective:
1. Service – we are determined to ensure consistently
high levels of service, which should lead to corresponding high levels of customer loyalty
2. Customer retention – we are focusing our retention
efforts on high-value customers and households with
multiple products
3. Growth – we are growing next-generation services
revenue with the objective that they will represent the
majority of Bell Canada’s revenues by the end of 2006
4. Cost – we are effectively resetting the cost base and
developing new sourcing and process redesign initiatives in order to achieve recurring cost savings.
In 2005, we made significant progress in building
each of our three key strategic pillars.
1. Enhancing customer experience by providing
superior products and services that build loyalty
At the end of 2005, over 22% of the total households
in our Ontario and Québec footprint subscribed to
three or more products (a combination of local wireline, Internet, video and long distance services). We
believe our multi-product household strategy is effective in fostering customer loyalty and minimizing
NAS losses to the competition.
We continued to migrate customers in our
Residential segment to our One Bill platform. At the
end of 2005, 2.3 million customers were enjoying the
benefits of a single bill for their wireline, Internet and
video services, representing a more than two-fold
increase since the end of 2004. Reducing the number
of bills not only improves the customer experience,
but also lowers costs since we issue fewer invoices. At
the end of the year, we started migrating Bell Mobility
customers who already receive a single invoice for
their other Bell Canada services to One Bill.
We launched two initiatives to enhance customer
support for our Sympatico Internet customers:
• Emily, an online virtual customer service agent who
interacts with customers needing help
Internet Care, an online and phone support service
for popular Internet-related products.
We began the rollout of OrderMax, our order entry
tool that allows customers to order any Bell Canada
product from any channel, through our customer service agents. As at the end of 2005, over 50% of our
customer service agents had access to the OrderMax
tool, with rollout continuing in 2006.
We launched the beta site of our new Bell.ca website. The new website provides customers with:
• a simplified and consistent page layout
• one process for shopping for any or all of our products
• an improved search engine
• easy access to online bills.
We continued to make progress on moving our core
traffic to a national IP multi-protocol label-switching
(IP-MPLS) network. At the end of 2005, 78% of the
migratable traffic on our core network was IP-based,
exceeding our year-end target of 75%.
As part of our shift to IP, we continued the process
of rationalizing our legacy data services and stopped
selling 28 of these services in 2005. We have discontinued 47 legacy data services since we started this initiative in 2004.
The move to IP continued in 2005 with 57 Enterprise
customers contracted to implement IP virtual private
networks (IP-VPN), bringing the total number of Enterprise customers implementing IP-VPN networks to 143.
At the end of 2005, 656 Enterprise customers were
enrolled in Service Promise, our commitment to provide customers with a clearly defined and consistent
level of service for delivering connectivity services.
In 2006, we intend to continue improving service
and enhancing the customer experience. In particular,
we plan to:
• ensure consistency of service to all of our customers
by improving our service provisioning and assurance
both in our call centres and in our field operations
• offer the simplicity of a one-contact approach
through initiatives such as One Bill and online selfserve tools that allow problems to be registered, ticketed and tracked
• deliver improved service commitments and service
levels by significantly reducing the number of missed
appointments because of process issues, and by shortening repair times
• offer an end-to-end service desk for our Enterprise
customers that includes both connectivity and ICT
services.
•
p. 10
2. Deliver abundant bandwidth to enable
next-generation services
We continued our rollout of fibre-to-the-node (FTTN)
by deploying another 1,672 neighbourhood nodes in
2005. This increased the total number to 2,048, exceeding our objective to deploy more than 2,000 nodes by
the end of the year.
We launched Canada’s first EVDO wireless data
network with service available in Montréal, Toronto,
Vancouver, Calgary and Edmonton. EVDO enables a
new generation of sophisticated wireless data solutions,
and increases the speed and potential for current
tools such as e-mail, file downloads, instant messaging,
streaming video and games.
We announced an alliance with Rogers Communications Inc. (Rogers) to jointly build and manage a
national wireless broadband network through Inukshuk.
Inukshuk will give subscribers wireless access to the
Internet and enable a host of voice, video streaming and
data applications from wherever the service is available. The network footprint is expected to reach more
than two-thirds of Canadians in less than three years,
covering over 40 cities and approximately 50 rural
and remote communities that are not currently served.
In 2006, we will continue to expand the reach and
speed of DSL service through our FTTN rollout, which
will enable speeds of up to 26 Mbps. At the same
time, work will proceed on Inukshuk to build a fixed
wireless broadband access network and create a network footprint within three years. We anticipate that
by 2008, we will have the capability to provide broadband connections to virtually all of our customers,
either through DSL or through our fixed wireless platform. We also plan to implement EVDO across most
of our wireless coverage areas.
3. Create next-generation services to drive ongoing
profitable growth
Our Residential segment introduced Bell Digital Voice
in Toronto and Montréal. The new VoIP service, which
is the first of its kind in Canada, uses existing phone
lines to provide customers with advanced Internetbased calling features along with the reliability of Bell
Canada’s phone network.
Bell Mobility launched a number of applications
designed to drive growth, including:
• 10-4, a new service that allows customers to use their
cell phones as walkie-talkies to communicate with up
to five other users at the push of a button
True Tones, a monthly service that enables customers
to download actual songs and ringtones
• Seek & Find, a wireless location-based system that
allows subscribers to locate multiple individuals away
from their homes or offices
• MobiTV, a video application that allows customers
with specific mobile handsets to access a variety of
video channels
• MSN Messenger, an instant messaging service that
allows customers to transmit in real-time text messages to other mobile phones or to PCs on their contact list over the Internet.
Bell Mobility also introduced its first handset
compatible with Global System for Mobile Communications (GSM) and launched Canada’s first flat perminute rate billing service for global roaming on GSM
networks in up to 150 countries.
Bell ExpressVu introduced a number of new products and services, including:
• a dual-tuner, high-definition personal video recorder
(HD-PVR) that allows customers to pause live television, as well as record, replay, stop, fast forward and fast
rewind HD and standard definition programming on
up to two TVs in the home through a single receiver.
Our Residential Internet service was enhanced by the
introduction of new services at Sympatico including:
• Sympatico/MSN Video channel, a new service that
allows customers to create customized playlists of
streaming video clips
• Kidsmania, a new educational online service for
children aged 3 to 12, offering more than 50 interactive games and activities.
Our SMB unit launched:
• PC Care and Network Care, two virtual chief information officer (VCIO) solutions that provide software
and technical support for customers
• Business IP Voice, a service designed to provide
innovative Internet-based technology solutions that
deliver business advantages usually only available to
large corporations, such as a dedicated, reservation-free
conferencing tool and the ability to forward a voicemail message as an attachment to an e-mail account
• GoTrax, a low-cost remote wireless tracking system
that allows assets to be tracked in places where traditional Global Positioning System (GPS) signals do
not work.
Our Enterprise unit sold 275,000 IP-enabled lines
on customer premises equipment (CPE) by the end of
the year, which is a 90% increase over 2004.
•
p. 11
Our Business segment launched Global VoIP solution for Canadian multinationals, a managed IP service
that can provide unlimited, international intra-company
voice services at a flat rate by interconnecting geographically dispersed customer locations over a virtual
private IP network.
In 2006, we plan to introduce EVDO-enabled data
applications and other services to our wireless customers, as well as expand our residential broadband
services to help customers manage information needs
in their home using our Sympatico-MSN portal. We
also plan to exploit our IP capability to achieve interoperability between wireless and wireline platforms.
In our video unit, we intend to drive future growth
through investing in new growth areas, such as IPTV
and HD programming, in our goal to become the
leader in on-demand television.
In the Business segment, our Enterprise unit will
continue its efforts to expand its ICT solutions by
focusing on the financial services, health-care and government sectors. We will also strengthen our capabilities in network security. Our SMB unit will continue
to focus on being the premium solutions provider
for VAS among small and medium-sized businesses in
Canada with the objective of increasing customers’
perception of Bell Canada as their VCIO.
Transforming Our Cost Structure
Overall, our various Galileo initiatives resulted in cost
reductions of $524 million in 2005, which was consistent with our run-rate savings target of $500 to
$600 million. These cost savings were mainly from:
• the 2004 employee departure program
• lower procurement costs
• call centre efficiencies and optimization initiatives
• eliminating network elements and standardizing
core operating processes.
In 2006, we will continue to transform our cost
structure to support our operations. Enhancements to
the customer experience and cost structure will be
gained primarily through a redesign of our processes
and increased controls over discretionary spending.
Accordingly, we have broadened our Galileo program for 2006 to address our annual procurement
spend of $8.5 billion. Our goal is to transform the
supply chain to reduce the amount we spend each year
on delivering service to customers.
Galileo will also continue to address process transformation within the company to lower costs and
improve customer experience. Our process transformation initiatives will include:
• continuing to actively encourage customers to adopt
new IP-based services
• developing end-to-end process improvements for
sales and ordering, installation, billing, collections,
and maintenance and repair, which will allow us to
deliver our products and services more efficiently
• optimizing management support to reduce costs in
our corporate and support functions.
The Year at a Glance
This section reviews the key
measures we use to assess our
performance and how our
results in 2005 compare to
our results in 2004.
THE YEAR AT A GLANCE
Our results demonstrate the solid progress we made
in 2005 towards achieving our strategic objectives.
Although the pace of competition accelerated steadily
throughout the year, particularly as a result of the
emergence of cable telephony, we continued to execute
on our plan to mitigate the impact of this new, more
competitive telecommunications landscape. Accordingly,
we focused further on profitably growing our wireless,
video and high-speed Internet businesses, which helps
lay an important foundation for the future growth of
the company. We also continued to successfully execute our multi-product household consumer strategy.
By the end of 2005, nearly 60% of the households in
our Ontario and Québec footprint subscribed to two
or more products, while over 22% subscribed to three
or more products. Our Business segment made steady
progress throughout the year on its IP strategy by
leading Bell Canada in the shift towards new growth
services, helping to drive its transition towards becoming a leader in ICT. By the end of 2005, revenues from
growth services (consisting mainly of wireless, video
and data-related products such as high-speed Internet)
accounted for 47% of Bell Canada’s total revenues for
the year, exceeding our target of 45%. Moreover, we
also responded to the mounting competitive challenges by proactively taking the lead to deliver
unmatched features and reliability for our residential
and business customers with the launch of next-generation services such as Bell Digital Voice.
In order to alleviate the pressure on operating margins from the expected erosion in our legacy wireline
business, we made significant strides in transforming
our cost structure in 2005. Under Galileo, we continued to deliver significant cost savings by improving
p. 12
processes, reviewing procurement activities and eliminating work. Our various initiatives allowed us to reduce
costs by $524 million, which was consistent with our
run-rate savings target of $500 to $600 million.
We also stepped up efforts to secure customer
relationships and improve service. Although we faced
a number of customer service challenges brought
about by some residual impacts from our wireless
billing system migration last year and a four-month
labour dispute in Ontario with technicians of Bell
Technical Solutions Inc. (formerly Entourage Technology
Solutions Inc. (Entourage)), we substantially resolved
these issues by the end of the third quarter, allowing
us to clear the backlog of orders, improve efficiency
and deal with customer issues more promptly.
In late 2005, we completed two important steps in
our ongoing efforts to reshape the company’s asset
portfolio and bring greater focus to our core businesses by establishing the framework for disposing of
our entire interest in CGI and reducing our interest in
Bell Globemedia to 20%.
In our Residential segment, revenue growth was
fuelled by the strength of our growth services as we
continued to execute on our strategy of securing multiproduct households to drive customer loyalty and
generate higher revenue per household. This growth
reflected increased subscriber acquisition in our
growth services and higher average revenue per user
(ARPU), particularly for video, offset partly by an
accelerated decline in legacy wireline revenues.
In our Business segment, increased sales of IP-based
connectivity and ICT solutions to our Enterprise and
SMB customers and improved wireless results drove
revenue growth in 2005. This positive trend now has
contributed to six consecutive quarters of improved
revenue growth, despite increased competitive pressures and lower demand for legacy wireline services.
In our Aliant segment, continued strong growth in
wireless and Internet services, as well as a recovery
from the 2004 labour disruption, offset declines in
other areas due to the impact of competition, wireless
and Internet substitution and regulatory restrictions.
Within the Other Bell Canada segment, despite a
challenging market for our Wholesale business, revenues grew as a result of the acquisition of the operations of 360networks in November 2004.
In the Other BCE segment, Bell Globemedia delivered better revenue and operating performance compared with last year, which was driven largely by higher
television advertising revenue, reflecting strong television ratings and improved subscription revenues.
Telesat also had a strong year, reflecting growth in Kaband revenues on its Anik F2 satellite, revenue gains
from the installation and maintenance of an Interactive
Distance Learning network, and the positive impact
from its acquisition of The SpaceConnection, Inc.
(SpaceConnection) in January 2005.
CUSTOMER CONNECTIONS
(in thousands)
2005
NET ACTIVATIONS
NAS
Digital equivalent access lines
High-speed Internet
Dial-up Internet
Wireless
Paging
Video
Total
DECEMBER 31, 2005
CONNECTIONS
(324)
699
387
(157)
516
(80)
224
1,265
12,581
5,034
2,195
586
5,441
347
1,727
27,911
GROWTH IN END OF PERIOD CONNECTIONS (% increase 2005 vs 2004)
HIGH-SPEED
21.4%
VIDEO
14.9%
WIRELESS
10.5%
NAS
(2.5%)
The total number of customer connections increased
4.7%, or 1.3 million, to 27.9 million at December 31,
2005, compared with December 31, 2004.
Network Access Services
NAS in service declined by 324,000 in 2005, or by
2.5%, representing a higher rate of decline compared
with a decrease of 1.1% in 2004. The accelerated rate of
erosion reflects an increasingly competitive environment as the major cable operators in our Québec and
Ontario markets began to offer low-priced cable
telephony services. This decline was partly offset
by the introduction of our new Bell Digital Voice
service and higher demand for access lines from
Shaw Communications to implement VoIP services in
Western Canada.
p. 13
High-Speed Internet
We added 387,000 or 21% more net new high-speed
Internet customers in 2005, increasing our customer
base to 2,195,000 and exceeding our subscriber growth
target of 15% to 20% for the year. This was 10.6%
higher than the 350,000 net new activations in 2004,
mainly because of our Basic Lite product and higher
net activations at Aliant.
Our Residential segment delivered solid revenue
growth as a result of the performance of its video,
wireless and Internet services, while Aliant revenues
also increased due in part to its recovery from a labour
disruption in 2004. These results were achieved despite
a continuing decline in revenues from our legacy wireline business.
The Other BCE segment also contributed to the
growth in revenue, mainly because of 9.5% growth at
Bell Globemedia and 31% growth at Telesat.
Operating Income
and EBITDA
EBITDA margin
is EBITDA divided by
operating revenues.
Wireless
Our total cellular and PCS subscriber base grew by
516,000 in 2005, or by 10.5%, to 5,441,000, which was
consistent with our guidance for the year. Gross activations were at a record high in 2005, resulting in net
activations that were similar to 2004 even though the
overall churn rate increased from 1.3% in 2004 to 1.6%
in 2005.
OPERATING INCOME AND EBITDA
OPERATING INCOME AND EBITDA (in $ millions)
04
2,894
7,430
40.5%
05
4,048
Operating income
EBITDA
7,597
39.8%
EBITDA margin (%)
Video
We gained significant momentum in our video business in 2005, increasing the subscriber base by 14.9%
to 1,727,000 customers at the end of the year, which
was at the upper end of our guidance range of 10% to
15%. We activated service for 224,000 new subscribers,
almost doubling the growth we experienced in 2004.
Our churn rate also decreased to 0.9% from 1.0% in
2004, because of our focus on customer retention, as
well as an increase in the percentage of customers on
long-term contracts.
OPERATING REVENUES
OPERATING REVENUES (in $ millions)
04
18,368
05
19,105
We reached $19,105 million in revenues in 2005, an
increase of 4.0% over 2004. This reflects higher revenues across all our segments and met our target of
matching or exceeding GDP growth.
Revenues at Bell Canada grew by 2.8%. This was
driven primarily by the Business segment, where continued wireless strength, growth of ICT solutions
from both business acquisitions and organic growth,
as well as focused execution of our VCIO strategy in
SMB, led to improved top-line results.
Operating income at BCE for 2005 was $4,048 million, or $1,154 million higher than in 2004, due to
restructuring and other items of $1,224 million recorded in the previous year related mainly to the
employee departure program in 2004. The results for
2005 reflect restructuring and other items of $55 million associated with new restructuring initiatives for
involuntary employee departures, as well as the relocation of employees and closing of real estate facilities
related to last year’s employee departure program.
Operating income before restructuring and other
items was $4,103 million, or $15 million lower than
2004. Despite an increase in revenues across all segments, cost savings from the Galileo program and
recovery from the 2004 labour disruption at Aliant,
operating income was negatively affected by a variety
of factors, including:
• the higher cost of acquiring substantially more wireless subscribers
• the CRTC’s decision on Competitor Digital Network
Services (CDN)
• continued pressure on operating margins from the
ongoing transformation of our product mix towards
growth services
• the cost of restoring customer service levels following
the settlement of the Entourage labour dispute in July
• the impact of higher net benefit plans cost and
higher amortization expense for the year.
p. 14
Capital Expenditures
Capital intensity is capital
expenditures divided by
operating revenues. It is a
key financial measure
that we use to assess our
performance and that of
our business units.
Bell Canada’s operating income was $3,755 million,
or $1,060 million higher than 2004, primarily because
of the charges recognized last year for the employee
departure program. Operating income before restructuring and other items was $3,809 million, or $105 million lower than 2004, for the same reasons referred
to above.
EBITDA at BCE was $7,597 million in 2005, an
increase of $167 million or 2.2% over 2004. This is the
result of improved performance at Bell Canada, Bell
Globemedia and Telesat.
EBITDA for Bell Canada was $7,187 million, or 1.1%
higher than 2004, primarily due to increases in our
Business segment and at Aliant, which were partly
offset by decreases in our Residential and Other Bell
Canada segments.
EBITDA margins for 2005 were 39.8% at BCE and
41.7% at Bell Canada, both 0.7 percentage points lower
than 2004. The year-over-year declines reflected operating cost pressures, including:
• higher costs for acquiring wireless subscribers
• continued erosion of high-margin legacy voice and
data services in all our segments
• the CRTC’s CDN decision
• the costs to restore service levels once the labour dispute at Entourage was resolved.
The impact of these elements on EBITDA margins was largely offset by the cost savings achieved
through Galileo.
NET EARNINGS AND EARNINGS
PER SHARE (EPS)
EPS
04
($0.37)
$2.02
05
($0.01)
$2.05
Restructuring and other items and net gains on investments
Net earnings before restructuring and other items and net gains on investments
In 2005, net earnings applicable to common shares
were $1,891 million, or $2.04 per common share. This
was 24% higher than net earnings of $1,523 million, or
$1.65 per common share, in 2004. Included in earnings
this year was a net charge of $10 million from restructuring and other items and net gains on investments,
compared with a net charge of $349 million for
the previous year. Net earnings before restructuring
and other items and net gains on investments of
$1,901 million, or $2.05 per common share, were up
$29 million, or $0.03 per share. This was 1.5% higher
than in 2004. The improvement in EPS before restructuring and other items and net gains on investments
can be attributed to higher EBITDA combined with
the impact from the income tax loss monetization program between Bell Canada and Bell Canada International Inc. (BCI) and net income tax savings. These
factors more than offset the increase in net benefit
plans cost and amortization expense.
CAPITAL EXPENDITURES
CAPITAL EXPENDITURES (in $ millions)
04
3,319
18.1%
05
3,428
17.9%
Capital intensity (%)
Capital expenditures for BCE were $3,428 million in
2005, which was $109 million, or 3.3%, higher than
2004. Capital spending as a percentage of revenues
was 17.9% in 2005 compared with 18.1% in 2004.
Bell Canada’s capital expenditures were $3,122 million, which was $96 million, or 3.2% higher than
2004. As a percentage of revenues, Bell Canada’s capital expenditures increased slightly to 18.1% in 2005
from 18.0% in the previous year.
Capital spending in 2005 reflected an increasing
investment in the growth areas of the business and
reduced spending in legacy areas. Our key strategic
investments this year included:
• expanding our FTTN footprint to deliver higherspeed broadband access
• launching our Bell Digital Voice service
• implementing an EVDO wireless data network in
certain markets
• expanding our DSL footprint through the deployment of new high-density remotes
• investing in our IPTV platform and IT efficiency
projects to achieve cost savings.
Higher spending also resulted from capitalization of
STBs and installation costs associated with our new
rental program in video and a return to more normal
spending levels at Aliant after its labour disruption in
2004 and satellite builds at Telesat.
p. 15
CASH FROM OPERATING ACTIVITIES
AND FREE CASH FLOW
CASH FROM OPERATING ACTIVITIES (in $ millions)
04
5,443
05
5,559
FREE CASH FLOW (in $ millions)
04
1,978
the pending sale of CGI. Free cash flow of $662 million for 2005 was $208 million lower than 2004,
mainly because of:
• a decrease of $149 million in insurance proceeds
received by Telesat
• an increase of $109 million in capital expenditures
related to our investment in platforms for next-generation service platforms
• an increase of $87 million in dividends paid on common shares, resulting from the quarterly dividend
increase of $0.03 per common share.
These items were offset in part by a $116 million
increase in cash from operating activities.
870
NEW LABOUR AGREEMENTS
05
1,857
662
After common dividends
Before common dividends
Cash from operating activities was $5,559 million in
2005, or 2.1% higher than 2004. This was a result of:
• an improvement in cash earnings resulting from
higher EBITDA
• a significant improvement in accounts receivable
collections, mainly due to the resolution of issues
associated with the implementation of our new wireless billing platform in 2004
• an increase of $134 million in proceeds from the sale
of accounts receivable
• a decrease of $77 million in restructuring payments
relating to restructuring initiatives in 2004 and 2005.
These improvements were partly offset by:
• higher pension and other benefit plan payments,
mainly at Aliant
• an increase of $73 million in income taxes paid, primarily related to the final instalment for 2004, which
was made in 2005 as instalments were not required at
Bell Canada in 2004
• a $75 million settlement payment received from
Manitoba Telecom Services Inc. (MTS) in 2004.
We generated $662 million of free cash flow for 2005,
meeting our target of $600 to $800 million for the
year. On December 16, 2005, we adjusted our 2005
guidance for free cash flow from the range of $700
to $900 million to $600 to $800 million to reflect
During the year, we signed a number of new labour
agreements, including:
• a four-year collective agreement with approximately
10,000 clerical and associated employees represented
by the Canadian Telecommunications Employees’
Association (CTEA) that expires in July 2009
• a new four-year collective agreement between Bell
Technical Solutions (formerly Entourage) and the 1,000
Québec technicians unionized with the Communications, Energy and Paperworkers Union of Canada
(CEP) that expires in May 2009
• a new four-year collective agreement between Bell
Technical Solutions and the 1,400 Ontario technicians
unionized with the CEP was also reached, ending a
four-month labour disruption. This agreement will
expire in August 2009.
With these new agreements and certain other major
agreements signed by Bell Canada and Aliant with
their respective employees in 2004, we now have the
labour stability and a more competitive cost structure
needed to deliver quality services and value to customers over the next several years.
ENHANCING SHAREHOLDER RETURNS
On February 1, 2006, BCE Inc. announced its plan to
repurchase 5% of its outstanding common shares
through a normal course issuer bid (NCIB). In addition, on March 7, 2006 BCE Inc. announced its intention to distribute an approximate 28.5% interest in a
new income trust to all its common shareholders on
a pro-rata basis and in exchange reduce approximately
8% of its common shares outstanding.
p. 16
Selected Annual and
Quarterly Information
This section shows
selected financial and
operational data.
SELECTED ANNUAL AND QUARTERLY INFORMATION
EBITDA to interest ratio
is EBITDA divided by
interest expense.
ANNUAL FINANCIAL INFORMATION
The following tables show selected consolidated financial data, prepared in accordance with Canadian GAAP,
for each year from 2001 to 2005. We discuss the factors that caused our results to vary over the past two years
throughout this MD&A.
2005
2004
2003
2002
2001
Operations
Operating margin
is operating income divided
by operating revenues.
ROE (return on common
shareholders’ equity) is
calculated as net earnings
applicable to common
shares as a percentage of
average common
shareholders’ equity.
Net debt to EBITDA
is net debt divided
by EBITDA.
Total debt to total assets
is total long-term debt
(including debt due within
one year) divided by
total assets.
Long-term debt to equity
is long-term debt (including
any portion due within one
year) divided by shareholders’ equity.
Cash flow per share
is calculated by dividing cash
from operating activities less
capital expenditures by the
average number of common
shares outstanding.
Operating revenues
Operating expenses
EBITDA
Net benefit plans (cost) credit
Operating income
Other income
Impairment charge
Interest expense
Pre-tax earnings from continuing operations
Income taxes
Non-controlling interest
Earnings from continuing operations
Discontinued operations
Net earnings before extraordinary gain
Extraordinary gain
Net earnings
Premium on redemption of preferred shares
Included in net earnings:
Continuing operations
Impairment charge
Goodwill amortization
Other
Net earnings per common share:
Continuing operations – basic
Continuing operations – diluted
Net earnings – basic
Net earnings – diluted
Ratios
EBITDA margin (%)
EBITDA to interest ratio (times)
Operating margin (%)
ROE (%)
19,105
(11,508)
7,597
(3,114)
(380)
(55)
4,048
8
–
(981)
3,075
(893)
(267)
1,915
46
1,961
–
1,961
(70)
–
1,891
18,368
(10,938)
7,430
(3,056)
(256)
(1,224)
2,894
407
–
(999)
2,302
(681)
(174)
1,447
77
1,524
69
1,593
(70)
–
1,523
18,057
(10,776)
7,281
(3,062)
(175)
(14)
4,030
177
–
(1,100)
3,107
(1,086)
(201)
1,820
(5)
1,815
–
1,815
(64)
(7)
1,744
18,349
(11,064)
7,285
(2,999)
33
(768)
3,551
2,413
(765)
(1,119)
4,080
(1,585)
(663)
1,832
575
2,407
–
2,407
(59)
(6)
2,342
18,058
(11,285)
6,773
(3,267)
121
(977)
2,650
3,891
–
(966)
5,575
(1,648)
(360)
3,567
(3,131)
436
–
436
(64)
–
372
29
(1)
(38)
–
–
–
389
34
(772)
–
–
–
84
(86)
(3)
–
–
–
1,341
607
(441)
(527)
–
–
3,184
(1,943)
(462)
–
(971)
(44)
1.99
1.99
2.04
2.04
1.49
1.49
1.65
1.65
1.91
1.90
1.90
1.89
2.08
2.05
2.66
2.62
4.34
4.28
0.46
0.46
39.8%
7.74
21.2%
14.8%
40.5%
7.44
15.8%
12.5%
40.3%
6.62
22.3%
15.2%
39.7%
6.51
19.4%
17.8%
37.5%
7.01
14.7%
2.4%
p. 17
2005
2004
2003
2002
2001
40,630
13,405
13,129
30,748
1,670
13,051
39,140
12,802
12,644
29,576
1,670
12,354
39,402
13,802
13,274
30,236
1,670
11,895
39,125
14,673
15,178
31,356
1,510
11,090
53,674
11,793
12,905
35,072
1,300
15,266
Balance Sheet
Total assets
Long-term debt (including current portion)
Net debt
Total capitalization
Preferred shares
Common shareholders’ equity
Ratios
Net debt to total capitalization (%)
Net debt to EBITDA (times)
Total debt to total assets (times)
Long-term debt to equity (times)
42.7%
1.73
0.33
0.91
42.8%
1.70
0.33
0.91
43.9%
1.82
0.35
1.02
48.4%
2.08
0.39
1.16
36.8%
1.91
0.24
0.71
Cash Flows
Cash flows from operating activities
Cash flows from investing activities
Business acquisitions
Business dispositions
Cash flows from financing activities
Net issuance (repayment) of equity instruments
Net issuance (repayment) of debt instruments
Financing activities of subsidiaries with third parties
Cash dividends paid on common shares
Cash dividends paid on preferred shares
Cash dividends paid by subsidiaries to non-controlling interest
Cash provided by (used in) discontinued operations
Ratios
Free cash flow
Capital intensity (%)
Cash flow per share (dollars)
Cash flow yield (%)
5,559
(3,866)
(3,428)
(228)
–
4
(1,643)
25
(54)
(77)
(1,195)
(86)
(192)
15
662
17.9%
2.30
7.2%
5,443
(3,635)
(3,319)
(1,118)
20
127
(2,300)
32
(820)
(50)
(1,108)
(85)
(188)
150
870
18.1%
2.30
7.4%
5,890
(2,875)
(3,101)
(54)
54
62
(2,949)
172
(1,827)
24
(1,029)
(61)
(184)
350
1,577
17.2%
3.03
9.8%
4,409
(7,003)
(3,691)
(6,455)
3,187
10
3,370
2,819
2,014
92
(999)
(43)
(468)
(1,039)
(782)
20.1%
0.85
0.8%
4,024
(698)
(4,885)
(307)
248
(79)
(1,921)
(120)
(1,489)
1,010
(969)
(64)
(357)
(1,095)
(2,330)
27.1%
(1.07)
(4.7%)
Share Information
Average number of common shares (millions)
Common shares outstanding at end of year (millions)
Market capitalization
Dividends declared per common share (dollars)
Book value per share (dollars)
Total dividends declared on common shares
Total dividends declared on preferred shares
Market price per common share (dollars)
High
Low
Close
Ratios
Common dividend yield (%)
Common dividend payout ratio (%)
Price to earnings ratio (times)
Price to book ratio (times)
Price to cash flow ratio (times)
Cash flow yield
is cash from operating activities less capital expenditures,
other investing activities,
dividends on preferred shares
and dividends paid by subsidiaries to non-controlling
interest, divided by the
number of common shares
outstanding at the end of
the year and multiplied
by the share price at the
end of the year.
Market capitalization
is BCE Inc.’s share price at
the end of the year multiplied by the number of common shares outstanding.
Book value per share
is common shareholders’
equity divided by number of
common shares outstanding.
Common dividend yield
is dividends paid on common shares divided by BCE
Inc.’s share price at the
end of the year multiplied
by the number of common
shares outstanding.
Common dividend payout
ratio is dividends paid on
common shares divided
by net earnings applicable
to common shares.
926.8
927.3
25,844
1.32
14.07
(1,222)
(70)
924.6
925.9
26,777
1.20
13.34
(1,110)
(70)
920.3
924.0
26,704
1.20
12.87
(1,105)
(64)
847.9
915.9
26,103
1.20
12.11
(1,031)
(59)
807.9
808.5
29,114
1.20
18.88
(969)
(64)
32.95
26.60
27.87
30.00
25.75
28.92
32.35
26.60
28.90
36.87
23.00
28.50
43.50
32.75
36.01
Price to book ratio
is BCE Inc.’s share price
divided by the book value
per share.
4.6%
63.2%
13.66
1.98
12.12
4.1%
72.8%
17.53
2.17
12.57
3.9%
59.0%
15.21
2.25
9.54
3.8%
42.7%
10.71
2.35
33.53
3.3%
260.5%
78.28
1.91
(33.65)
Price to cash flow ratio
the end of the year divided
by cash flow per share.
60
62
64
64
Price to earnings ratio
the end of the year divided
by earnings per share.
Other Data
Number of employees (thousands) (1)
73
(1) The number of employees for 2004 excludes virtually all employees who left under the voluntary departure program of 2004.
p. 18
Digital equivalent access lines
are derived by converting
low capacity data lines
(DS-3 and lower) to the
equivalent number of
voice-grade access lines.
ANNUAL OPERATIONAL INFORMATION
ARPU (average revenue per
unit) and ARPS (average revenue per subscriber) represent a
measurement of the average
revenue generated by each
unit or subscriber, expressed
as a rate per month for
the year.
Churn is the rate at which
existing subscribers cancel
their services. Churn is
calculated as the number of
subscribers disconnected
divided by the average
subscriber base.
Cost of acquisition (COA)
is also referred to as
subscriber acquisition costs.
This measure is expressed
per gross activation. It
includes costs associated
with acquiring a customer
such as hardware subsidies, marketing and
distribution costs.
The table below shows selected data on operations from 2003 to 2005.
2005
2004
2003
12,581
18,306
10.2
12,905
18,070
11.7
13,051
19,132
12.4
5,034
387
2,195
586
4,335
350
1,808
743
3,867
358
1,458
869
516
5,441
49
1.6%
406
347
513
4,925
49
1.3%
411
427
514
4,412
48
1.4%
426
524
224
1,727
50
0.9%
375
116
1,503
49
1.0%
571
83
1,387
46
1.1%
532
Wireline
Local network access services (thousands)
Long distance conversation minutes (millions)
Long distance average revenue per minute (cents)
Data
Digital equivalent access lines (thousands)
High-speed Internet net activations (thousands)
High-speed Internet subscribers (thousands)
Dial-up Internet subscribers (thousands)
Wireless
Cellular and PCS net activations (thousands)
Cellular and PCS subscribers (thousands)
Average revenue per unit ($/month)
Churn (%) (average per month)
Cost of acquisition ($/subscriber)
Paging subscribers (thousands)
Video
Video net activations (thousands)
Video subscribers (thousands)
Average revenue per subscriber ($/month)
Churn (%) (average per month)
Cost of acquisition ($/subscriber) (1)
(1) The 34% decrease in COA over 2004 was impacted by the capitalization of STBs and installation costs associated with our new rental program.
p. 19
QUARTERLY FINANCIAL INFORMATION
The table below shows selected consolidated financial data by quarter for 2005 and 2004. 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.
2005
YEAR
Operating revenues
19,105
EBITDA
7,597
(3,114)
(380)
(55)
Operating income
4,048
1,915
46
Extraordinary gain
–
Net earnings
1,961
Net earnings applicable to common shares 1,891
Included in net earnings:
Net earnings per common share
Continuing operations – basic
Continuing operations – diluted
Net earnings – basic
Net earnings – diluted
Average number of common shares
outstanding (millions)
Q4
Q3
2004
Q2
Q1
YEAR
4,630 18,368
1,903 7,430
(761) (3,056)
(103)
(256)
4 (1,224)
1,043 2,894
479 1,447
12
77
–
69
491 1,593
474 1,523
Q4
4,986
1,858
(791)
(65)
(23)
979
418
12
–
430
413
4,732
1,864
(786)
(108)
(31)
939
448
11
–
459
441
4,757
1,972
(776)
(104)
(5)
1,087
570
11
–
581
563
29
(1)
(38)
–
–
(16)
–
–
(21)
28
–
(3)
1
(1)
2
389
34
(772)
64
(2)
(62)
1.99
1.99
2.04
2.04
0.43
0.43
0.44
0.44
0.46
0.46
0.48
0.48
0.60
0.60
0.61
0.61
0.50
0.50
0.51
0.51
1.49
1.49
1.65
1.65
926.8
927.3
927.0
926.6
926.2
924.6
Q3
4,769 4,556
1,794 1,901
(787)
(754)
(67)
(61)
(126) (1,081)
814
5
354
90
11
10
69
–
434
100
417
82
Q2
Q1
4,577
1,920
(757)
(65)
(14)
1,084
529
42
–
571
554
4,466
1,815
(758)
(63)
(3)
991
474
14
–
488
470
325
(2)
(725)
–
31
16
–
7
(1)
0.37
0.37
0.45
0.45
0.08
0.08
0.09
0.09
0.55
0.55
0.60
0.60
0.49
0.49
0.51
0.51
925.3
924.6
924.3
924.1
p. 20
Financial Results Analysis
This section provides
detailed information
and analysis about our
performance over the past
two years. It focuses on
our consolidated operating
results and provides financial
information for each of
our operating segments.
FINANCIAL RESULTS ANALYSIS
CONSOLIDATED ANALYSIS
2005
Operating revenues
Operating expenses
EBITDA
Operating income
Other income
Interest expense
Pre-tax earnings from
continuing operations
Income taxes
Earnings from continuing
operations
Net earnings before
extraordinary gain
Extraordinary gain
Net earnings
Net earnings applicable
to common shares
EPS
2004 % CHANGE
19,105
(11,508)
7,597
(3,114)
(380)
(55)
4,048
8
(981)
18,368
(10,938)
7,430
(3,056)
(256)
(1,224)
2,894
407
(999)
4.0%
(5.2%)
2.2%
(1.9%)
(48.4%)
95.5%
39.9%
(98.0%)
1.8%
3,075
(893)
(267)
2,302
(681)
(174)
33.6%
(31.1%)
(53.4%)
1,915
46
1,447
77
32.3%
(40.3%)
1,961
–
1,961
(70)
1,524
69
1,593
(70)
28.7%
1,891
1,523
24.2%
2.04
1.65
23.6%
N/M
23.1%
–
N/M: Not meaningful
at Telesat combined with the positive impact from its
acquisition of SpaceConnection, further contributed to
overall revenue growth.
We expect continued revenue growth at Bell Canada
in 2006, as anticipated increases in revenue from our
growth services should more than offset further erosion
of our legacy wireline business. We expect to reach an
inflection point in 2006, where growth services should
represent the majority of Bell Canada revenues by the
end of the year. Revenue growth is expected to be
fuelled by continued solid increases in the number
of subscribers in our wireless, video and high-speed
Internet units in combination with higher average revenue per user (ARPU) for these services, and further
traction of our ICT and VCIO strategies within the
Business segment.
For local and access and long distance revenues, we
expect the negative trends experienced in the past few
years to continue and the rate of NAS erosion to accelerate in 2006 as cable operators capture a greater share
of the local telephone market with their low-priced
bundled offers. We also expect the decline in revenue
from legacy services in our Enterprise and Wholesale
business units to continue in 2006 because of ongoing
pressures on competitive pricing and the migration to
IP networks and services.
See Segmented Analysis for a discussion of operating
revenues on a segmented basis, and Product Line
Analysis for a discussion of operating revenues on a
product line basis.
Operating Revenues
Our revenues increased to $19,105 million in 2005,
4.0% higher than 2004. This reflected improved revenue performance across all our segments and surpassed our target of matching or exceeding gross
domestic product (GDP) growth. Revenues at Bell
Canada grew by 2.8%. This was driven primarily by the
Business segment, where continued wireless strength,
growth of ICT solutions from both business acquisitions and organic growth as well as focused execution
of our VCIO strategy in SMB led to improved top-line
results. Our Residential segment delivered solid revenue growth as a result of the performance of its video,
Internet and wireless services, while Aliant revenues
also increased due in part to its recovery from a labour
disruption in 2004. These results were achieved despite
continued decreases in legacy wireline services. Higher
revenues at our Other BCE segment, fuelled by stronger
advertising and subscriber revenues at Bell Globemedia
and higher business networks and broadcast revenue
Operating Income
CONSOLIDATED OPERATING INCOME (in $ millions)
04
2,894
15.8%
05
4,048
Operating income
21.2%
Operating income margin (%)
Operating income at BCE was $4,048 million in 2005,
an increase of $1,154 million over the previous year,
which included restructuring and other items of
$1,224 million related primarily to the employee departure program in 2004. The results for 2005 include
restructuring and other items of $55 million associated
with new restructuring initiatives for involuntary
employee departure, as well as relocation of employees
and closing of real estate facilities related to last year’s
p. 21
employee departure program. Operating income before
restructuring and other items was $15 million, or 0.4%
lower than the previous year. Despite an increase in
revenues across all segments, Galileo cost savings and
the recovery from the 2004 labour disruption at Aliant,
operating income before restructuring and other items
decreased as it was negatively impacted by a number
of factors, including:
• the higher cost of acquiring substantially more wireless subscribers
• the CRTC’s CDN decision
• continued pressure on operating margins from
the ongoing transition of our product mix towards
growth services
• the cost of restoring customer service levels following
the settlement of the Entourage labour dispute in July
• higher net benefit plans cost and amortization expense.
Similarly, at Bell Canada, operating income for the
year was $3,755 million, or $1,060 million higher than
2004 because of charges recognized in the previous
year for the employee departure program. Operating
income before restructuring and other items declined
by $105 million, or 2.7%, to $3,809 million in 2005,
compared with $3,914 million in the previous year.
See Segmented Analysis for a discussion of operating
income on a segmented basis.
EBITDA
EBITDA increased 2.2%, or $167 million, to $7,597 million in 2005 because of improved performance at Bell
Canada, Bell Globemedia and Telesat. EBITDA for
Bell Canada was $7,187 million, representing a 1.1%
increase over 2004, driven primarily by increases in
our Business segment and at Aliant, which were partly
offset by decreases in our Residential and Other Bell
Canada segments.
EBITDA margins for 2005 were 39.8% at BCE and
41.7% at Bell Canada, both down 0.7 percentage points
compared with 2004. The year-over-year declines
reflected operating cost pressures, which included
higher wireless acquisition costs, continued erosion of
high-margin legacy voice and data services in all our
segments, the CRTC’s CDN decision, as well as the
costs to restore service levels subsequent to the resolution of the labour dispute with our technicians in
Ontario. The impact of these elements on EBITDA
margin was largely offset by the savings in operating
costs achieved through Galileo.
Wireless EBITDA for 2005 increased by 10.1% to
$1,307 million, reflecting wireless services revenue
growth of 9.9%. The positive contribution from higher
revenue was offset partly by the cost of acquiring 20%
more gross subscriber activations year-over-year, as
well as by higher bad debt expense and customerservice related costs during the first half of 2005,
which contributed to a slight 0.3 percentage-point
decline in EBITDA margin to 41.2%.
Wireless cost of acquisition (COA) decreased 1.2% to
$406 per gross activation in 2005 from $411 per gross
activation in 2004 due to higher gross activations,
despite greater hardware subsidization of more expensive handsets and promotional incentives to acquire
higher ARPU and longer-term contract customers.
Video EBITDA for 2005 increased to $45 million
from negative $19 million in the previous year, reflecting strong double-digit revenue growth as well as
lower subscriber acquisition costs due to the larger
number of customers choosing the STB rental option.
The improvement was offset somewhat by higher
costs incurred to handle increased call volumes at our
contact centres.
The COA for video services was $375 per gross
activation in 2005, a decrease of 34% and a significant
improvement from $571 per gross activation in 2004.
This was mainly the result of the capitalization of STBs
and installation costs associated with our new rental
program and fewer promotional offers, which were
partly offset by a higher number of new customers
purchasing additional STBs.
In 2006, the expected benefits of our Galileo cost
savings initiatives combined with anticipated revenue
increases from our growth services are expected to
mitigate further declines in our legacy businesses. We
are targeting significant cost savings as a result of
internal process redesign and supply transformation.
Amortization Expense
The amount of our
amortization expense in
any year is affected by:
• how much we invested
in new capital assets in
previous years
• how many assets we
retired during the year
• changes in accounting
rules and estimates.
Each year, we review our
estimate of the useful life
of our capital assets.
Amortization Expense
Amortization expense increased $58 million to
$3,114 million in 2005, representing a 1.9% increase
from 2004. This was a result of an increase in our capital asset base from higher investment in the growth
areas of the business, as well as overall capital spending that continues to be higher than asset retirements.
p. 22
Net Benefit Plans Cost
The amount of the net
benefit plans cost in a year
mainly depends on:
• the return on pension
plan assets that we expected
to be generated during the
year – the lower the return,
the higher the cost
• the present value of future
pension benefit payments
to employees – the lower the
present value, the lower
the cost
• actuarial gain (loss) – the
difference between the
actual funded status of our
pension plans and the
amount calculated using
our accounting assumptions.
We amortize this into earnings over time.
Restructuring and Other Items
This category includes various income and expenses
that are not directly related
to the operating revenues
generated during the year.
Examples are costs related to
streamlining initiatives,
asset write-downs and other
types of income or charges.
Amortization expense is expected to increase in
We recorded restructuring and other items of
2006 as a result of an increase in our capital base. This
increase reflects the capitalization of STBs and installa-
$1,224 million in 2004. These consisted mainly of:
• a restructuring charge of $985 million related to
approximately 5,000 employee departures under the
tion costs associated with the new rental program in
our video business unit, the completion in 2005 of the
Alberta SuperNet (a next-generation network bringing high-speed Internet and broadband capabilities to
communities in Alberta) and Telesat’s new Anik F1R
and Anik F3 satellites.
Net Benefit Plans Cost
The net benefit plans cost increased $124 million to
$380 million in 2005. This was 48% higher than the
cost of $256 million in 2004, and resulted mainly from:
• a reduction in the discount rate from 6.5% to 6.2%,
which increased the accrued benefit obligation of our
pension plans
• a reduction in the plan asset base due to the amortization of investment losses in 2001 and 2002
• fully amortizing in 2004 the savings relating to the
transitional asset that arose when we adopted new
accounting rules in 1987
• an increase in pension obligations from the early
retirement program implemented in 2004.
This was partly offset by a $44 million curtailment
gain associated with the phase-out, over the next three
years, of a discretionary allowance program.
Net benefit plans cost is expected to increase in
2006, mainly as a result of a further reduction in the
discount rate from 6.2% to 5.2%. This will lead to an
increase in the accrued benefit obligation of our pension plans.
Restructuring and Other Items
We recorded restructuring and other items of $55 million in 2005. These included:
• charges of $51 million related to new restructuring
initiatives for the involuntary departure of approximately 950 employees
• charges of $49 million for relocating employees and
closing real estate facilities that are no longer needed
because of the reduction in the workforce resulting
from the 2004 employee departure program.
These charges were partly offset by reversals of
restructuring provisions of $45 million that were no
longer necessary because the actual payments made
to employees were lower than estimated.
employee departure program at Bell Canada
a charge of $128 million recorded for cost overruns on
a contract with the Government of Alberta (GOA),
relating to the construction of the Alberta SuperNet
• a charge of $67 million relating to an employee
departure program at Aliant
• other costs of $108 million, including future lease
costs for facilities no longer needed, asset write-down
and other provisions, net of a reversal of previously
recorded restructuring charges that were no longer
necessary because of the introduction of a new
employee departure program.
This was partly offset by income of $75 million
recorded in the second quarter of 2004, relating to an
agreement between BCE Inc. and MTS to settle lawsuits.
•
Net Earnings and Earnings per Share (EPS)
In 2005, net earnings applicable to common shares
were $1,891 million, or $2.04 per common share, 24%
higher than net earnings of $1,523 million, or $1.65 per
common share, for 2004. Included in earnings this
year was a net charge of $10 million from restructuring and other items and net gains on investments,
compared with a net charge of $349 million for 2004.
Net earnings before restructuring and other items and
net gains on investments of $1,901 million, or $2.05
per common share, increased by $29 million, or $0.03
per share, year-over-year. This represents an increase
of 1.5% over the previous year. The improvement in
EPS before restructuring and other items and gains
on investments can be attributed to higher EBITDA
combined with the impact from the income tax
loss monetization program between Bell Canada
and BCI and net income tax savings. This more than
offset the increase in net benefit plans cost and amortization expense.
In 2006, we anticipate that EPS will decrease, mainly
as a result of the negative impact of an increase in net
benefit plans cost, resulting from a reduction in the
discount rate from 6.2% to 5.2% and an increase in
amortization expense because of an increase in our
capital asset base.
p. 23
SEGMENTED ANALYSIS
OPERATING REVENUES
31%
40%
2005
10%
10%
9%
40% Residential
10% Other BCE
31% Business
10% Aliant
9% Other Bell Canada
2005
Operating revenues
Residential
Business
Aliant
Other Bell Canada
Bell Canada
Other BCE
Operating income
Residential
Business
Aliant
Other Bell Canada
Bell Canada
Other BCE
Total operating income
2004 % CHANGE
7,599
6,120
2,097
1,958
(524)
17,250
2,093
(238)
19,105
7,502
5,851
2,033
1,939
(538)
16,787
1,842
(261)
18,368
1.3%
4.6%
3.1%
1.0%
2.6%
2.8%
13.6%
8.8%
4.0%
2,001
910
396
448
3,755
293
4,048
2,119
896
268
(588)
2,695
199
2,894
(5.6%)
1.6%
47.8%
N/M: Not meaningful
Residential Segment
RESIDENTIAL REVENUES (in $ millions)
04
7,502
05
7,599
N/M
39.3%
47.2%
39.9%
Residential revenues grew 1.3%, or $97 million, to
$7,599 million in 2005, compared with 2004. Video,
data, wireless and terminal sales and other revenues
contributed 1.7%, 1.2%, 1.3% and 0.5%, respectively,
to overall Residential revenue growth in 2005, offset
largely by a negative contribution of 2.1% from long
distance and 1.3% from local and access services. The
increase was the result of continued expansion of our
wireless, video and high-speed Internet subscriber
bases and an increase in video ARPU, offset almost
entirely by lower wireline (local and access and long
distance) revenues brought about by an acceleration in
NAS losses and continued wireless long distance prepaid and VoIP substitution, as well as ongoing price
competition. Although overall Residential revenue
growth slowed somewhat in 2005, this result was
anticipated given increased competition from cable
telephony and other alternative VoIP providers, which
adversely affected wireline revenues.
Wireline
Local and access revenues, which represents the largest
proportion of our Residential segment revenues,
declined in 2005, due mainly to NAS erosion that
resulted in lower basic service and related SmartTouch
feature revenues, offset partly by an increase in wireline maintenance plan revenues reflecting price increases
implemented during the year. NAS decreased in 2005
primarily as a result of losses to competitive local
exchange carriers (CLECs) and cable operators, as well
as to continued pressure from growth in high-speed
Internet access that reduces the need for second telephone lines, while the impact from other alternative
VoIP providers and customers substituting wireline
with wireless telephone service was minimal. The rate
of year-over-year NAS losses increased in 2005 as several
major cable operators operating in our territory began
to aggressively market their low-priced local telephony
offerings in certain of our Ontario and Québec markets, where their footprints were established.
Long distance revenues decreased in 2005 compared
with 2004 as a result of lower average revenue per
minute (ARPM). Lower ARPM reflected increased competition from non-traditional long distance providers,
the impact of our $5 Long Distance Bundle (which
p. 24
was discontinued in July 2005) and Block-of-Time
(BOT) minute plans, as well as a lower volume of
higher priced overseas minutes. Overall minutes also
declined year-over-year, as usage gains stemming from
our bundle product were more than offset by losses
of domestic and overseas minutes to alternative, nontraditional long distance service providers.
For further information about our wireline business, please see Local and Access and Long Distance
within our Product Line Analysis.
that are tailored to the very price-sensitive segments of
the market, has expanded the overall high-speed market, stimulating high-speed service growth and accelerating the rate of erosion of dial-up Internet service.
For further information about our data business,
please see Data within our Product Line Analysis.
Video
VIDEO REVENUES (in $ millions)
04
850
Wireless
Residential wireless revenues increased in 2005, compared with 2004, as a result of a higher average number
of customers compared with last year, price increases
for certain services and features implemented earlier
in the year, and increased adoption of data and other
value-added feature services. Overall revenue growth
was dampened by the loss of high-value customers in
the early part of 2005 due to billing system conversion
issues and a higher proportion of customers choosing
prepaid service or postpaid monthly packages that
include a large number of in-plan minutes and free
unlimited local airtime usage for up to six months. In
addition, revenue growth was negatively impacted by
the billing and retention credits issued in Q1 2005 to
compensate customers for billing errors and delays
that occurred following implementation of our new
billing platform in 2004. The issuance of customer
credits returned to normal levels in Q2 2005.
For further information about our wireless business,
please see Wireless within our Product Line Analysis.
Data
Residential data revenues grew year-over-year, fuelled
by growth of 21% in our high-speed Internet subscriber
base and an almost two-fold increase in revenues from
our Sympatico.MSN.ca web portal and Bell Sympatico
VAS such as MSN Premium, Security Services and
Home Networking. The portal currently averages
17.2 million unique visitors per month, or 87% of
online Canadians.
Residential high-speed Internet subscriber growth
in 2005 was driven by the introduction of our Basic
Lite service in the Ontario market, as well as by footprint expansion, focused selling efforts and improved
retention strategies. The introduction of lower priced
high-speed services, such as our Basic Lite product,
05
976
VIDEO SUBSCRIBERS (in thousands)
04
1,503
05
1,727
Our video revenues grew 14.8% in 2005 to $976 million from $850 million in 2004, as a result of an
increase in the average number of subscribers, higher
ARPU, reflecting the impact from price increases
implemented during the year, and the success of our
strategy to upsell customers to higher-priced programming packages. We had a strong year with the
addition of 224,000 new net video customers, a 93%
increase compared with the 116,000 net activations
achieved in 2004. Our total video customer base
reached 1,727,000 at December 31, 2005, representing
an increase of 14.9% compared with the previous year.
The significant growth in net activations for 2005 can
be attributed to the positive impact of our STB rental
program, which accounted for nearly half of our new
activations in the year, the attractiveness of our programming packages, and the addition of 12,500 new
subscribers from our acquisition of Cable VDN in the
third quarter. In addition, several initiatives focused
on churn management contributed to overall subscriber
growth. Churn for the year improved by 0.1 percentage
points to 0.9% compared with 2004, reflecting the
continued success of our multi-product household
strategy and the requirement that, as of August 1,
2004, all new video customers have contracts. This
result was achieved despite implementation of a card
swap program completed in July 2005 and aggressive
p. 25
price competition, particularly in the latter half of the
year, from the cable operators’ strategy of bundling
cable television service with other products.
Video ARPU increased to $50 per month in 2005
from $49 per month in the previous year. The improvement was the result of price increases implemented
during the year and a shift in product mix towards
higher priced programming packages, offset partly by
bundle and retention discounts. In March 2005, we
applied a $3 rate increase to our existing subscriber
base and on October 1, 2005, we brought into effect
$2 and $3 increases, respectively, on our basic and
theme packages for all new customers.
In 2006, growth in video revenues is expected to
continue, driven by ongoing expansion of the subscriber base and further improvement in ARPU
brought about by the price increases introduced during 2005. We will leverage our video service as part of
our Residential segment’s overall multi-product household strategy, allowing us to maximize the profitability of our traditional local voice services, while
increasing penetration of our growth services, by
securing a loyal customer base that is less vulnerable
to cable telephony. We also intend to continue investing in our IPTV platform in preparation for launch of
service in the future and to further develop our highdefinition capabilities, ensuring that we have the right
services in the future to be the video provider of
choice for consumers in both urban and rural markets.
Residential Operating Income
RESIDENTIAL OPERATING INCOME (in $ millions)
04
2,119
28.2%
05
2,001
Operating income
26.3%
Residential segment operating income decreased
5.6%, or $118 million, to $2,001 million in 2005, compared with 2004. This decrease was due to a higher
rate of decline in our high-margin residential NAS
wireline customer base, higher expected acquisition
costs from stronger year-over-year wireless subscriber
growth, higher marketing costs related to an increased
level of wireless advertising and sales activity, as
well as higher amortization expense and increased net
benefit plans cost. These factors were partially offset
by higher revenues and cost savings associated with
certain Galileo initiatives, including our One Bill
rollout, the launch of our new Bell.ca website and
improved call centre efficiencies.
By the end of 2005, we began to see a marked
decrease in contact centre costs driven by an improvement in the first-call resolution rate and outsourcing.
This, along with revenue growth from continued
strength in our wireless, Internet access and video
businesses, is expected to mitigate the continued
erosion in our local and access and long distance services in 2006, which should experience heightened
competition as cable operators intensify their marketing efforts and further expand the footprint for
their low-priced cable telephony offerings in our
incumbent territories.
Business Segment
BUSINESS REVENUES (in $ millions)
04
5,851
05
6,120
Business segment revenues increased by 4.6% in 2005
to reach $6,120 million, compared with $5,851 million
in the previous year. Our SMB and Enterprise units
contributed 2.7% and 1.8% of the total growth in
Business segment revenues, respectively, while our
other business units (comprised of Bell West and
360networks) contributed 0.1%. From a product line
perspective, increases in data and wireless revenues at
our Enterprise and SMB units were partially offset by
declines in long distance and local and access revenues,
resulting from further legacy erosion as competitive
pressures intensified and as customers continued to
migrate their voice and data traffic to our IP-based
systems. In addition, lower data revenues at Bell West
in 2005, due to revenues received in 2004 from the
GOA for the construction of the Alberta SuperNet,
dampened the overall Business segment revenues for
the year. The results for 2005 also include the contribution to revenues from the acquisition of 360networks in November 2004, which increased our customer
base and gave us an extensive fibre network across
major cities in Western Canada.
p. 26
Enterprise
Enterprise revenues increased in 2005, compared with
2004, mainly as a result of strong wireless performance
driven by solid growth in the number of higher-value
wireless subscribers and higher data revenues. Data
contributed significantly to the year-over-year revenue
improvement, due to solid growth in IP-based connectivity services and ICT solutions, as well as the proceeds from the sale of customer contracts related to
legacy point-of-sales systems. ICT revenues grew by
36% in 2005 as a result of acquisitions, organic growth
and outsourcing contracts. Data revenue growth was
more organic in 2005 than in 2004, as we have realized
the full-year benefit of acquisitions made in 2004,
including Infostream Technologies Inc. and Elix Inc.
Declines in long distance and local and access revenues partially offset the increases in data and wireless
revenues, due to erosion of our legacy voice and data
business, the repricing of some of our existing wireline
business brought about by competitive market conditions, and the continued migration of our customers’
voice and data traffic to IP-based systems.
In 2005, we continued to broaden our ICT solutions
product suite through the acquisition of a number of
small, specialized service companies, including:
• CDG, Inc., a Canadian provider of anti-virus and
anti-spam solutions, which should provide a strong
presence in Western Canada
• PopWare Inc., a systems integrator providing inventory and asset management solutions, which expands
our wireless solutions portfolio
• The Createch Group, a Québec-based professional
services firm specializing in business process optimization and IT integration, which consolidates our existing suite of wireless data solutions
• end2end Software Corp., a developer of workflow
solutions for the capital markets sector.
Our Enterprise unit also had a number of significant
multi-year contract wins during the year, including:
• National Bank of Canada, to provide integrated call
centre solutions and telephone services
• Aéroports de Montréal, to provide a fully-integrated
end-to-end communications services solution consisting of standard telecom services, IP telephony, WiFi
coverage and digital signage
• Canadian Imperial Bank of Commerce, to provide
and manage DSL and IP virtual private network
(IP-VPN) services for its remote automated bank
machine (ABM) network
RBC Financial Group, Canada’s largest financial
institution, to implement a fully managed IP solution,
converting approximately 8,400 of the bank’s phone
lines at its head office in Toronto to VoIP.
•
SMB
The SMB unit delivered its best year since the launch
of its VCIO strategy in 2003, contributing significantly
to the solid financial performance of our Business
segment in 2005. Revenues generated from SMB
customers increased in 2005 as higher data and wireless revenues more than compensated for the decreases
in long distance and local and access revenues. Despite
a highly competitive market environment, data revenue growth in 2005 was driven by the continued
strong adoption of our VCIO strategy and cross-selling
opportunities with companies acquired in 2005 (including Nexxlink Technologies Inc. and CSB Systems,
which form a part of Bell Business Solutions Inc.).
This resulted in higher VAS and equipment sales yearover-year, which grew organically by 48% in the year,
as well as an increase in the number of high-speed
Internet access service connections. Long distance revenues decreased, due mainly to the combined impact
of lower volumes and competitive pricing pressures,
and a weakening of our pay-phone business that is
directly attributable to wireless and Internet substitution. Similarly, local and access revenues were also
lower due to pressure from our declining pay-phone
business, NAS losses to alternative telephony providers
and lower wireline access installation fees resulting
from reduced order activity.
Bell West
Bell West continued to grow its Enterprise and SMB
customer bases during 2005, leading to increases in
revenues in most product categories. These increases
were more than offset by a year-over-year decrease
in data revenues. The results for 2004 reflected higher
data revenues earned from the construction of the
Alberta SuperNet.
During 2005, Bell West began to integrate the
operations of 360networks, which was acquired in
November 2004. Through this acquisition, Bell West
increased its customer base while gaining access to an
extensive fibre network with facilities across major
cities in Western Canada.
p. 27
In June 2005, Bell Canada and the GOA entered
into a new agreement that replaced the initial contract
for construction and operation of the Alberta SuperNet
entered into in 2001. The Alberta SuperNet, which
provides high-speed Internet and broadband capabilities, is comprised of a Base Area Network (BAN),
covering 27 of Alberta’s largest communities, and the
Extended Area Network (EAN), reaching 429 communities in rural Alberta. Under the terms of the
new agreement, Bell Canada assumed ownership of
the EAN and provides access to the GOA under
indefeasible right-of-use agreements. In conjunction
with this agreement, Bell Canada also entered into a
new revenue-sharing agreement with the GOA and
Axia NetMedia Corporation, the access manager
for the Alberta SuperNet. Construction of the Alberta
SuperNet was completed on September 30, 2005.
Following service acceptance by the GOA in the fourth
quarter, the Alberta SuperNet began generating revenues from the sale of telecom services.
Business Operating Income
BUSINESS OPERATING INCOME (in $ millions)
04
896
15.3%
05
910
Operating income
14.9%
Business segment operating income grew 1.6%, or
$14 million, to $910 million in 2005, compared with
2004, due mainly to a year-over-year increase in revenues and cost savings from our Galileo initiatives.
These positive impacts were mitigated by continued
margin pressure due to a competitive market pricing
environment, the loss of higher-margin legacy voice
and data business, and the ongoing shift of voice and
data traffic to lower-margin IP-based growth services,
as well as higher net benefit plans cost and amortization expense.
In the Enterprise unit, operating income increased
in 2005 due to solid revenue growth and focused cost
management, despite the negative margin impact from
steady progress in transforming our product mix
towards growth services as well as higher amortization
expense and net benefit plans cost.
Similarly, SMB operating income growth in 2005
was driven by strong revenue performance and Galileo
savings, partly offset by higher operating expenses
stemming from recent business acquisitions, margin
erosion related to the shift from legacy voice and data
services to VCIO revenues, as well as by higher net
benefit plans cost and amortization expense.
Bell West recorded lower operating income in 2005,
due primarily to higher revenues earned in 2004 for
the construction of the Alberta SuperNet and higher
amortization expense, offset partly by lower cost of
goods sold.
Our transformation strategy will continue in 2006 as
our core network evolves to enable new IP-based services and as we transform operations and achieve greater
efficiencies to create a next-generation cost structure
for our business. Our Business segment growth strategy
will continue to be developed around the objectives of
serving the Enterprise market in key ICT vertical markets such as health care, government and financial
services, and continuing to raise awareness among our
SMB customers about the benefits of ICT solutions
delivered through a single point-of-contact. In 2006,
we expect Business segment revenues will grow, driven
by organic growth in IP-based connectivity service
and ICT revenues, further traction of our VCIO strategy in SMB, the positive contribution of business
acquisitions made in 2005, continued solid wireless
performance, and increased sales of services from the
Alberta SuperNet. However, continued declines from
our legacy voice and data services are expected to
offset the growth in revenues.
Aliant
ALIANT REVENUES (in $ millions)
04
2,033
05
2,097
Aliant segment revenues increased 3.1%, or $64 million, to $2,097 million in 2005, compared with 2004.
Strong growth in wireless and Internet services, as
well as a recovery from the 2004 labour disruption,
offset declines in other areas due to the effects of competition, wireless and Internet substitution, and regulatory restrictions.
p. 28
Aliant’s wireless revenue grew in 2005, driven by an
11.9% increase in its wireless customer base and higher
ARPU. Subscriber results included a 23% increase in
digital customers, reflecting Aliant’s expanded coverage area and digital wireless network, an enhanced
dealer network that improved market penetration,
and a broader product selection. In addition, ARPU
increased in the year, reflecting the effects of a higher
percentage of customers subscribing to digital service
and an increase in average minutes of use.
Data revenues increased slightly in 2005, as higher
Internet revenues and recovery from the 2004 labour
disruption were offset almost entirely by other data
revenue declines from the continued rationalization of
circuit networks by customers, and the $8 million
negative impact of the CRTC’s CDN decision. The
increase in Internet revenues was attributable mainly
to 42% growth in Aliant’s high-speed Internet customer base. The increased number of subscribers
reflected expansion of high-speed Internet service into
new areas, the migration of dial-up customers to
higher-speed products, successful marketing programs
and an emphasis on bundling Internet service with
other products.
Long distance revenues declined in 2005, due to
lower per-minute pricing and a decline in minutes of
use stemming from intense competition, substitution
of long distance calling with Internet and wireless
options, and the use of contact centre management
tools (such as integrated voice response systems) that
reduce the duration of calls.
Local and access revenues continued to decrease
in 2005, due mainly to a 1.5% decline in the NAS
customer base, which reflected losses to the competition and technology substitution. In addition, the
CRTC’s regulatory restrictions continue to place pressure on Aliant’s local and access business with respect to
bundling and packaging of local services with other nonregulated services, and limitations imposed with respect
to customer win-back promotions. Enhanced service
features revenue also declined as a higher number of
customers received bundling discounts.
Terminal sales and other revenues increased in 2005,
as a result of higher product sales reflecting Aliant’s
recovery from its 2004 labour disruption.
Aliant Operating Income
ALIANT OPERATING INCOME (in $ millions)
04
268
13.2%
05
396
Operating income
18.9%
Aliant’s operating income increased 48%, or $128 million, to $396 million in 2005, compared with 2004.
The full impact of revenue growth and recovery from
the 2004 labour disruption, as well as the non-recurrence in 2005 of a $67 million restructuring charge
related to the voluntary early retirement program in
December 2004, was offset partly by the impact of
the CRTC’s CDN decision and an increase in net
benefit plans cost. Operating expense increases
required to drive revenue growth in 2005 were contained by expense management and the cost savings
from Aliant’s 2004 voluntary early retirement program. Approximately $42 million of incremental costs
were incurred during the 2004 labour disruption to
enable operations to continue with relatively few
interruptions, ensure the safety of employees, perform
property repairs, provide training and equipment to
employees and maintain basic customer service.
In 2006, Aliant expects revenue growth from its
high-speed Internet and digital wireless services, as
well as increased ICT market penetration in Atlantic
Canada and adjacent areas to offset expected steady,
but slower, declines in local and access and long distance revenues. Aliant also anticipates higher operating income in 2006 from continued revenue growth
and through productivity improvements. These positive
impacts are expected to be offset partly by increased
costs associated with Aliant’s growth services and
higher net benefit plans cost.
Other Bell Canada Segment
OTHER BELL CANADA REVENUES (in $ millions)
04
1,939
05
1,958
p. 29
Other Bell Canada segment revenues grew 1.0%, or
$19 million, to $1,958 million in 2005, compared with
2004. The year-over-year increase was due mainly to
higher revenues at our Wholesale unit, resulting from
the acquisition of the wholesale business of 360networks in November 2004, fibre and access capacity
sales in the third quarter of 2005, the early termination of a cross-border facilities contract in the second
quarter of 2005 and a favourable ruling by the CRTC
with respect to subsidies for serving high-cost areas at
Télébec in the first quarter of 2005. A contract secured
in late 2005 to restore telecommunications service to
the areas affected in the United States by Hurricane
Katrina also contributed to the improvement in Other
Bell Canada revenues in 2005. These positive impacts
were offset partly by the impact of the CRTC’s CDN
decision, which reduced revenues by $55 million in
2005, continued pressure on long distance revenues
stemming from a decrease in switched minute volumes and competitive pricing, and lower data revenues
as customers migrated services onto their own network facilities.
Other Bell Canada Operating Income
OTHER BELL CANADA OPERATING INCOME (in $ millions)
04
(588)
(30.3%)
05
448
Operating income
22.9%
The Other Bell Canada segment generated operating
income of $448 million in 2005, a $1,036 million increase when compared to an operating loss of $588 million in 2004. The amount reported for 2004 included
restructuring and other items of $1,147 million, mainly
associated with our employee departure program
and the related relocation of employees and closure
of excess real estate facilities, whereas the amount
reported in 2005 for restructuring and other charges
was $53 million. Excluding restructuring and other
items, operating income decreased 10.4% to $501 million in 2005, reflecting the impact of the CRTC’s CDN
decision, higher operating costs from the acquisition
of 360networks, and the repricing of long distance and
data services in our Wholesale business. Higher revenues and lower bad debts expense partly offset the
negative impacts on operating income.
Other BCE Segment
2005
Operating revenues
Bell Globemedia
Telesat
Other
Other BCE revenues
1,555
475
63
2,093
2004 % CHANGE
1,420
362
60
1,842
9.5%
31.2%
5.0%
13.6%
OTHER BCE REVENUES (in $ millions)
04
1,842
05
2,093
Other BCE segment revenues grew 13.6%, or $251 million, to $2,093 million in 2005, compared with 2004,
reflecting higher revenues mainly at Bell Globemedia
and Telesat.
Bell Globemedia’s revenues increased 9.5%, or
$135 million, to $1,555 million in 2005, compared with
2004. Total advertising revenues grew by 10.3% in 2005,
reflecting the strength of CTV Television’s schedule,
which included the majority of the top 20 regularly
scheduled programs in each season among all viewers,
and higher employment and classified advertising sales
at The Globe and Mail. Strong growth in advertising
revenues in conventional and specialty television other
than sports helped to offset the loss of advertising
from hockey broadcasts (due to the NHL players’ lockout, which ended in the third quarter) on our sports
specialty channels TSN and RDS for the first three
quarters of the year. Bell Globemedia’s subscriber
revenues grew by 7.4% in 2005, due primarily to specialty channel subscription growth, online subscription
growth at The Globe and Mail, as well as a larger
number of subscribers to The Globe and Mail in combination with an increase in the home delivery rate for the
newspaper implemented at the beginning of the year.
Telesat’s revenues increased 31%, or $113 million,
to $475 million in 2005, compared with the previous
year, primarily as a result of revenue gains from
the installation and maintenance of an interactive
distance learning network, growth in Ka-band revenues on its Anik F2 satellite, the positive impact
from its acquisition of SpaceConnection, and higher
overall broadcast revenues.
p. 30
SpaceConnection was acquired in January 2005 and
is a provider of programming-related satellite transmission services to major U.S. television networks and
cable programmers.
Anik F2 began commercial service in October 2004
and was the world’s first satellite to commercialize
the Ka frequency band, enabling two-way high-speed
Internet access services to consumers and businesses
in Canada and the United States. In May 2005, Telesat
launched its new two-way high-speed Internet access
service using the Ka band of Anik F2. This service is
available to consumers through multiple distributors
across Canada, including Barrett Xplore Inc., a wireless broadband service provider, Télébec, NorthernTel
and Infosat Communications Inc.
On October 1, 2005, Telesat’s new Anik F1R satellite was placed into service and began providing
capacity for broadcasters, home satellite television
services and telecommunications.
On January 17, 2006, Telesat announced plans to
build and launch Nimiq 4, a new direct broadcast
satellite that will carry a wide range of digital television
services and enable Bell ExpressVu to enhance advanced
services such as HD television, specialty channels and
foreign language programming.
Telesat’s operating income grew by 11.3%, or
$16 million, to $157 million in 2005, reflecting higher
revenues, offset partly by higher operating expenses
from SpaceConnection, network equipment costs for
interactive distance learning services, as well as higher
amortization expense stemming from its newest satellites (Anik F2 and Anik F1R) and from the acquisition
of SpaceConnection.
PRODUCT LINE ANALYSIS
BELL CANADA PRODUCT LINE REVENUES
23%
18%
32%
2005
12%
9%
6%
32% Local and access
12% Long distance
23% Data
18% Wireless
9% Terminal sales and other
2005
REVENUES
Other BCE Operating Income
OTHER BCE OPERATING INCOME (in $ millions)
04
10.8%
199
05
293
Operating income
6% Video
Local and access
Long distance
Wireless
Data
Video
Terminal sales and other
Total Bell Canada
2004 % CHANGE
5,446
2,044
3,097
4,015
976
1,672
17,250
5,572
2,327
2,818
3,640
850
1,580
16,787
(2.3%)
(12.2%)
9.9%
10.3%
14.8%
5.8%
2.8%
14.0%
Local and Access
Operating income for the Other BCE segment grew
47%, or $94 million, to $293 million in 2005, due
mainly to higher operating income at both Bell
Globemedia and Telesat.
Bell Globemedia’s operating income increased 20%,
or $49 million, to $289 million in 2005, reflecting revenue gains and lower sports specialty programming
costs due to the NHL lockout for most of the year.
This was offset partly by higher conventional television programming costs, increased sales and circulation costs at The Globe and Mail and higher net
benefit plans cost.
LOCAL AND ACCESS REVENUES (in $ millions)
04
5,572
12,905
05
5,446
Revenues
12,581
NAS (thousands)
Local and access revenues decreased 2.3%, or $126 million, to $5,446 million, compared with 2004. The yearover-year decline was a result of accelerating NAS
erosion and lower Smart-Touch feature revenues directly
attributable to NAS losses, offset partly by gains from
wireline insurance and maintenance plans.
p. 31
NAS in service declined by 324,000 in 2005 or 2.5%,
as a result of competition from cable operators for
local telephone service, losses to CLECs and other
VoIP providers, wireline to wireless substitution, as
well as continued pressure from growth in high-speed
Internet access that reduces the need for second telephone lines. This decrease in 2005 reflected a higher
level of NAS losses than the previous year, as several
major cable operators in our incumbent territories
increased their marketing efforts and expanded the
footprint of their low-priced local telephony offerings
in certain of our Ontario and Québec markets. This
was offset partly by customers subscribing to our new
Bell Digital Voice service and higher demand for local
access lines from Shaw Communications to offer VoIP
services in Western Canada.
Moreover, the CRTC’s regulatory restrictions continue to place pressure on our local and access business
with respect to bundling and packaging of local services with other non-regulated services, as well as limitations on customer win-back promotions.
In 2006, we expect that wireline competition in
both the Residential and Business markets will increase
further, primarily as a result of cable telephony and
decreases in legacy services pricing. Accordingly, we
estimate that our overall NAS in service will continue
to decrease in 2006, reflecting a significantly higher
rate of decline in our Residential segment.
Long Distance
LONG DISTANCE REVENUES (in $ millions)
04
2,327
18,070
05
2,044
Revenues
18,306
Conversation minutes (millions)
Long distance revenues were $2,044 million in 2005,
reflecting a year-over-year decrease of 12.2% compared
with 2004. Lower long distance revenues affected all
Bell Canada segments, particularly our Residential and
Business segments. Overall minute volumes increased
1.3% in 2005 to 18,306 million conversation minutes,
compared with 2004. However, ARPM decreased by
$0.015 during the year to reach $0.102, reflecting competitive pricing pressures in our Residential, Business
and Wholesale markets and the pricing impact from
subscriptions to the $5 Long Distance Bundle in our
Residential segment (which we stopped offering in
July 2005).
We anticipate continued pressure on long distance
revenues in 2006, due to intensifying competition in
our Residential markets from cable companies that are
offering VoIP residential telephone service, wireless
substitution and other factors including e-mail and
instant messaging substitution, as well as continuing
competitive pricing conditions in the Enterprise and
Wholesale markets.
Wireless
WIRELESS REVENUES (in $ millions)
04
2,818
05
3,097
WIRELESS SUBSCRIBERS (in thousands)
04
4,925
05
5,441
Prepaid
Postpaid
Gross wireless activations increased by 20% in 2005 to
a record 1,470,000, up from 1,225,000 in the previous
year. Although the percentage of total gross activations from postpaid rate plans decreased to 70% in
2005 from 75% in 2004, due primarily to the impact
of Solo Mobile and Virgin Mobile on prepaid subscriber growth, the total number of gross postpaid
activations increased by 11.9% to 1,024,000. Prepaid
gross activations comprised the remaining 446,000
gross activations, representing a 44% increase compared with 2004. Postpaid growth was stimulated by
our attractive line-up of leading-edge handsets and
devices, innovative services such as 10-4 and EVDO,
competitive rate-plan promotions, our growing presence in Western Canada, as well as our continued
success with the business market segments. The significantly higher number of prepaid activations was
fuelled by the introduction of two new brands tailored
for the youth market, Solo Mobile and Virgin Mobile.
p. 32
Our postpaid churn rate increased to 1.4% in 2005
from 1.1% in 2004, due mainly to increased competitive pressures, the reaction to price increases introduced during the year for certain services and features,
the enforcement of tighter policies on the application
of customer credits and discounts and to the granting
of hardware upgrades, as well as some residual impacts from our billing system migration that caused
dissatisfaction among certain of our customers who
deferred service deactivation until expiry of their
contracts. Prepaid churn for 2005 was unchanged at
1.9% year-over-year, reflecting the effectiveness of our
retention initiatives with respect to inactive customers. Accordingly, as a result of higher postpaid
churn, our blended churn rate for 2005 increased to
1.6%, compared with 1.3% in 2004.
As a result of a record number of gross activations
in 2005 and despite an increase in our overall churn
rate for the year, we added 516,000 new net activations in 2005, representing a slightly higher number
than the 513,000 achieved in 2004. At December 31,
2005, our cellular and PCS subscriber base totalled
5,441,000, representing a 10.5% increase. Postpaid rate
plans accounted for 74% of our total subscriber base at
the end of 2005, compared with 76% at the end of the
previous year.
Wireless service revenues grew 9.9%, or $279 million, to $3,097 million in 2005, compared with 2004,
reflecting a higher average number of customers in our
subscriber base and stable ARPU performance.
Postpaid ARPU remained stable year-over-year at
$61 per month. The positive impact of higher valueadded service and data revenues, increased penetration
of Blackberry customers and other heavy users subscribing to higher-priced rate plans, as well as price
increases implemented during the year for certain features including 911, 411, outbound text messaging, and
out-of-bundle minutes were fully offset by lower outof-bundle airtime usage, resulting from the popularity
of price plans offering a large number of bundled minutes or an unlimited local usage option, and the application of customer billing and retention credits in the
early part of the year stemming from the residual
impact of the billing system migration in 2004.
Prepaid ARPU increased to $14 per month in 2005,
compared with $12 per month in 2004, due mainly to
the addition of Solo and Virgin Mobile customers,
who generate a higher than average ARPU, to our prepaid subscriber base and to higher overall usage.
Blended ARPU remained unchanged in 2005 at $49
per month, compared with 2004, despite a slight yearover-year decrease in the percentage of total subscribers on postpaid rate plans.
We continue to see considerable opportunities for
growth in the wireless market for 2006, given that
Canadian wireless penetration is significantly lower
than the levels achieved in other countries, such as the
United States, where the penetration rate at the end of
2005 was approximately 65% compared to an estimated 52% in Canada. We expect our wireless revenues to increase as a result of anticipated higher
ARPU and the continued expansion of our subscriber
base in 2006. We anticipate that attracting highervalue subscribers with innovative features and applications, increased take-up rates for data bundles, the
introduction of new rate plans to stimulate usage and
encourage customer migration to higher-priced packages, selective price increases for some value-added
services, as well as increased usage of wireless data
services such as text and picture messaging and Web
browsing should stimulate ARPU growth.
Data
DATA REVENUES (in $ millions)
04
3,640
05
4,015
HIGH-SPEED INTERNET SUBSCRIBERS (in thousands)
04
1,808
05
2,195
Residential
Business
Wholesale
Data revenues increased 10.3%, or $375 million, to
$4,015 million in 2005, compared with 2004. The
improvement was a result of growth in high-speed
Internet access services, increased penetration of IPbased connectivity and ICT solutions within our
Enterprise and SMB business units, including revenues related to business acquisitions in 2005, which
more than offset the negative effects of a decrease in
legacy data revenues due to competitive pricing, lower
p. 33
demand and the continued rationalization of circuit
networks by wholesale customers, lower construction
revenues from the GOA contract and the CRTC’s CDN
decision, which adversely affected data revenues by
$63 million in 2005. Data revenues in 2005 also
reflected the favourable impact of the sale of customer contracts and fibre and access capacity in our
Enterprise and Wholesale units, as well as a one-time
benefit from the early termination of a cross-border
facilities contract.
The number of high-speed Internet subscribers
increased by 387,000 in 2005, 10.6% higher than the
350,000 net new connections activated in 2004, bringing the total subscriber count at the end of 2005 to
2,195,000. Subscriber growth in the year was driven
largely by the introduction of our Basic Lite product
in the Ontario market, higher net additions at Aliant
and in our SMB unit, as well as by footprint expansion, focused selling efforts and improved customer
retention. The introduction of lower-priced highspeed services such as Basic Lite that are tailored to
the very price-sensitive segments of the market, has
expanded the overall high-speed market, stimulating
high-speed service growth and accelerating the rate of
erosion of dial-up Internet service. Total dial-up customers decreased to 586,000 at the end of 2005 from
743,000 at the end of 2004. Our high-speed Internet
access footprint in Ontario and Québec reached 85%
of homes and business lines passed at the end of 2005,
compared with 83% at the end of the previous year.
In 2006, we expect further revenue erosion in our
legacy data services from competitive pricing pressures and continued customer migration to IP-based
networks, offset by anticipated high-speed Internet
subscriber base growth, increased penetration of valueadded solutions, as well as the positive impact of
acquisitions and select price increases for certain
Internet services. We also expect our Residential segment to experience slower high-speed Internet subscriber growth due to sustained aggressive price
competition in both our Ontario and Québec markets
arising from cable operators’ increased emphasis on
selling multi-product bundles at discounted rates.
Video
See discussion under Residential segment.
Terminal Sales and Other
TERMINAL SALES AND OTHER REVENUES (in $ millions)
04
1,580
05
1,672
Terminal sales and other revenues increased 5.8%, or
$92 million, to $1,672 million in 2005, compared
with 2004. The year-over-year improvement reflected
higher wireless equipment revenues resulting from an
increased volume of devices sold, higher product sales
at Aliant reflecting its recovery from a labour disruption in 2004, the favourable impact from several
acquisitions (including those of 360networks and
Entourage), as well as incremental revenue from a
contract secured by Expertech Network Installation
Inc. (a Bell Canada majority-owned provider of installation and network infrastructure services) to help
restore telecommunications service to the areas affected
in the United States by Hurricane Katrina. This was
offset partly by lower legacy voice equipment sales to
business customers.
Other Income
Other income includes
income that we receive from
activities that are not part
of our business operations,
such as:
• net gains on investments,
including gains or losses
when we dispose of, write
down or reduce our ownership in investments
• foreign currency gains
(losses)
• interest income on cash
and cash equivalents
• equity in net earnings
(losses) from companies
over which we exert
significant influence
• other miscellaneous
income or expense.
OTHER ITEMS
Other Income
Other income decreased $399 million to $8 million
in 2005, a decrease of 98% from 2004. This was
mainly from:
• net gains on investments in 2004 of $217 million from
the sale of our 15.96% interest in MTS and $108 million from the sale of Bell Canada’s remaining 3.24%
interest in YPG General Partner Inc. (YPG)
• a charge of $33 million relating to the tax loss monetization program between Bell Canada and BCI (see
Related Party Transaction)
• a decrease of $35 million in income from cost and
equity investments mainly due to the sale of our 15.96%
interest in MTS
• a $7 million write-down of Bell Globemedia’s investment in TQS Inc.
p. 34
Non-Controlling Interest
The non-controlling interest
in the statements of operation reflects the percentage
of a subsidiary that we do
not own multiplied by the
amount of the subsidiary’s
after-tax earnings.
This decrease was partly offset by a dilution gain
of $39 million in the second quarter in our interest
in TerreStar Networks Inc., a mobile satellite services
company.
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.
Capital Structure
Our capital structure
shows how much of our net
assets are financed by debt
and equity.
Net debt to capitalization ratio
is a key measure we use to
assess our financial condition.
It shows how much net debt
(debt due within one year
and long-term debt, net of
cash) we have in relation to
our capitalization (total net
debt, non-controlling interest and shareholders’ equity).
Interest Expense
Interest expense declined $18 million to $981 million
in 2005, a decrease of 1.8% from 2004. This was a
result of lower average interest rates from the refinancing of debt at lower rates.
Income Taxes
Income taxes increased $212 million to $893 million
in 2005, an increase of 31% over 2004. This was
mainly from:
• higher pre-tax earnings
• tax savings realized in 2004 on the $325 million of
gains on the sale of our interests in MTS and YPG
because of the available capital loss carryforwards.
This increase was partly offset by:
• restructuring charges of $45 million that were not
tax-effected in 2004
• savings of $99 million resulting from the tax loss
monetization program between Bell Canada and BCI
(see Related Party Transaction).
As a result, the effective tax rate decreased slightly
from 29.6% in 2004 to 29.0% in 2005.
Non-Controlling Interest
Non-controlling interest increased $93 million to
$267 million in 2005, an increase of 53% over 2004.
This was from:
• higher net earnings at Aliant and Bell Globemedia
• a higher net loss at Bell West in 2004, due to cost
overruns on the GOA contract that were recorded in
2004, since MTS owned a 40% interest in Bell West
until August 2004.
The net gain from discontinued operations of
$77 million in 2004 consisted of:
• a net gain of $23 million from discontinued opera-
tions of Emergis
• our proportionate share of CGI’s operating gains of
$54 million.
Extraordinary Gain
In the fourth quarter of 2004, we purchased the
Canadian operations of 360networks for $293 million
in cash. The fair value of the net assets acquired
exceeded the purchase price by approximately $227 million. For accounting purposes, the excess was eliminated by:
• reducing the amounts assigned to the acquired nonmonetary assets (e.g., capital and intangible assets)
to zero
• recognizing the balance of $69 million as an extraordinary gain.
FINANCIAL AND CAPITAL MANAGEMENT
CAPITAL STRUCTURE
AT DECEMBER 31
Long-term debt
Less: Cash and cash equivalents
Total net debt
Total capitalization
Net debt to capitalization ratio
Outstanding share data (in millions)
Common shares
Stock options
2005
2004
1,373
12,119
(363)
13,129
2,898
14,721
30,748
42.7%
1,272
11,685
(313)
12,644
2,908
14,024
29,576
42.8%
927.3
27.3
925.9
28.5
NET DEBT AND NET DEBT TO CAPITALIZATION RATIO (in $ millions)
04
12,644
42.8%
05
13,129
Discontinued Operations
Net debt
The net gain from discontinued operations of $46 million in 2005 relates to our proportionate share of
CGI’s operating gains.
Net debt to capitalization ratio (%)
42.7%
p. 35
Our net debt to capitalization ratio was 42.7% at the
end of 2005, compared to 42.8% at the end of 2004.
This was a result of an increase in total shareholders’
equity, partly offset by higher net debt.
Net debt increased $485 million to $13,129 million
in 2005. This was mainly due to:
• obligations of $452 million for capital leases relating
to several lease financing arrangements
• cash of $461 million invested in business acquisitions and other investments
• redemption of common shares of $78 million from
non-controlling interest.
This increase was partly offset by free cash flow of
$662 million.
Total shareholders’ equity increased $697 million to
$14,721 million in 2005. This was mainly the result of
the net earnings remaining after the dividends we
declared on common and preferred shares in 2005.
OUTSTANDING SHARE DATA
We had 927.3 million common shares outstanding at the
end of 2005, an increase of 1.4 million over 2004 resulting from stock options that were exercised in 2005.
The number of stock options outstanding at the
end of 2005 was 27.3 million, a decrease of 1.2 million
from 2004. The weighted average exercise price of
the stock options outstanding at December 31, 2005
was $32. Of the total outstanding stock options at
December 31, 2005, 16.5 million were exercisable at a
weighted average exercise price of $34. In 2005:
• 1.5 million stock options were granted
• 1.4 million previously granted options were exercised
• 1.2 million previously granted options expired or
were forfeited.
Starting in 2004, most of the stock options granted
contain specific performance targets that must be met
before the option can be exercised.
CHANGES TO CAPITAL STRUCTURE
On February 1, 2006, we announced the intended use
of our proceeds from the sale of our investments in
Bell Globemedia and CGI, which consists mainly of:
• $1.3 billion for the repurchase of 5% of BCE Inc.’s
outstanding common shares through a NCIB
• $1.0 billion for debt reduction.
CASH FLOWS
FREE CASH FLOW (in $ millions)
04
1,978
870
05
1,857
662
After common dividends
Before common dividends
The table below is a summary of the flow of cash into
and out of BCE in 2005 and 2004.
2005
Cash dividends paid by subsidiaries
to non-controlling interest
Free cash flow
Increase in investments
Decrease in investments
Net issuance of equity instruments
Net repayment of debt instruments
Financing activities of subsidiaries
with third parties
Other financing activities
Cash provided by discontinued operations
Net increase (decrease) in
cash and cash equivalents
2004
5,559
(3,428)
4
(1,195)
(86)
5,443
(3,319)
127
(1,108)
(85)
(192)
662
(188)
870
(228)
–
(233)
19
25
(54)
(1,118)
20
(58)
713
32
(820)
(77)
(64)
15
(50)
(81)
150
65
(342)
Cash from Operating Activities
Cash from operating activities increased $116 million
to $5,559 million in 2005, an increase of 2.1% from
2004. This was a result of:
• an improvement in cash earnings resulting from
higher EBITDA
• a significant improvement in the collection of
accounts receivable once issues associated with the
implementation of our new billing platform for wireless customers in 2004 were resolved
• an increase of $134 million in proceeds from the sale
of accounts receivable
• a decrease of $77 million in payments relating to the
restructuring initiatives of 2004 and 2005.
p. 36
This increase was partly offset by:
• higher pension and other benefit plan payments,
mainly at Aliant
• an increase of $73 million in income taxes paid,
primarily related to the final instalment for 2004
made in 2005 as instalments were not required at Bell
Canada in 2004
• a $75 million settlement payment received from MTS
in 2004.
Free Cash Flow
Our free cash flow was $662 million in 2005, down
from $870 million in 2004. This was mainly due to:
• a decrease of $149 million in insurance proceeds
received by Telesat
• an increase of $109 million in capital expenditures
related to our investment in platforms for next-generation services
• an increase of $87 million for common dividends
paid resulting from the quarterly increase of $0.03 per
common share.
This decrease was partly offset by a $116 million
increase in cash from operating activities.
We are targeting positive free cash flow in 2006 to
be generated mainly from recurring sources.
We continue to make investments to expand and
update our networks and to meet customer demand
for new services. Capital expenditures were $3,428 million in 2005, which was 3.3% higher than 2004 capital
expenditures of $3,319 million. Bell Canada’s capital
expenditures were $3,122 million in 2005, which
was 3.2% higher than 2004 capital expenditures of
$3,026 million. As a percentage of revenues:
• our capital expenditures decreased slightly from
18.1% in 2004 to 17.9% in 2005
• Bell Canada’s capital expenditures increased slightly
from 18.0% in 2004 to 18.1% in 2005.
Our capital spending in 2005 reflected an increasing
investment in the growth areas of the business and
reduced spending in legacy areas. Our key strategic
investments this year included:
• expanding our FTTN footprint
• launching our Bell Digital Voice service
• implementing an EVDO wireless data network
• expanding our DSL footprint
• investing in our IPTV platform and IT efficiency
projects to achieve cost savings.
Our capital spending also was higher in 2005 because
Aliant was able to return to more normal spending
levels after the labour disruption in 2004, and because
of Telesat’s investments in satellite construction.
In 2006, we are targeting to reduce Bell Canada’s
capital intensity ratio mainly because of lower spending
for maintenance of our wireline and DSL networks.
Although we anticipate a decrease in overall capital
expenditures, we plan on increasing investment in
our key strategic priorities, including FTTN, wireless
growth and network expansion, IP product development and Galileo cost saving initiatives (see Our
Strategic Priorities).
Other Investing Activities
Cash from other investing activities decreased by
$123 million to $4 million in 2005, compared to 2004.
Cash from other investing activities included insurance proceeds that Telesat received for a malfunction
on the Anik F1 satellite, amounting to $179 million in
2004, compared to $30 million in 2005.
Cash Dividends Paid on Common Shares
In December 2004, the board of directors of BCE Inc.
approved an increase in the annual dividend on our
common shares of 10% or $0.12 per common share. We
paid a dividend of $1.32 per common share in 2005.
p. 37
Business Acquisitions
We invested $228 million in business acquisitions in
2005. This consisted mainly of:
• Bell Canada’s acquisition of Nexxlink for $74 million
• Bell Canada’s acquisition of NR Communications for
$60 million
• other business acquisitions, mainly at Bell Canada,
totalling $94 million.
We invested $1,118 million in business acquisitions in
2004. This consisted of:
• Bell Canada’s purchase of the Canadian operations of
360networks in November 2004 for $293 million
• our purchase of MTS’ 40% interest in Bell West in
August 2004 for $646 million, giving Bell Canada
100% ownership of Bell West
• other business acquisitions, mainly at Bell Canada,
totalling $179 million.
Increase in Investments
Cash flows used for investments increased $175 million
to $233 million in 2005. In the first quarter, Bell
Canada invested US$100 million to acquire an approximate 12% interest in Clearwire Corporation, a privately-held company that offers advanced IP-based
wireless broadband communications services.
Decrease in Investments
We did not have any significant decreases in investments in 2005.
In 2004, we sold our remaining 3.24% interest in
YPG for net cash proceeds of $123 million and
our 15.96% interest in MTS for net cash proceeds of
$584 million.
Debt Instruments
In 2005, we repaid $54 million of debt, net of issues,
including the following:
• Bell Canada repaid $751 million in debentures
• Aliant repaid $150 million in medium-term notes
• we repaid $66 million in notes payable and bank
advances
• we made other repayments that included capital leases.
We had the following issues in 2005:
• Bell Canada issued $900 million in debentures
• Aliant issued $150 million in medium-term notes.
In 2004, we repaid $820 million of debt, net of issues,
including the following:
• Bell Canada repaid $952 million in debentures
• Aliant repaid $100 million in medium-term notes
• we redeemed all of our outstanding Series P retractable
preferred shares for $351 million.
Debt Instruments
We use a combination of
short-term and long-term
debt to finance our operations. Our short-term debt
consists mostly of bank
facilities and notes payable
under commercial paper
programs. We usually pay
fixed rates of interest on our
long-term debt and floating
rates on our short-term debt.
Most of the issues in 2004 involved:
• Bell Canada, which issued $450 million in debentures
• Bell Globemedia, which issued $300 million of
senior notes.
Cash Relating to Discontinued Operations
On December 16, 2005, we announced our decision to
sell our investment in CGI, and on January 12, 2006,
the transaction was completed.
CGI bought 100 million of the Class A shares held
by us, reducing our ownership in CGI from 29.8% to
8.6%. We received total proceeds of $859 million, generating a gain of approximately $90 million, which
will be recognized in the first quarter of 2006.
As at December 31, 2005, we have accounted for
CGI as discontinued operations and no longer proportionately consolidate its financial results. Our remaining investment will be accounted for at cost. CGI was
previously presented in the Other BCE segment.
Cash provided by discontinued operations was
$150 million in 2004. This consisted mainly of:
• net cash proceeds of $315 million from the sale of
Emergis
• $285 million from the sale of Emergis’ US Health
operations
• $96 million of cash generated from Emergis’
operations.
This was partly offset by the deconsolidation of
Emergis’ cash on hand of $512 million at December 31,
2003.
p. 38
Credit Ratings
The interest rates we pay
are partly based on the
quality of our credit ratings,
which were all investment
grade at March 1, 2006.
Investment grade ratings
usually mean that when
we borrow money, we
qualify for lower interest
rates than companies
that have ratings lower
than investment grade.
CREDIT RATINGS
The table below lists BCE Inc.’s and Bell Canada’s key credit ratings at March 1, 2006.
BCE INC.
S&P (1)
Commercial paper
Long-term debt
Preferred shares
A-1 (low)
BBB+ / negative
P-2
DBRS (2)
R-1 (low) / stable
A (low) / stable
Pfd-2 (low) / stable
MOODY’S (3)
P-2
Baa1 / negative
–
FITCH (4)
–
BBB+ / stable
–
BELL CANADA
S&P (1)
Commercial paper
Extendable commercial notes
Long-term debt
Subordinated long-term debt
Preferred shares
A-1 (low)
–
A- / negative
BBB+ / negative
P-2
DBRS (2)
R-1 (low) / stable
R-1 (low) / stable
A / stable
BBB (high) / stable
Pfd-2 / stable
MOODY’S (3)
P-2
–
A3 / negative
Baa1 / negative
–
FITCH (4)
–
–
BBB+ / stable
BBB / stable
–
(1) Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.; maintains a negative outlook on our corporate rating
(2) Dominion Bond Rating Service Limited
(3) Moody’s Investors Service, Inc.; on February 1, 2006 ratings placed under review for possible downgrade
(4) Fitch Ratings Ltd.
LIQUIDITY
We expect, in 2006, to generate enough cash from our
operating activities to pay for capital expenditures and
dividends. In other words, we are targeting positive
free cash flow in 2006.
We expect to repay contractual obligations maturing
in 2006 and in the long term from cash on hand, from
cash generated from our operations or by issuing new
debt. Contractual obligations include long-term debt.
Capital expenditures were $3.4 billion in 2005, representing 17.9% of our revenues for the year. We are targeting a decrease in Bell Canada’s capital intensity
ratio in 2006.
Cash Requirements
Pension Funding
We expect to contribute approximately $470 million
to our defined benefit pension plans in 2006, subject
to actuarial valuations being completed.
In 2006, we will need cash mainly for capital expenditures, dividend payments, pension funding, the payment
of contractual obligations and other cash requirements.
Contractual Obligations
The table below is a summary of our contractual obligations at December 31, 2005 that are due in each of the next
five years and after 2010.
Long-term debt (excluding capital leases)
Notes payable and bank advances
Capital leases
Operating leases
Commitments for capital expenditures
Purchase obligations
Other long-term liabilities (including current portion)
Total
2006
2007
2008
2009
2010
THEREAFTER
TOTAL
1,160
87
126
231
184
1,413
143
3,344
1,686
–
110
204
52
1,001
119
3,172
1,043
–
63
181
8
716
79
2,090
1,624
–
47
158
2
287
80
2,198
1,013
–
45
134
16
205
4
1,417
5,955
–
533
679
–
530
25
7,722
12,481
87
924
1,587
262
4,152
450
19,943
p. 39
Long-term debt and notes payable and bank advances
include $58 million drawn under our committed credit
facilities. They do not include $455 million of letters
of credit. The total amount available under these
committed credit facilities and under our commercial
paper programs, including the amount currently drawn,
is $2.4 billion.
The imputed interest to be paid on capital leases is
$649 million.
Rental expense relating to operating leases was
$316 million in 2005, $358 million in 2004 and
$327 million in 2003.
Purchase obligations consist mainly of contractual
obligations under service contracts. Our capital spending commitments include investments to expand and
update our networks, and to meet customer demand.
Other long-term liabilities included in the table
relate to:
• payments Bell Canada will make in the future to
Amdocs Canadian Managed Services, Inc. (formerly
Certen Inc.) for the development of Bell Canada’s
billing system. The total amount remaining in the
contract was $254 million at December 31, 2005.
• remaining obligations of Bell Globemedia relating
to CRTC benefits that were owed on previous business
combinations. These obligations and other long-term
liabilities totalled $85 million at December 31, 2005.
• deferred satellite performance incentive payments
and milestone payments by Telesat, totalling $111 million at December 31, 2005.
The table on the previous page does not include our
proportionate share of CGI’s operating leases and other
contractual obligations. This information is disclosed
in Note 8 to the consolidated financial statements.
At December 31, 2005, we had other long-term liabilities that are not included in the table, including
an accrued employee benefit liability, future income tax
liabilities, deferred revenue and gains on assets and
various other long-term liabilities.
We did not include the accrued employee benefit
liability and future income tax liabilities in the table
because we cannot accurately determine the timing and
amount of cash needed for them. This is because:
• future contributions to the pension plans depend
largely on how well they are funded. This varies based
on the results of actuarial valuations that are performed periodically and on the investment performance of the pension fund assets.
future payments of income taxes depend on the
amount of taxable earnings and on whether there are
tax loss carryforwards available to reduce income tax
liabilities.
•
We did not include deferred revenue and gains on
assets in the table because they do not represent future
cash payments.
Other Cash Requirements
Our cash requirements may also be affected by the
liquidity risks related to our off-balance sheet arrangements, derivative instruments and contingencies. We
may not be able to quantify all of these risks.
Off-Balance Sheet Arrangements
Guarantees
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.
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. 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 these indemnifications in
the past. See Note 26 to the consolidated financial
statements for more information.
Securitization of Accounts Receivable
Bell Canada and Aliant have agreements in place to
provide us with an inexpensive source of funds.
Under the agreements, Bell Canada and Aliant sold
interests in pools of accounts receivable to securitization trusts for a total of $1,354 million.
The total accounts receivable that were sold must
meet minimum performance targets. These are based
on specific delinquency, default and receivable turnover
ratio calculations, as well as minimum credit ratings.
If these accounts receivable go into default, the full
purchase price will have to be returned to the buyers.
p. 40
These agreements are an important part of our capital structure and liquidity. If we did not have them,
we would have had to finance approximately $1,354 million by issuing debt or equity. See Note 10 to the consolidated financial statements for more information.
Commitment under the CRTC Deferral Mechanism
As at December 31, 2005, we had estimated Bell
Canada’s and Aliant’s current deferral account amounts,
expressed as a future annualized commitment, at
$95 million for Bell Canada and $12 million for Aliant.
On February 16, 2006, the CRTC issued Telecom
Decision 2006-9, where it estimated Bell Canada’s and
Aliant’s deferral account amounts, on an accumulated
balance and future annualized commitment, at May
31, 2006. Bell Canada’s estimated accumulated balance
at May 31, 2006 is $480.5 million with a future annualized commitment of $81.5 million. Aliant’s estimated
accumulated balance at May 31, 2006 is $21.8 million
with a future annualized commitment of $2.2 million.
In the Decision, the CRTC concluded that incumbent telephone companies should clear the accumulated balances in their deferral accounts, to the greatest
extent possible, in the following ways:
• by expanding broadband services to rural and remote
areas that are currently unserved and would not otherwise be served
• by improving the accessibility to telecommunications
services for persons with disabilities, using a minimum
of 5.0% of incumbent telephone companies’ accumulated deferral account balances
• any amounts remaining in incumbent telephone
companies’ deferral accounts after accounting for these
two programs will be rebated to incumbent telephone
companies’ residential local customers in non-high
cost serving areas. The timing and amount of the
rebate, if any, is uncertain.
This Decision also indicates that incumbent telephone
companies’ future annual deferral account obligations
are to be eliminated by reducing monthly prices for
primary exchange service and optional local services
for residential customers in non-high cost serving
areas. Bell Canada, Aliant and certain other incumbent telephone companies are directed to file their
rate proposals by May 15, 2006 and implement them
on June 1, 2006.
Finally, the Decision notes that the extension of the
price cap regime to May 31, 2007 will result in an
additional annual deferral account obligation.
Derivative Instruments
We use derivative instruments to manage our exposure to interest rate risk, foreign currency risk and
changes in the price of BCE Inc. common shares that
may be issued or purchased under our compensation
plans (SCPs and DSUs). We do not use derivative instruments for speculative purposes. Since we do not trade
actively in derivative instruments, we are not exposed
to any significant liquidity risks relating to them.
The carrying value of the outstanding derivative
instruments was a net liability of $91 million at December 31, 2005. Their fair values amounted to a net liability of $138 million. See Note 21 to the consolidated
financial statements for more information.
Litigation
We become involved in various claims and litigation
as part of our business. While we cannot predict
the final outcome of claims and litigation that were
pending at December 31, 2005, based on information
currently available, management believes that the
resolution of these claims and litigation will not have
a material and negative effect on our consolidated
financial position or results of operations.
You will find a more detailed description of the
material claims and litigation pending at December 31,
2005 in the BCE 2005 AIF, and in Note 25 to the consolidated financial statements.
Sources of Liquidity
While we do not expect a cash shortfall in the foreseeable future, any unplanned shortfall would be covered
through the financing facilities we currently have
in place.
These financing facilities, along with our strengthening balance sheet, give us flexibility in carrying out
our plans for future growth. If necessary, we can supplement our liquidity sources by issuing additional
debt or equity. We might do this to help finance business acquisitions or for contingencies.
p. 41
The table below is a summary of our outstanding
lines of credit, bank facilities and commercial paper
programs at December 31, 2005.
NONCOMMITTED COMMITTED
TOTAL
Commercial paper
credit lines (1)
Other credit facilities (2)
Total
1,513
916
2,429
2,000
413
2,413
3,513
1,329
4,842
Drawn (2)
Undrawn
513
1,916
–
2,413
513
4,329
(1) Current commercial paper credit lines expire during August 2008
(2) Includes $455 million in letters of credit
BCE Inc., Bell Canada and Aliant may issue notes under
their commercial paper programs up to the amount of
their supporting committed lines of credit. The total
amount available under these supporting committed
lines of credit was $1.5 billion at December 31, 2005.
BCE Inc., Bell Canada and Aliant had $45 million in
commercial paper outstanding at December 31, 2005.
Bell Canada can issue up to $400 million Class E
notes under its commercial paper programs. These notes
are not supported by committed lines of credit and may
be extended in certain circumstances. Bell Canada had
no Class E notes outstanding at December 31, 2005.
RELATED PARTY TRANSACTION
This transaction was unwound on August 18, 2005
and was part of a tax loss consolidation strategy that
followed the transaction steps laid out in an advance
tax ruling granted by the Canada Revenue Agency
to Bell Canada and BCI. The transaction also received
the approval of the Ontario Superior Court of Justice,
which is supervising BCI’s voluntary plan of arrangement pursuant to which BCI is monetizing its assets
and resolving outstanding claims against it, with the
ultimate objective of distributing the net proceeds to
its shareholders and dissolving the company.
3787915 Canada Inc. had the legal right and intention to offset the demand loan payable to BCI and
the investment in preferred shares of 3787923 Canada
Inc. As a result, these items and the related interest
expense and dividend income were presented on a net
basis. The tax savings of $99 million resulting from
the interest expense were presented as a reduction of
income tax expense.
BCI will be compensated for the use of its losses
by Bell Canada through a capital contribution to be
made by BCE Inc. of 88% of the realized tax savings.
BCE Inc.’s ownership interest in BCI remains at 62%.
As a result:
• BCE Inc.’s carrying value of its investment in BCI was
increased to reflect the increase in BCE Inc.’s share of
the expected proceeds upon BCI’s eventual liquidation
• a charge to other income was recorded to reflect the
non-controlling interest’s portion of the capital contribution to be made by BCE Inc.
BCI Loss Monetization Transaction
On April 15, 2005, 3787915 Canada Inc., a whollyowned subsidiary of Bell Canada, acquired $17 billion
in preferred shares from 3787923 Canada Inc., a
wholly-owned subsidiary of BCI. 3787923 Canada Inc.
used the proceeds to advance $17 billion to BCI
through a subordinated interest-free loan. BCI then
advanced $17 billion to 3787915 Canada Inc. by way
of a subordinated interest-bearing demand loan, the
funds being used to repay a daylight loan granted to
3787915 Canada Inc. to make the initial preferred share
investment. The dividend rate on the preferred shares
was equal to 5.1%, which was essentially the same as
the interest rate on the loan.
EVALUATION OF DISCLOSURE CONTROLS
AND PROCEDURES
An evaluation of the effectiveness of BCE Inc.’s disclosure controls and procedures (as defined in the rules of
the U.S. Securities and Exchange Commission and of
the Canadian Securities Administrators) was carried
out as of December 31, 2005 by BCE Inc.’s management,
under the supervision and with the participation of
BCE Inc.’s President and Chief Executive Officer (CEO)
and Chief Financial Officer (CFO). Based on that
evaluation, the CEO and CFO concluded that such
disclosure controls and procedures were adequate and
effective and designed to ensure that material information relating to BCE Inc. and its consolidated subsidiaries would be made known to them by others
within those entities.
p. 42
Assumptions Made in the
Preparation of ForwardLooking Statements and
Risks that Could Affect Our
Business and Results
This section describes
assumptions made by BCE
in preparing forward-looking
statements and general
risks that could affect all
BCE group companies and
specific risks that could
affect BCE Inc. and certain
other BCE group companies.
ASSUMPTIONS MADE IN THE PREPARATION
OF FORWARD-LOOKING STATEMENTS AND
RISKS THAT COULD AFFECT OUR BUSINESS AND RESULTS
A risk is the possibility
that an event might happen
in the future that could
have a negative effect on the
financial condition, results
of operations or business
of one or more BCE group
companies. Part of managing
our business is to understand
what these potential risks
could be and to minimize
them where we can.
Because no one can accurately predict whether an
event that is only possible
will actually happen or
what its consequences may
be, the actual effect of any
event on our business and
results could be materially
different from what we
currently anticipate. In addition, this description of risks
does not include all possible
risks, and there may be other
risks that we are currently
not aware of.
ASSUMPTIONS MADE IN THE PREPARATION
OF FORWARD-LOOKING STATEMENTS
Forward-looking statements for 2006 made in BCE’s
2005 annual report, including in this MD&A, are based
on a number of assumptions that we believed were
reasonable on the day we made the forward-looking
statements. This section outlines assumptions that we
made in addition to those set out in other sections of
this MD&A. If our assumptions turn out to be inaccurate, our actual results could be materially different
from what we expect.
Assumptions about the Canadian Economy
• Canadian GDP growth of approximately 3% in 2006,
which is consistent with estimates by the Conference
Board of Canada
• the business prime rate in Canada to increase slightly
from its 2005 year-end level
• the Consumer Price Index (estimated by Statistics
Canada) to increase slightly from its 2005 year-end level.
Market Assumptions
growth in the overall Canadian telecommunications
market slightly higher than GDP in 2006
• continued decrease in the residential voice telecommunications market in 2006 because more consumers
are expected to use wireless, e-mail and instant messaging instead
• increase in the wireline competition in both the business and residential telecommunications markets in
2006, mainly from cable companies
• growth in revenues for the Canadian wireless industry in 2006 similar to the rate of growth in 2005
• growth in revenues for the Canadian video market in
2006 slightly lower than the rate of growth in 2005
• growth in revenues for the Canadian Internet market
in 2006 also slightly lower than the rate of growth
in 2005.
•
Operational and Financial Assumptions
Subscribers and Services
growth in the number of our wireless, video and
high-speed Internet subscribers as well as higher ARPU
for these services are targeted in 2006
• continued decrease in our network access services
is expected in 2006, with significantly higher declines
in our Residential segment.
•
Financial
• significant cost savings are targeted in 2006 as a
result of our Galileo program, including from internal
process redesign and supply transformation
• restructuring costs are expected to result in 2006
mainly from reductions in our workforce
• amortization expense is expected to increase in
2006 as a result of an increase in our capital base,
reflecting mainly the capitalization of STB and installation costs associated with the new rental program in
our video business unit, the completion in 2005 of
the Alberta SuperNet and Telesat’s new Anik F1R and
Anik F3 satellites
• total net benefit plans cost is expected to increase in
2006 mainly as a result of a further reduction in the
discount rate from 6.2% in 2005 to 5.2% in 2006
• Bell Canada’s capital intensity is targeted to decrease
in 2006 mainly as a result of anticipated lower spending for maintenance of our wireline and DSL networks
which is expected to be partly offset by increased
investment in our key strategic priorities.
Assumptions about Transactions
• BCE Inc. plans to repurchase 5.0% of its common
shares under its previously announced normal course
issuer bid
• we expect to complete the disposition of our remaining interest in CGI Group Inc.
• we expect to reduce our equity interest in Bell
Globemedia from 68.5% to 20% as announced on
December 2, 2005. The expected closing of the Bell
Globemedia transaction is subject to a number of
approvals and closing conditions, including approval
by the CRTC and the Competition Bureau, and other
closing conditions that are customary in this type of
transaction.
• we expect to complete the creation of a regional
telecommunications service provider in the form of an
income trust.
p. 43
RISKS THAT COULD AFFECT ALL
BCE GROUP COMPANIES
Bell Canada is our most important subsidiary, which
means our financial performance depends in large part
on how well Bell Canada performs financially. The risks
that could affect Bell Canada and its subsidiaries are
more likely to have a significant impact on our financial
condition, results of operations and business than the
risks that could affect other BCE group companies.
Strategies and Plans
We plan to achieve our business objectives through
various strategies and plans.
In 2006, we plan to continue to implement our
strategy to deliver unrivalled integrated communication services to customers across Canada in the most
efficient and cost-effective manner. This strategy is
founded on the three key pillars referred to earlier in
this MD&A under Our Strategic Priorities and is supported by our four operating priorities for 2006 concerning service, customer retention, growth services and
costs, also referred to under Our Strategic Priorities.
Our strategic direction requires us to transform our
cost structure and the way in which we serve customers.
This means we will need to:
• be responsive in adapting to these changes and make
any necessary shifts in employee skills. If our management, processes or employees are not able to adapt to
these changes, our business and financial results could
be materially and negatively affected.
• invest capital to implement our strategies and operating priorities. The actual amount of capital required
and the returns from these investments could, however, differ materially from our current expectations.
In addition, we may not have access to capital on
attractive terms when we need it.
Not achieving our business objectives could have a
material and negative impact on our financial performance and growth prospects.
Economic and Market Conditions
Our business is affected by general economic conditions, consumer confidence and spending, and the
demand for, and prices of, our products and services.
When there is a decline in economic growth and in
retail and commercial activity, there tends to be a
lower demand for our products and services. During
these periods, customers may delay buying our products and services, or reduce purchases or discontinue
using them.
Weak economic conditions could lower our profitability and reduce cash flows from operations. They
could also negatively affect the financial condition and
creditworthiness of our customers, which could increase
uncertainty about our ability to collect receivables and
potentially increase our bad debt expenses.
Increasing Competition
Competition affects our
pricing strategies and
could reduce our revenues
and lower our profitability.
It could also affect our
ability to retain existing
customers and attract new
ones. We are under constant pressure to keep our
prices and service offerings
competitive. We need to
be able to anticipate and
respond quickly to the
constant changes in our
businesses and markets.
Increasing Competition
We face intense competition from traditional competitors, as well as from new players entering our markets. We compete with telecommunications, media,
television and satellite service providers. We also
compete with other businesses and industries including cable, software and Internet companies, a variety of
companies that offer network services, such as providers
of business information systems, systems integrators
and other companies that deal with, or have access to,
customers through various communications networks.
We already have several domestic and foreign competitors, but the number of well resourced foreign
competitors with a presence in Canada could increase
in the future. In recent years, the Government of
Canada has reviewed the foreign ownership restrictions that apply to telecommunications carriers and
to broadcasting distribution undertakings (BDUs).
Removing or easing the limits on foreign ownership
could result in foreign companies entering the Canadian
market by making acquisitions or investments. This
could result in greater access to capital for our competitors or the arrival of new competitors with global
scale, which would increase competitive pressure. We
cannot predict what action, if any, the federal government will take as a result of these reviews. We also
cannot assess how any change in foreign ownership
restrictions may affect us because the government
continues to consider its position on these matters.
p. 44
Wireline and Long Distance
We experience significant competition in the provision
of long distance service from dial-around providers,
prepaid card providers, VoIP service providers and
others, and from traditional competitors such as
interexchange carriers and resellers. We also face
increasing cross-platform competition as customers
replace traditional services with new technologies. For
example, our wireline business competes with VoIP,
wireless and Internet services, including chat services,
instant messaging and e-mail.
We are also facing increasing competitive pressure
from cable companies as a result of their now offering
voice services over their networks. Since cable companies only recently started offering voice services, it
is difficult to predict the extent and timing of any
resulting loss in market share that we might suffer. It
is also difficult to predict to what degree customers
who stop using our voice services will also stop using
our other services such as video and Internet access.
Additional competitive pressure is also emerging from
other competitors such as electrical utilities. These
alternative technologies, products and services are now
making significant inroads in our legacy services, which
typically represent our higher-margin business.
Technology substitution, and VoIP in particular,
have reduced barriers to entry in the industry. This
has allowed competitors with far lower investments
in financial, marketing, personnel and technological
resources to rapidly launch new products and services
and gain market share. We expect this trend to accelerate in the future, which could materially and negatively affect our financial performance.
Competition for contracts to supply long distance
services to large business customers is very intense.
Customers may choose to switch to competitors that
offer lower prices to gain market share and are less
concerned about the quality of service or impact on
their margins.
These competitive factors suggest that our legacy
wireline accesses and long distance volumes will continue to decline in the future. Continued decline will
lead to reduced economies of scale in those businesses
and, in turn, lower margins. Our strategy is to mitigate these declines by building the business for newer
growth services. The margins on newer services, however, will likely be less than the margins on legacy
services. If the legacy services decline faster than the
rate of growth of our newer services, our financial performance could be negatively and materially affected.
In addition, if a large portion of the customers who
stop using our voice services also cease using our other
services, our financial performance could be negatively
and materially affected.
Internet Access
We compete with cable companies and ISPs to provide
broadband and Internet access and related services. In
particular, cable companies have focused on increased
bandwidth and discounted pricing on bundles to compete against us.
Regional electrical utilities may continue to
develop and market services that compete directly
with Bell Canada’s Internet access and broadband
services. Developments in wireless broadband services
may also lead to increased competition in certain geographic areas. This could materially and negatively
affect the financial performance of our Internet access
services business.
Wireless
The Canadian wireless telecommunications industry is
also highly competitive. We compete directly with other
wireless service providers that aggressively introduce,
price and market their products and services. We also
compete with wireline service providers. We expect
competition to intensify as new technologies, products and services are developed.
Video
Bell ExpressVu competes directly with another DTH
satellite television provider and with cable companies
across Canada. These cable companies have upgraded
their networks, operational systems and services,
which could improve their competitiveness. This
could materially and negatively affect the financial
performance of Bell ExpressVu and Bell Canada.
Transforming Our Cost Structure and
Containing Capital Intensity
Our strategies and operating priorities require us to
transform our cost structure. Accordingly, we are intensifying the implementation of several productivity
improvements and initiatives to reduce costs while
containing our capital expenditures. Our objectives
for cost reduction under our new cost structure
p. 45
are aggressive compared to what we achieved in the
past, and there is no assurance that these initiatives
will be successful in reducing costs. There will be a
material and negative effect on our profitability if
we do not successfully implement these cost reduction
initiatives and productivity improvements and manage
capital expenditures while maintaining the quality of
our service.
Each year between 2002 and 2005, Bell Canada
companies had to reduce the price of certain services
that are subject to regulatory price caps and may be
required to do so again in the future. They have also
reduced their prices for some business data services
that are not regulated in order to remain competitive,
and may have to continue doing so in the future.
Their profits will decline if they cannot reduce their
expenses at the same rate. There would be a material
and negative effect on our profitability if market
factors, such as increasing competition or regulatory
actions, result in lower revenues and we cannot reduce
our expenses at the same rate.
Many productivity improvements and cost reduction
initiatives require capital expenditures to implement
systems that automate or enhance our operations.
There is no assurance that these investments will
be effective in delivering the planned productivity
improvements and cost reductions.
Improved customer service is critical to increasing
customer retention and average revenue per user. It
may, however, be difficult to improve customer service
while significantly reducing costs. If we are unable
to achieve either of these objectives, it could have a
material and negative effect on our results of operations.
Anticipating Technological Change and Investing
in New Technologies, Products and Services
Our success will depend in large part on how well we
can anticipate and respond to changes in industry
standards and client needs, and how quickly and
efficiently we can introduce new products, services
and technologies, and upgrade existing ones.
We may face additional financial risks as we develop
new products, services and technologies, and update
our networks to stay competitive. Newer technologies,
for example, may quickly become obsolete or may
need more capital than expected. Development could
be delayed for reasons beyond our control. Substantial
investments usually need to be made before new technologies prove to be commercially viable. There is also
a significant risk that current regulation could be
expanded to apply to newer technologies. A regulatory change could delay our launch of new services
and restrict our ability to market these services if,
for example, new pricing rules or marketing or
bundling restrictions are introduced, or existing ones
are extended.
The Bell Canada companies are in the process of
moving traffic on their core circuit-based infrastructure to IP technology. As part of this move, the Bell
Canada companies are in the process of discontinuing
certain services that are based on circuit-based infrastructure. This is a necessary component of improving
capital and operating efficiencies. In some cases, this
could be delayed or prevented by customers or regulatory actions. If the Bell Canada companies cannot discontinue these services as planned, they will not be
able to achieve the efficiencies as expected.
There is no assurance that we will be successful in
developing, implementing and marketing new technologies, products, services or enhancements in a reasonable time, or that they will have a market. There
is also no assurance that efficiencies will increase as
expected. New products or services that use new or
evolving technologies could make our existing ones
unmarketable or cause prices to fall.
Liquidity
In general, we finance our capital needs in four ways:
• from cash generated by our operations or investments
• by borrowing from commercial banks
• through debt and equity offerings in the capital
markets
• by selling or otherwise disposing of assets.
Anticipating Technological
Change and Investing
in New Technologies,
Products and Services
We operate in markets that
are affected by constant
technological change, evolving industry standards,
changing client needs,
frequent introductions of
new products and services,
and short product life
cycles. The investment in
new technologies, products
and services and the ability
to launch, on a timely
basis, such technologies,
products and services are
critical to increasing the
number of our subscribers
and achieving our targeted
financial performance.
Liquidity
Our ability to meet our
financial obligations and
provide for planned growth
depends on our sources
of liquidity.
Our cash requirements
may be affected by the risks
associated with our contingencies, off-balance sheet
arrangements, derivative
instruments and assumptions
built into our business plan.
Financing through equity offerings would dilute the
holdings of existing equity investors. An increased
level of debt financing could lower our credit ratings,
increase our borrowing costs and give us less flexibility to take advantage of business opportunities.
Our ability to raise financing depends on our ability
to access the capital markets and the syndicated commercial loan market. The cost of funding depends
largely on market conditions, and the outlook for our
business and credit ratings at the time capital is raised.
If our credit ratings are downgraded, our cost of funding could significantly increase. In addition, participants in the capital and syndicated commercial loan
markets have internal policies limiting their ability to
p. 46
Litigation, Regulatory Matters
and Changes in Laws
For a description of the
principal legal proceedings
involving us, please see
Legal Proceedings We Are
Involved In, in the BCE
2005 A1F.
For a description of
certain regulatory initiatives
and proceedings affecting
the Bell Canada companies,
please see The Regulatory
Environment We Operate In,
in the BCE 2005 A1F.
invest in, or extend credit to, any single borrower or
group of borrowers or to a particular industry.
BCE Inc. and some of its subsidiaries have entered
into renewable credit facilities with various financial
institutions. They include credit facilities supporting
commercial paper programs. There is no assurance
that these facilities will be renewed on favourable terms.
We need significant amounts of cash to implement
our business plan. This includes cash for capital
expenditures to provide our services, dividend payments and payment of our contractual obligations,
including repayment of our outstanding debt.
Our plan in 2006 is to generate enough cash from
our operating activities to pay for capital expenditures
and dividends. We expect to pay contractual obligations maturing in 2006 from cash on hand, from cash
generated from our operations or by issuing debt. If
actual results are different from our business plan or if
the assumptions in our business plan change, we may
have to raise more funds than expected by issuing
debt or equity, borrowing from banks or selling or
otherwise disposing of assets.
If we cannot raise the capital we need upon acceptable terms, we may have to:
• limit our ongoing capital expenditures
• limit our investment in new businesses
• try to raise additional capital by selling or otherwise
disposing of assets.
Any of these could have a material and negative
effect on our cash flow from operations and on our
growth prospects.
Funding and Control
of Subsidiaries
BCE Inc. and Bell Canada are
currently funding, directly
or indirectly, and may in the
future continue to fund,
the operating losses of some
of their subsidiaries, but
they are under no obligation
to continue doing so.
Acquisitions and Dispositions
Our growth strategy includes making strategic acquisitions and entering into joint ventures. We also from
time to time dispose of assets or all or part of certain
businesses. There is no assurance that we will find
suitable companies to acquire or to partner with, or
that we will have the financial resources needed to
complete any acquisition or to enter into any joint
venture. There could also be difficulties in integrating
the operations of acquired companies with our existing operations or in operating joint ventures.
There is also no assurance that we will be able to
complete any announced dispositions or that we will
use the funds received as a result of such dispositions for
any specific purpose that may be publicly anticipated.
Acquisitions and dispositions may be subject to
various conditions, such as approvals by regulators
and holders of our securities and other closing conditions, and there can be no assurance that, with respect
to any specific acquisition or disposition, all such
conditions will be satisfied.
Litigation, Regulatory Matters and Changes in Laws
Pending or future litigation, regulatory initiatives or
regulatory proceedings (including the increase of class
action claims) could have a material and negative
effect on our businesses, operating results and financial condition.
Changes in laws or regulations or in how they are
interpreted, and the adoption of new laws or regulations, could also materially and negatively affect us.
This includes changes in tax laws or the adoption of
new tax laws that result in higher tax rates or new
taxes. It also includes the amendments to the Securities
Act of Ontario that took effect December 31, 2005.
These amendments introduced statutory civil liability for misrepresentations in continuous disclosure
and failure to disclose material changes on a timely
basis, and could result in an increase in the number
of securities class action claims. BCE could have to
devote considerable management time and resources
to responding to such securities class action claims.
Funding and Control of Subsidiaries
If BCE Inc. or Bell Canada decides to stop funding any
of its subsidiaries and that subsidiary does not have
other sources of funding, this would have a material
and negative effect on the subsidiary’s results of operations and financial condition and on the value of its
securities. It could also have, depending on factors
such as the size or strategic importance of the subsidiary,
a material and negative effect on the results of operations and financial condition of BCE Inc. or Bell Canada.
In addition, BCE Inc. and Bell Canada do not have
to remain the majority holder of, or maintain their
current level or nature of ownership in, any subsidiary,
unless they have agreed otherwise. An announcement
of a decision by BCE Inc. or Bell Canada to change the
nature of its investment in a subsidiary, to dispose of
some or all of its interest in a subsidiary, or any other
similar decision could have a material and negative
effect on the subsidiary’s results of operations and
financial condition and on the value of its securities.
p. 47
If BCE Inc. or Bell Canada stops funding a subsidiary, changes the nature of its investment or disposes of all or part of its interest in a subsidiary,
stakeholders or creditors of the subsidiary might
decide to take legal action against BCE Inc. or Bell
Canada. For example, certain members of the lending
syndicate of Teleglobe, a former subsidiary of BCE Inc.,
and other creditors of Teleglobe have launched lawsuits against BCE Inc. following its decision to stop
funding Teleglobe. You will find a description of these
lawsuits in the BCE 2005 AIF under Legal Proceedings
We Are Involved In. While we believe that these kinds
of claims have no legal foundation, they could negatively affect the market price of BCE Inc.’s or Bell
Canada’s securities. BCE Inc. and Bell Canada could
also have to devote considerable management time
and resources to respond to such a claim.
Pension Fund Contributions
We have not had to make regular contributions to our
pension funds in recent years because most of our
pension plans have had pension fund surpluses.
However, historically low interest rates combined
with new actuarial standards that came into effect in
February 2005 have eroded the pension fund surpluses. This has negatively affected our net earnings
and liquidity. We expect to contribute approximately
$470 million to our defined benefit pension plans in
2006, subject to actuarial valuations being completed.
The funding status of our pension plans resulting
from future valuations of our pension plan assets and
liabilities depends on a number of factors, including:
• actual returns on pension plan assets
• long-term interest rates.
These factors could require us to increase contributions to our defined benefit pension plans in the
future and therefore could have a material and negative effect on our liquidity and results of operations.
Renegotiating Labour Agreements
Renegotiating collective agreements could result in
higher labour costs and work disruptions, including
work stoppages or work slowdowns. Difficulties in
renegotiations or other labour unrest could significantly hurt our business, operating results and financial condition.
There can be no assurance that if a strike occurs, it
would not disrupt service to Bell Canada’s customers.
In addition, work disruptions at our service providers,
including work slowdowns and work stoppages due to
strikes, could significantly hurt our business, including
our customer relationships and results of operations.
Renegotiating Labour
Agreements
Approximately 47% of our
employees are represented
by unions and are covered
by collective agreements.
Events Affecting Our Networks
Network failures could materially hurt our business,
including our customer relationships and our operating results. Our operations depend on how well we
protect our networks, equipment, applications and the
information stored in our data centres against damage
from fire, natural disaster, power loss, hacking, computer viruses, disabling devices, acts of war or terrorism and other events. Our operations also depend on
timely replacement and maintenance of our networks
and equipment. Any of these events could cause our
operations to be shut down indefinitely.
Our networks are connected with the networks
of other telecommunications carriers, and we rely
on them to deliver some of our services. Any of the
events mentioned in the previous paragraph, as well
as strikes or other work disruptions, bankruptcies,
technical difficulties or other events affecting the
networks of these other carriers, could also hurt our
business, including our customer relationships and
our operating results.
Software and System Upgrades
Many aspects of our business, such as providing telecommunication services and customer billing, among others,
depend to a large extent on various IT systems and
software, which must be improved and upgraded regularly and replaced from time to time. Implementing
system and software upgrades and conversions is a
very complex process, which may have several adverse
consequences including billing errors and delays in
customer service. Any of these events could significantly damage our customer relationships and business and have a material and negative effect on our
results of operations.
p. 48
Holding Company Structure
BCE Inc. is a holding company. That means it does
not carry on any significant
operations and has no major
sources of income or assets
of its own, other than the
interests it has in its subsidiaries, joint ventures
and significantly influenced
companies.
Regional Telecommunications Service Provider
Stock Market Volatility
The stock markets have
experienced significant
volatility over the past few
years, which has affected
the market price and trading
volumes of the shares of
many telecommunications
companies in particular.
We have proposed forming a new regional telecommunications service provider in the form of an income
trust which would combine Bell Canada’s regional
wireline operations with Aliant’s wireline operations.
The new income trust would also own Bell Canada’s
63.4% interest in NorthernTel and Télébec. Completion
of this transaction is subject to a number of conditions
that include, among others:
• receiving advance income tax rulings from the Canada
Revenue Agency
• receiving approval from the CRTC
• receiving an advance ruling certificate from the
Competition Bureau
• receiving approvals from the appropriate securities
commissions, regulators and stock exchanges
• receiving required third party consents on satisfactory terms
• receiving required approvals from Aliant’s shareholders
• receiving necessary court approvals
• arranging satisfactory bank financing.
The proposed transaction involves the integration of
various operations previously operated independently
and there can be no assurance that the resulting combined operation will realize the anticipated synergies
or that other benefits expected from the transaction
will be realized.
Although our goal is to complete the proposed
transaction without affecting our customers or future
customers of the trust, there can be no assurance that
the proposed transaction will not result in customer
service disruptions. Customer service disruptions may
have a negative effect on our operations and financial
results, and those of the trust in particular.
Although we expect the trust to make regular cash
distributions to unitholders, these are not assured and
may be reduced or suspended. The ability of the trust
to maintain cash distributions will be subject to certain risks associated with its business and operations,
including risks relating to:
• general economic conditions
• increasing competition
• changes in technology, industry standards and client
needs
the trust’s ability to quickly and efficiently introduce
new products, services and technologies and upgrade
existing ones in response to these changes
• the impact of pending or future litigation or regulatory proceedings or changes in laws.
•
If the trust does not meet its targets for cash distributions, the value of its units could decline substantially.
Following the closing of the proposed transaction,
BCE expects to reduce its indirect interest in the trust
through a distribution of trust units to holders of
BCE Inc. common shares. The distribution of trust
units by BCE is subject to various conditions including approval by BCE Inc.’s shareholders and necessary
court approvals.
Telesat
We expect the proposed recapitalization and public
offering of a minority stake in Telesat to take several
months to complete. During this time, the rapid pace
of change in the industry and the potential for regulatory developments and/or changes in laws may make
the proposed recapitalization and public offering less
favourable, or other transactions and opportunities
may emerge that for business reasons BCE Inc. considers
to be more attractive. Business reasons could include
the availability of financing on acceptable terms and
the condition of relevant capital markets, among others.
There is no assurance that the proposed recapitalization and public offering for Telesat will be completed
in its current form or at all.
RISKS THAT COULD AFFECT BCE INC.
Holding Company Structure
BCE Inc.’s cash flow and its ability to service its debt
and to pay dividends on its shares depend on dividends
or other distributions it receives from its subsidiaries,
joint ventures and significantly influenced companies
and, in particular, from Bell Canada. BCE Inc.’s subsidiaries, joint ventures and significantly influenced
companies are separate legal entities and they have no
legal obligation to pay dividends or make other distributions to BCE Inc.
p. 49
Stock Market Volatility
Differences between BCE Inc.’s actual or anticipated
financial results and the published expectations of
financial analysts may also contribute to volatility in
BCE Inc.’s common shares. A major decline in the
capital markets in general, or an adjustment in the
market price or trading volumes of BCE Inc.’s common shares or other securities, may materially and
negatively affect our ability to raise capital, issue debt,
retain employees, make strategic acquisitions or enter
into joint ventures.
RISKS THAT COULD AFFECT CERTAIN
BCE GROUP COMPANIES
Bell Canada Companies
Changes to Wireline Regulation
Decisions of Regulatory Agencies
Second Price Cap Decision
In May 2002, the CRTC issued decisions relating to new
price cap rules that govern incumbent telephone companies for the four-year period starting in June 2002.
The CRTC also established the deferral account, an
obligation that changes as amounts are added to the
account, or the CRTC approves initiatives that serve to
reduce the account.
The accumulated deferral account balance in Bell
Canada’s and Aliant’s deferral accounts at the end of
May 31, 2006 is estimated at $480.5 million for Bell
Canada and $21.8 million for Aliant, while the future
annualized recurring deferral account obligation as of
the same date is estimated at $81.5 million for Bell
Canada and $2.2 million for Aliant.
On February 16, 2006, the CRTC issued Telecom
Decision 2006-9, where it concluded that incumbent
telephone companies should clear the accumulated
balances in their deferral accounts, to the greatest
extent possible, in the following ways:
• by expanding broadband services to rural and remote
areas that are currently unserved and would not otherwise be served
• by improving the accessibility to telecommunications services for persons with disabilities, using a
minimum of 5.0% of incumbent telephone companies’
deferral account balances.
Incumbent telephone companies have been directed to
file their proposals related to the above by June 30,
2006. Any amounts remaining in incumbent telephone companies’ deferral accounts after accounting
for these two programs will be rebated to incumbent
telephone companies’ residential local customers in
non-high cost serving areas.
There is a risk that Bell Canada’s and Aliant’s proposed implementation timeframes may be accelerated,
which could have a material and negative effect on
their results of operations.
Competitor Digital Network Service
The CRTC determined that CDN services should
include not only digital network access components
but also intra-exchange facilities, inter-exchange facilities in certain metropolitan areas, and channelization
and co-location links (expanded CDN services). This
decision affected Bell Canada and Aliant as providers
of CDN services in their own operating territories and
as purchasers of those services elsewhere in Canada.
There are two important financial aspects to note in
this decision:
• the prices for all CDN services were applied on a
going-forward basis, as of the date of the decision, and
Bell Canada will be compensated from the deferral
account for the revenue losses from this decision
• Bell Canada will also be compensated through the
deferral account for applying reduced rates retroactively for the CDN access components that were tariffed
at interim rates prior to the decision.
Retail Quality of Service Indicators
On March 24, 2005, the CRTC released Telecom
Decision 2005-17 which, among other things, established the rate adjustment plan to be applied when
incumbent telephone companies do not meet mandated standards of quality of service provided to their
retail customers. As a result of this decision, incumbent telephone companies are subject to a penalty
mechanism when they do not meet one or more
service standards for their retail services. For Bell
Canada, this maximum potential penalty amount
equates to approximately $245 million annually, based
on 2004 revenues.
Decisions of
Regulatory Agencies
The business of the Bell
Canada companies is affected
by decisions made by various
regulatory agencies, including the CRTC. For example,
many of the decisions of
the CRTC indicate that they
try to balance requests
from competitors for access
to facilities, such as the
telecommunications networks, switching and transmission facilities, and other
network infrastructure of
incumbent telephone companies, with the rights of the
incumbent telephone companies to compete reasonably
freely. There is a risk that
decisions of the CRTC, and
in particular the decisions
relating to prices at which we
must provide such access,
may have a negative effect on
our business and results of
operations. Decisions of, and
proceedings involving,
regulatory agencies including the CRTC are described
in more detail in the section
entitled The Regulatory
Environment We Operate In of
the BCE 2005 AIF.
Competitor Digital
Network Service
On February 3, 2005, the
CRTC released Telecom
Decision 2005-6 on CDN
services. This decision set
the rates, terms and conditions for the provision
of digital network services
by Bell Canada and the other
incumbent telephone companies to their competitors.
p. 50
In the current penalty period of January 1 to
December 31, 2005, the CRTC standard for several
indicators was not met on an annual average basis
because of the strike in 2005 by the Communications,
Energy and Paperworkers’ Union of Canada at Bell
Canada’s supplier of installation and repair services,
Bell Technical Solutions Inc. (formerly Entourage
Technology Solutions Inc.). Bell Canada has requested
that the CRTC approve its December 5, 2005 application for the purpose of excluding below-standard
strike-related results as a force majeure type exclusion.
However, there is no assurance that the CRTC will
issue a favourable decision and Bell Canada may be
required to pay a penalty of up to $19 million.
The CRTC determined that Aliant did not meet
certain service standards during the period of January 1
to December 31, 2004. Applying the rate adjustment
plan would result in an estimated penalty of $3 million. Aliant has applied to the CRTC for an exclusion
from having to pay a penalty due to its labour disruption in 2004, as allowed for in the decision. The CRTC
has not yet ruled on this application. Regarding the
penalty period of January 1 to December 31, 2005, the
CRTC standard for two indicators was missed on an
annual average basis, resulting in a possible penalty of
approximately $2 million.
Decision of VoIP Regulation
On May 12, 2005, the CRTC released Telecom Decision
2005-28, which determined the way the CRTC will regulate VoIP services. The CRTC determined that VoIP
services (other than peer-to-peer services, defined in
the decision as Internet Protocol communications
services between two computers) provided by Bell
Canada and other incumbent telephone companies
will be regulated in the same way as traditional telephone services.
As a result of this decision, VoIP services that use
telephone numbers that conform to the North American
numbering plan, and that provide universal access to
and/or from the public switched telephone network
will, for incumbent telephone companies, be treated
as regulated local exchange services. Accordingly, tariffs
have to be filed by incumbent telephone companies,
but not by their competitors, when they provide
customers with local VoIP services using a telephone
number associated with that incumbent telephone
company’s territory. In addition, the winback rules
will apply, which means that incumbent telephone
companies cannot attempt to directly contact a former
residential local service customer for a period of
12 months from the time the customer decides to buy
traditional local telephone service or VoIP service from
a competitor. Other restrictions on promotions and
bundling that apply to traditional local wireline services also apply to VoIP. These regulatory requirements
could reduce Bell Canada’s and Aliant’s flexibility to
compete with both traditional and new competitors,
which could have a material and negative effect on our
business and results of operations.
Also as a result of Telecom Decision 2005-28,
incumbent telephone companies as well as competitive local exchange carriers will have to fulfill, in relation to VoIP services, other requirements that apply to
traditional telephone services, such as:
• allowing customers to keep their local number when
they change service providers within the same local
area (local number portability)
• allowing customers to use any long distance provider
of their choice
• listing telephone numbers in the directory associated
with the local telephone number chosen by the customer
• offering services for the hearing impaired
• implementing safeguards to protect customer privacy.
These regulatory requirements could increase operational costs and reduce Bell Canada’s and Aliant’s
flexibility to compete with resellers, and could therefore have a negative effect on our business and results
of operations. Bell Canada and several other parties
have petitioned the Governor in Council to overturn
the CRTC’s decision.
In 2005, Bell Canada introduced three retail VoIP
services in Québec and Ontario. These services are
offered pursuant to tariffs that have received interim
approval from the CRTC. CRTC public processes relating to these filings were held in 2005 and decisions on
final approval of the tariffs are expected in March
2006. The CRTC has, on an interim basis, permitted
Bell Canada to file VoIP tariff notices for the CRTC’s
approval, on a confidential basis, which provide for
minimum and maximum rates associated with each
proposed VoIP service plan. Once the minimum and
maximum rates are approved, for all future price
changes within that range, Bell Canada can issue new
tariff pages on their effective date. No additional
CRTC approvals are required for price changes within
the ranges. The CRTC has also, on an interim basis,
permitted Bell Canada to price its Bell Digital Voice
p. 51
service differently on a province-wide basis in Ontario
and Québec. A final decision from the CRTC regarding these tariff notices could result in a different outcome, and could therefore have a negative effect on
our business and results of operations.
Forbearance from Regulation of Local Exchange Services
The CRTC conducted a public proceeding in 2005 on a
framework for forbearance from the regulation of residential and business local exchange services offered by
the incumbent telephone companies. The CRTC plans
to issue a decision with respect to this matter in
March 2006. Bell Canada’s and the other incumbent
telephone companies’ flexibility to compete could be
adversely affected in the event that the CRTC, in its
decision, establishes onerous conditions to be satisfied
in order for the incumbent telephone companies to
obtain regulatory forbearance of residential and business local exchange services.
Price Floor Safeguards for Retail Services
On April 29, 2005, the CRTC issued its decision on
price floor safeguards and related issues. A price floor
safeguard is the minimum price that an incumbent
telephone company can charge for regulated services.
In its decision, the CRTC made changes which, in
some circumstances, may result in future higher price
floors for new services and bundles that could negatively limit Bell Canada’s ability to compete.
Bell Canada Proposals to Telecom Policy Review Panel
On April 11, 2005, the Minister of Industry announced
the creation of the Telecom Policy Review Panel (Panel)
to review Canada’s telecommunications policy and
regulatory framework, and make recommendations.
The Government of Canada had asked the Panel to
deliver a final report by the end of 2005 but the report
has been delayed and it is not clear when it will be
released to the public.
On August 15, 2005, Bell Canada submitted its
recommendations to the Panel including a proposal
for the adoption of a comprehensive ‘next generation’
regulatory framework that relies on market forces to
the maximum extent possible to ensure the telecommunications industry’s continued role as a key enabler
of Canada’s overall economic performance.
There can be no guarantee that the Panel will adopt
any or all of Bell Canada’s proposals, or that the
Minister of Industry and Parliament would implement the Panel’s recommendations regardless of its
adoption of Bell Canada’s proposals.
A number of groups have intervened to the Panel,
opposing the regulatory reforms suggested by Bell
Canada and advocating different reforms including
significantly expanding the scope of wholesale regulation of Bell Canada’s and other incumbent telephone
companies’ facilities. There is a risk that the Panel
could follow those recommendations and propose that
they be adopted by the Minister of Industry and
Parliament. Implementation of the recommendations
and proposals of opposing parties could have a material and negative effect on the Bell Canada companies.
Application to Change
Bundling Rules
CSAs are arrangements
tailored to a particular
customer’s needs for the
purpose of customizing
the offering in terms
of rate structure and levels.
Access to Bell Canada
Loops for Competitor Local
Exchange Carriers’ Customers
Served Via Remotes
Unbundled loops are transmission paths between
the users’ premises and
the central office that are
provided separately from
other components.
Application to Change Bundling Rules
On September 2, 2005, Bell Canada applied to the
CRTC to modify the bundling rules that apply to
customer-specific arrangements (CSAs).
The CRTC currently requires any CSA that includes
both tariffed and non-tariffed services (Mixed CSAs) to
be filed for approval with the CRTC before it can be
provided to customers. Bell Canada’s proposal would
exempt a Mixed CSA from the bundling rules and
associated tariff requirements if:
• total revenue from the CSA is higher than the price
of the tariffed components of the CSA
• the CSA is not part of a practice designed to circumvent tariffs.
Bell Canada’s flexibility to compete may continue to
be encumbered if the proposal is not approved.
Access to Bell Canada Loops for Competitor Local
Exchange Carriers’ Customers Served Via Remotes
On September 2, 2005, Rogers Telecom Inc. (Rogers)
submitted an application requesting that the CRTC
direct Bell Canada to make unbundled loops available
to competitors in a timely manner in certain specified
areas where Rogers is present. On October 3, 2005,
Bell Canada responded to Rogers’ application and
explained the reasons why in some areas where competitors are present and the competitors’ potential end
customer is served via a Bell Canada remote, unbundled loops should not have to be provided unless Bell
Canada is compensated by competitors for the costs it
incurs on their behalf.
p. 52
Wireless Number Portability
The Government of
Canada in its 2005 Budget
announced that it intended
to ask the CRTC to implement wireless number
portability. Number portability enables customers to
retain the same phone
number when changing
service provider within the
same local serving area.
The cost to equip Bell Canada’s network in order
to provide unbundled loops to competitors in locations where a potential competitor’s end customer is
currently served via a Bell Canada remote could be
significant should the CRTC grant Rogers’ request. It
is anticipated that the CRTC will institute a further
process to examine this matter prior to rendering
a decision.
resolve these concerns. It is not possible to predict at
this time if or when the final policy will be issued. If
the final policy requires more municipal or public
consultation in the approval process, there is a risk
that it could significantly slow the expansion of wireless networks in Canada. This could have a material
and negative effect on the operations of the Bell
Canada companies.
Wireless Number Portability
Revenue from Major Customers
On December 20, 2005, the CRTC released Telecom
Decision 2005-72. Among other things, the decision
directed Bell Mobility, Rogers Wireless and TELUS
Mobility to implement wireless number portability in
Alberta, British Columbia, Ontario and Québec by
March 14, 2007. This accelerated timeframe will be
challenging for Bell Mobility and the rest of the wireless industry to meet. On February 6, 2006, the CRTC
issued Telecom Public Notice 2006-3, Regulatory issues
related to the implementation of wireless number portability,
a proceeding that will address a wide range of issues
associated with the implementation.
A significant amount of revenue earned by Bell Canada’s
Enterprise unit comes from a small number of major
customers. If we lose contracts with any of these major
customers and cannot replace them, it could have a
material and negative effect on our financial results.
Licences and Changes to
Wireless Regulation
Companies must have a
spectrum licence to operate
cellular, PCS and other
radio-telecommunications
systems in Canada. The
Minister of Industry awards
spectrum licences, through
a variety of methods, at
his or her discretion under
the Radiocommunication Act.
Licences and Changes to Wireless Regulation
While we expect that the licences under which the
Bell Canada companies provide cellular and PCS services
will be renewed at term, there is no assurance that this
will happen. Industry Canada can revoke a company’s
licence at any time if the company 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 Industry Canada will agree. Should
there be a disagreement, this could have a material
and negative effect on the Bell Canada companies.
In February 2005, Industry Canada released a
report concerning its procedures for approving and
placing wireless and radio towers in Canada, including
the role of municipal authorities in the approval
process. Among other things, the report recommends
that the authority to regulate the siting of antennae
and supporting structures remain exclusively with the
Government of Canada. In August 2005, Industry
Canada presented a revised draft policy for comment.
The wireless and broadcasting industries both have
a number of concerns with the draft policy and are
now working with Industry Canada to attempt to
Competition Bureau’s Investigation
Concerning System Access Fees
On December 9, 2004, Bell Canada was notified by
the Competition Bureau that the Commissioner of
Competition had initiated an inquiry under the misleading advertising provisions of the Competition Act
concerning Bell Mobility’s description or representation of system access fees (SAFs) and was served with a
court order, under section 11 of the Competition Act,
compelling Bell Mobility to produce certain records
and other information that would be relevant to the
Competition Bureau’s investigation. Bell Canada
has complied with the court order and provided the
requested information.
Bell Mobility charges monthly SAFs to its cellular
subscribers to help it recover certain costs associated
with its mobile communications network. These costs
include maintenance costs, the cost of installing new
equipment and retrofitting new technologies, and
fees for spectrum licences. These costs also include
the recovery of the contribution tax the CRTC charges
to support telephone services in rural and remote areas
of Canada.
Bell Mobility may be subject to financial penalties
by way of fines, administrative monetary penalties
and/or demands for restitution of a portion of the SAFs
charged to cellular subscribers if it is found to have
contravened the misleading advertising provisions of
the Competition Act.
p. 53
Potential Legislation Restricting
In-Vehicle Use of Cellphones
Some studies suggest that using cellphones while
driving may result in more motor vehicle collisions. It
is possible that this could lead to new regulations or
legislation banning the use of handheld cellphones
while driving, as it has in Newfoundland and Labrador
and in several U.S. states, or other restrictions on invehicle use of wireless devices. If any of these happen,
cellphone use in vehicles may decline, which may negatively affect the business of the Bell Canada companies.
Health Concerns About Radio Frequency Emissions
It has been suggested that some radio frequency emissions from cellphones may be linked to certain medical
conditions. Interest groups have also requested investigations into claims that digital transmissions from
handsets used with digital wireless technologies pose
health concerns and cause interference with hearing
aids and other medical devices. This could lead to additional government regulation, which could have a
material and negative effect on the business of the Bell
Canada companies. In addition, actual or perceived
health risks of wireless communications devices could
result in fewer new network subscribers, lower network usage per subscriber, higher churn rates, product
liability lawsuits or less outside financing being available to the wireless communications industry. Any of
these would have a negative effect on the business of
the Bell Canada companies.
Bell ExpressVu
Satellites are subject to significant risks. Any loss, failure, manufacturing defects, damage or destruction of
these satellites, of Bell ExpressVu’s terrestrial broadcasting infrastructure, or of Telesat’s tracking, telemetry and control facilities to operate the satellites, could
have a material and negative effect on Bell ExpressVu’s
results of operations and financial condition.
Bell ExpressVu is subject to programming and carriage requirements under CRTC regulations. Changes
to the regulations that govern broadcasting could
negatively affect Bell ExpressVu’s competitive position
or the cost of providing its services. Bell ExpressVu’s
DTH satellite television distribution undertaking
licence was renewed in March 2004 and expires on
August 31, 2010. While we expect this licence will
be renewed at term, there is no assurance that this
will happen.
Bell ExpressVu continues to face competition from
unregulated U.S. DTH satellite television services that
are sold illegally in Canada. In response, it is participating in legal actions that are challenging the sale of
U.S. DTH satellite television equipment in Canada.
This competition could have a material and adverse
impact on Bell ExpressVu’s business.
Bell ExpressVu faces a loss of revenue resulting
from the theft of its services. Bell ExpressVu introduced a smart card swap for its authorized digital
receivers that is designed to block unauthorized
reception of Bell ExpressVu’s signals. As with any
technology-based security system, it is not possible to
eliminate with absolute certainty a compromise of
that security system. As is the case for all other pay
television providers, Bell ExpressVu has experienced,
and continues to experience, ongoing efforts to steal
its services by way of compromise of Bell ExpressVu’s
signal security systems.
On October 28, 2004, the Court of Québec ruled in
R. v. D’Argy and Theriault (D’Argy Case) that the
provisions in the Radiocommunication Act making
it a criminal offence to manufacture, offer for sale
or sell any device used to decode an encrypted subscription signal relating to the unauthorized reception
of satellite signals violate the freedom of expression
rights enshrined in the Charter. On March 31, 2005,
the Québec Superior Court overruled the Court of
Québec’s decision in the D’Argy Case and upheld the
constitutional validity of those provisions in the
Radiocommunication Act. The defendants in the D’Argy
Case have been granted leave to appeal the ruling
of the Québec Superior Court to the Québec Court
of Appeal. It remains a criminal offence throughout
Canada to manufacture, offer for sale or sell any device
used to engage in the unauthorized reception of satellite signals. If the ruling of the Québec Superior Court
is overruled by the Québec Court of Appeal and
Parliament does not enact new provisions criminalizing the unauthorized reception of satellite signals, Bell
ExpressVu may face increasing loss of revenue from
the unauthorized reception of satellite signals.
Bell ExpressVu
Bell ExpressVu currently
uses four satellites,
Nimiq 1, Nimiq 2, Nimiq 3
and Nimiq 4-Interim, for
its video services.
Nimiq 4-Interim became
operational at the end of
February 2006. Telesat, a
wholly-owned subsidiary
of BCE Inc., operates or
directs the operation of
these satellites.
Please see Risks that
Could Affect Certain
BCE Group Companies –
Telesat for more information
on the risks relating to
Telesat’s satellites.
p. 54
Operational Risks Due
to Various Types of
Potential Anomalies
Satellites utilize highly
complex technology and
operate in the harsh
environment of space and
therefore are subject to
significant operational
risks while in orbit. The
risks include in-orbit
equipment failures, malfunctions and other kinds
of problems commonly
referred to as anomalies.
Bell Globemedia
Dependence on Advertising
A large part of Bell Globemedia’s revenue from its television and print businesses comes from advertising
revenues. Bell Globemedia’s advertising revenues are
affected by competitive pressures, including its ability
to attract and retain viewers and readers. In addition,
the amount advertisers spend is directly related to economic growth. An economic downturn tends to make
it more difficult for Bell Globemedia to maintain or
increase revenues. Advertisers have historically been
sensitive to general economic cycles and, as a result,
Bell Globemedia’s business, financial condition and
results of operations could be materially and negatively affected by a downturn in the economy. In addition, most of Bell Globemedia’s advertising contracts
are short-term and the advertiser can cancel them on
short notice.
Increasing Fragmentation in Television Markets
Television advertising revenue largely depends on
the number of viewers and the attractiveness of programming in a given market. The viewing market has
become increasingly fragmented over the past decade
and this trend is expected to continue as new services
and technologies increase the choices available to consumers. As a result, there is no assurance that Bell
Globemedia will be able to maintain or increase its
advertising revenues or its ability to reach or retain
viewers with attractive programming.
Revenues from Distributing Television Services
A significant portion of revenues from CTV’s specialty
television operations comes from contractual arrangements with distributors who are mainly cable and DTH
operators. Competition has increased in the specialty
television market. As a result, there is no assurance
that contracts with distributors will be renewed on
equally favourable terms.
Increased Competition for Fewer Print Customers
Print advertising revenue largely depends on circulation and readership. The existence of a competing
newspaper and commuter papers in Toronto and other
major markets has increased competition for The Globe
and Mail ’s print operations. In addition, total circulation and readership of Canadian newspapers have
continued to decline. There is increasing pressure on
print profit margins resulting from more competition
in print advertising rates and higher costs of operation.
Broadcast Licences and CRTC Decisions
Each of CTV’s conventional and specialty services
operates under licences issued by the CRTC for a fixed
term of up to seven years. These licences are subject to
the requirements of the Broadcasting Act, the policies
and decisions of the CRTC, and the conditions of each
licensing or renewal decision, all of which may change.
While these are expected to be renewed at the appropriate times, there can be no assurance that any or
all of CTV’s licences will be renewed. Any renewals,
changes or amendments to licences and any decisions
by the CRTC from time to time that affect the industry
as a whole or CTV in particular may have a material
and negative effect on Bell Globemedia.
Telesat
Satellite Industry Risks
Operational Risks Due to Various Types
of Potential Anomalies
Any single anomaly or series of anomalies could materially and adversely affect Telesat’s operations, revenues, relationship with current customers and the
ability to attract new customers for satellite services.
The occurrence of anomalies may also adversely affect
Telesat’s ability to insure the satellites at commercially
reasonable premiums, if at all.
Launch Failures
Satellites are subject to certain risks related to failed
launches. Launch failures result in significant delays in
the deployment of satellites because of the need to
construct replacement satellites and to obtain other
launch opportunities. Such significant delays could
materially and adversely affect operations and revenues. Should Telesat not be able to obtain launch
insurance on reasonable terms and a launch failure
were to occur, Telesat would have to directly suffer the
loss of the cost of the satellite and related costs.
p. 55
Construction and Launch Delays
The construction and launch of satellites are subject to
certain delays which can adversely affect Telesat’s
operations. Delays in the commencement of service
could enable customers who pre-purchased transponder capacity to terminate their contracts and could
affect plans to replace an in-orbit satellite prior to the
end of its useful life. The failure to implement a satellite deployment plan on schedule could have a material and adverse effect on Telesat’s financial condition
and results of operations.
Market for Satellite Insurance
Launch and in-orbit policies on satellites may not
continue to be available on commercially reasonable terms or at all. In addition to higher premiums,
insurance policies may provide for higher deductibles, shorter coverage periods, higher loss percentages
required for constructive total loss claims and additional satellite health-related policy exclusions.
An uninsured failure of one or more satellites could
have a material and adverse effect on Telesat’s financial
condition and results of operations. In addition, higher
premiums on insurance policies increase costs, thereby
reducing earnings from operations by the amount of
such increased premiums.
With respect to in-orbit satellites, Nimiq 1 is
insured until the second quarter of 2006 for approximately its book value. Anik F1R is insured for approximately its book value until the third quarter of 2006.
Anik F2 is insured for approximately two thirds of its
book value until the third quarter of 2007. In the
event of a total failure of the Anik F2 satellite, the
after-tax accounting loss is estimated at $105 million
to $110 million.
In 2004, Telesat ceased to insure its interest in the
residual value of Nimiq 2 following the arrival in
orbit of the leased satellite Nimiq 3.
In 2001, the manufacturer of the Anik F1 satellite
advised Telesat of a gradual decline in power on the
satellite. Telesat had insurance in place to cover the
power loss on Anik F1 and filed a claim with its insurers. Telesat and its insurers reached a final settlement
agreement which included an initial payment to Telesat
of US$136.2 million, which has already been received,
and originally called for an additional payment of
US$49.1 million in 2007 if the power level on Anik F1
degrades as predicted by the manufacturer. In December
2005, Telesat entered into early settlement agreements
with certain insurance underwriters, and as a result
received US$26.2 million. A balance of US$20.1 million
is expected to be received in 2007 if the power level on
Anik F1 degrades as predicted. In the event that the
power level on Anik F1 is better than predicted, the
amount of the payment(s) will be adjusted by applying a formula which is included in the settlement
documentation and could result in either a pro-rated
payment to Telesat of the additional US$20.1 million
or a pro-rated repayment of up to a maximum of
US$14.9 million to be made by Telesat to the insurers.
Currently, power levels are continuing to degrade
as predicted.
In December 2005, Telesat placed launch and inorbit insurance coverage, covering the launch and first
year of in-orbit life, for the approximate book value of
Anik F3. Anik F3 is expected to be available for service in the third quarter of 2006.
Telesat has signed contracts with EADS Astrium,
SAS, a European satellite manufacturer, for construction of the Nimiq 4 satellite. As the construction contract for Nimiq 4 was recently signed and the satellite
is not to be launched until 2008, Telesat has not initiated discussions for the placement of insurance.
Market for Satellite Insurance
The price, terms and
availability of insurance
have fluctuated over time.
Insurance availability
can be affected by recent
satellite failures and
general conditions in the
insurance industry.
Ground Operations Infrastructure Failures
Telesat operates primary and back-up satellite operations centres. Failures could be experienced in the
necessary equipment at the primary centre, at the
back-up facility, or in the communication links
between these facilities and remote teleport facilities.
A failure or error affecting tracking, telemetry and
control operations might lead to a breakdown in the
ability to communicate with one or more satellites or
cause the transmission of incorrect instructions to the
affected satellite(s), which could lead to a temporary or
permanent degradation in satellite performance or to
the loss of one or more satellites.
Business Risks and Competition
Telesat’s primary business activities (broadcast, business networks and carrier services) have been largely
dedicated to the Canadian domestic market. This market is characterized by increasing competition and
p. 56
Government Regulations
Telesat is subject to the
regulatory authority of
the Canadian government,
primarily the CRTC and
Industry Canada, and the
national communications
authorities of the countries
in which it operates.
rapid technological development. Telesat competes
with U.S.-based operators who may have greater
financial resources than Telesat and, together with Ciel
Satellite Group, who received provisional authority
from Industry Canada to operate a broadcast satellite,
could capture a larger market share than that currently anticipated by Telesat.
Provision of services into the United States and
Latin American markets is subject to certain risks
such as changes in foreign government regulations
and telecommunication standards, licencing requirements, tariffs, taxes and other matters. Latin American
operations are also subject to risks associated with economic and social instability, regulatory and licencing
restrictions, exchange controls and significant fluctuations in the value of foreign currencies.
Revenues from two customers represent approximately 34% of Telesat’s total revenues. Telesat may
have difficulty in replacing these customers should
their satellite usage decrease.
Finally, the sale or lease of Ka-band capacity, which
permits Telesat to provide broadband Internet access
via satellite to markets that Telesat has not previously
served, represents a new area of business and may or
may not be adopted as Telesat expects.
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 the
key changes in accounting
standards and our accounting policies, and how
they affect our financial
statements.
We have prepared our
consolidated financial statements according to Canadian
GAAP. See Note 1 to the
consolidated financial statements for more information
about the accounting principles we used to prepare
our financial statements.
Foreign Exchange Risk
A substantial portion of Telesat’s capital expenditures
and other expenses are in U.S. dollars. However, the
currency of revenues and earnings that may be received
from satellite infrastructure investments is subject to
individual customer contractual arrangements. As a
result Telesat may become exposed to foreign exchange
differences between the infrastructure investments and
the resulting revenues and earnings.
Government Regulations
There could be material and adverse effects on Telesat’s
business should Telesat not obtain all of the required
regulatory approvals for the construction, the launch
and operation of any of its future satellites, or for the
orbital slots planned for these satellites, or if the
licences obtained impose operational restrictions, or
permit interference which could affect the use of its
satellites. In addition, Telesat may not continue to
coordinate the satellites successfully under procedures
of the International Telecommunications Union.
The CRTC regulates Telesat’s radio frequency channel service rates based on certain price ceilings. While
the price ceiling levels were established based on prevailing market conditions and are above current rates
for certain of Telesat’s existing satellite services, there
can be no assurance that these ceilings will be appropriate for services offered on any future satellites operated by Telesat in Canada.
In 1999, the U.S. State Department published amendments to the International Traffic in Arms Regulations
which included satellites on the list of items requiring
export permits. These provisions have constrained
Telesat’s access to technical information and have
had a negative impact on Telesat’s international consulting revenues.
OUR ACCOUNTING POLICIES
CRITICAL ACCOUNTING ESTIMATES
Under Canadian GAAP, we are required to make
estimates when we account for and report assets,
liabilities, revenues and expenses, and to disclose contingent assets and liabilities in our financial statements.
We are also required to continually evaluate the estimates that we use.
We base our estimates on past experience and on
other factors that we believe are reasonable under the
circumstances. Because this involves varying degrees
of judgment and uncertainty, the amounts currently
reported in the financial statements could, in the
future, prove to be inaccurate.
We consider the estimates described in this section
to be an important part of understanding our financial
statements because they rely heavily on management’s
judgment and are based on factors that are highly
uncertain.
Our senior management has discussed the development and selection of the critical accounting estimates
described in this section with the audit committee
of the board of directors. The audit committee has
reviewed these critical accounting estimates.
p. 57
Employee Benefit Plans
We perform a valuation at least every three years
to determine the actuarial present value of the accrued
pension and other retirement benefits. The valuation
uses management’s assumptions for the discount
rate, expected long-term rate of return on plan assets,
rate of compensation increase, health-care cost trends
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 employee benefit
obligations and future net benefit plans cost.
We account for differences between actual and
assumed results by recognizing differences in benefit
obligations and plan performance over the working
lives of the employees who benefit from the plans.
The two most significant assumptions used to
calculate the net employee benefit plans cost are the
discount rate and the expected long-term rate of return
on plan assets. Each of our operating segments is affected by these assumptions.
Discount Rate
We determine the appropriate discount rate at the end
of every year. Our discount rate was 5.2% at December 31, 2005, a decrease from 6.2% at December 31,
2004. The table below shows the impact on the net
benefit plans cost for 2006 and the accrued benefit
assets at December 31, 2006 of a 0.5% increase and a
0.5% decrease in the discount rate.
IMPACT ON
NET BENEFIT
PLANS COST
FOR 2006
IMPACT ON
ACCRUED
BENEFIT
ASSETS AT
DECEMBER 31,
2006
Discount rate increased to 5.7%
Residential
Business
Aliant
Other Bell Canada
Other BCE
Total
(33)
(33)
(24)
(10)
(6)
(106)
33
33
24
10
6
106
Discount rate decreased to 4.7%
Residential
Business
Aliant
Other Bell Canada
Other BCE
Total
33
33
24
10
6
106
(33)
(33)
(24)
(10)
(6)
(106)
Although there is no immediate impact on our
balance sheet, a lower discount rate results in a higher
accrued benefit obligation and a lower pension surplus. This means that we may have to increase any cash
contributions to the plan.
Expected Long-Term Rate of Return
The expected long-term rate of return is a weighted
average of our forward-looking view of long-term
returns on each of the major plan asset categories in
our funds.
We determine the appropriate expected long-term
rate of return at the end of every year. We assumed an
expected long-term rate of return on plan assets of
7.5% in 2005, which is the same as in 2004. The table
below shows the impact on the net benefit plans cost
for 2006 and the accrued benefit asset at December 31,
2006 of a 0.5% increase and a 0.5% decrease in the
expected rate of return on plan assets.
IMPACT ON
NET BENEFIT
PLANS COST
FOR 2006
IMPACT ON
ACCRUED
BENEFIT
ASSETS AT
DECEMBER 31,
2006
Expected rate of return
increased to 8.0%
Residential
Business
Aliant
Other Bell Canada
Other BCE
Total
(22)
(21)
(16)
(6)
(3)
(68)
22
21
16
6
3
68
Expected rate of return
decreased to 7.0%
Residential
Business
Aliant
Other Bell Canada
Other BCE
Total
22
21
16
6
3
68
(22)
(21)
(16)
(6)
(3)
(68)
Employee Benefit Plans
We maintain defined benefit
plans that provide pension,
other retirement and postemployment benefits for
some of our employees.
The amounts reported in
the financial statements
relating to these benefits are
determined using actuarial
calculations that are based
on several assumptions.
Discount Rate
The discount rate is the
interest rate used to determine the present value of
the future cash flows that
we expect will be needed
to settle employee benefit
obligations. It is based on
the yield on long-term highquality corporate fixed
income investments, with
maturities matching the
estimated cash flows from
the plan.
Although there is no immediate impact on our balance sheet, poor fund performance results in a lower
fair value of plan assets and a lower pension surplus.
This means that we may have to increase any cash
contributions to the plan.
p. 58
Goodwill Impairment
We assess the value of goodwill of all reporting units
within each of our operating
segments every year and
when events or changes in
circumstances indicate that
it might be impaired.
Goodwill Impairment
Contingencies
We become involved in
various litigation and regulatory matters as part of
our business. Each of our
operating segments may be
affected. Pending litigation, regulatory initiatives
or regulatory proceedings
represent potential financial
loss to our business.
We generally measure for impairment using a projected discounted cash flow method and confirm
our assessment using other valuation methods. If the
asset’s carrying value is more than its fair value, we
record the difference as a reduction in the amount of
goodwill on the balance sheet and an impairment
charge in the statement of operations.
We make a number of significant estimates when
calculating fair value using a projected discounted
cash flow method. These estimates include the assumed
growth rates for future cash flows, the number of years
used in the cash flow model, the discount rate and
many others.
We believe that all of our estimates are reasonable.
They are consistent with our internal planning and
reflect our best estimates, but they have inherent uncertainties that management may not be able to control.
Any changes in any of the estimates used could
have a material impact on the calculation of the fair
value 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.
There were no impairment charges recorded in
2005 or 2004.
Contingencies
We accrue a potential loss if we believe the loss is
probable and can be reasonably estimated. We base
our decision on information that is available at the time.
We estimate the amount of the loss by consulting with
the outside legal counsel that is handling our defence.
This involves analyzing potential outcomes and assuming various litigation and settlement strategies.
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 and negative
effect on our results of operations, cash flows and
financial position in the period in which the judgment
or settlement occurs. Any accrual would be charged to
operating income and included in Accounts payable
and accrued liabilities or Other long-term liabilities. Any
cash settlement would be included in Cash from operating activities.
None of our operating segments had any significant
provisions relating to pending litigation, regulatory
initiatives or regulatory proceedings at December 31,
2005. We have not made any significant changes to
our estimates in the past two years.
Income Taxes
Management believes that it has adequately provided
for income taxes based on all of the information that is
currently available. The calculation of income taxes in
many cases, however, requires significant judgment in
interpreting tax rules and regulations, which are constantly changing. Each of our operating segments may
be affected.
Our tax filings are also subject to audits, which
could materially change the amount of current and
future income tax assets and liabilities. Any change
would be recorded as a charge or a credit to income
tax expense. Any cash payment or receipt would be
included in cash from operating activities.
There were no significant changes to the estimates
we made in the past two years.
RECENT CHANGES TO
ACCOUNTING STANDARDS
The CICA issued revisions to section 3860 of the
CICA Handbook, Financial Instruments – Disclosure and
Presentation. The revisions require financial instruments that meet specific criteria to be classified as
liabilities on the balance sheet instead of as equity.
Adopting this revised section on January 1, 2005
did not affect our consolidated financial statements
because we do not have any instruments that meet the
specific criteria.
Please see Note 1 to the consolidated financial
statements for more information about the accounting
policies we adopted in 2005.
FUTURE CHANGES TO
ACCOUNTING STANDARDS
Comprehensive Income
The CICA issued section 1530 of the CICA Handbook,
Comprehensive Income. The section is effective for fiscal
years beginning on or after October 1, 2006. It describes
how to report and disclose comprehensive income and
its components.
p. 59
Comprehensive income is the change in a company’s net assets that results from transactions, events
and circumstances from sources other than the company’s shareholders. It includes items that would not
normally be included in net earnings, such as:
• changes in the currency translation adjustment
relating to self-sustaining foreign operations
• unrealized gains or losses on available-for-sale
investments.
The CICA also made changes to section 3250 of the
CICA Handbook, Surplus, and reissued it as section
3251, Equity. The section is also effective for fiscal
years beginning on or after October 1, 2006. The
changes in how to report and disclose equity and
changes in equity are consistent with the new
requirements of section 1530, Comprehensive Income.
When we adopt these sections on January 1, 2007,
we will report the following items in the consolidated
financial statements:
• comprehensive income and its components
• accumulated other comprehensive income and its
components.
Financial Instruments – Recognition
and Measurement
Financial Instruments – Recognition and Measurement.
The section is effective for fiscal years beginning on or
after October 1, 2006. It describes the standards for
recognizing and measuring financial assets, financial
liabilities and non-financial derivatives. This section
requires that:
• all financial assets be measured at fair value, with
some exceptions such as loans and investments that
are classified as held to maturity
• all financial liabilities be measured at fair value if
they are derivatives or classified as held for trading
purposes. Other financial liabilities are measured at
their carrying value
• all derivative financial instruments be measured
at fair value, even when they are part of a hedging
relationship.
The CICA has also reissued section 3860 of the CICA
Handbook as section 3861, Financial Instruments –
Disclosure and Presentation, which establishes standards for presentation of financial instruments and
non-financial derivatives, and identifies the information that should be disclosed about them. These
revisions come into effect for fiscal years beginning on
or after October 1, 2006.
These new accounting standards are not expected to
have a significant effect on our financial results in 2007.
Hedges
The CICA recently issued section 3865 of the CICA
Handbook, Hedges. The section is effective for fiscal
years beginning on or after October 1, 2006, and
describes when and how hedge accounting can be used.
Hedging is an activity used by a company to change
an exposure to one or more risks by creating an offset
between:
• changes in the fair value of a hedged item and a
hedging item
• changes in the cash flows attributable to a hedged
item and a hedging item, or
• changes resulting from a risk exposure relating to a
hedged item and a hedging item.
Hedge accounting makes sure that all gains, losses,
revenues and expenses from the derivative and the
item it hedges are recorded in the statement of operations in the same period.
We do not expect the new standard to have a
significant effect on our financial results in 2007.
Non-Monetary Transactions
The CICA has reissued section 3830 of the CICA
Handbook as section 3831, Non-Monetary Transactions,
which establishes standards for the measurement and
disclosure of non-monetary transactions. It also includes
criteria for defining ‘commercial substance’ which
replace the criteria for defining ‘culmination of the
earnings process’ in the former section. These changes
come into effect for fiscal years beginning on or after
January 1, 2006. Adopting this section on January 1,
2006 will not have a material effect on our future
consolidated financial statements.
p. 60
CONSOLIDATED FINANCIAL STATEMENTS
This section of our annual
report contains the audited
consolidated financial statements of BCE and detailed
notes with explanations and
additional information.
MANAGEMENT’S REPORT
The financial statements
contain our results and
financial history for the past
three years. The notes are
an important part of understanding our financial
results. They explain how
we arrived at the numbers in
the financial statements,
describe significant events or
changes that affect the numbers, and explain certain
items in the financial statements. The notes also
include details about our
results that do not appear in
the financial statements.
BCE consists of many
businesses, including subsidiaries and joint ventures.
We present the financial
information for all of
our holdings as one
consolidated company.
Except in the auditors’
report, we, us, our and BCE
mean BCE Inc., its subsidiaries and joint ventures.
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. 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
& Touche LLP, the shareholders’ auditors, have audited
the financial statements.
Management has prepared the financial statements
according to Canadian generally accepted accounting principles. 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
AUDITORS’ REPORT
To the Shareholders of BCE Inc.:
We have audited the consolidated balance sheets of BCE
Inc. as at December 31, 2005 and 2004, and the consolidated statements of operations, deficit and cash flows
for each of the years in the three-year period ended
December 31, 2005. These consolidated financial statements are the responsibility of BCE Inc.’s management.
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. Those
standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing
form a proper basis for preparing the financial statements, and that our assets are properly accounted for
and safeguarded.
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 102 of this annual report. The internal auditors and the shareholders’ auditors have free
and independent access to the audit committee.
Michael J. Sabia
President and Chief Executive Officer
Siim A. Vanaselja
Chief Financial Officer
Karyn A. Brooks
Vice-President and Controller
January 31, 2006
the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of BCE Inc. as at December 31, 2005 and
2004 and the results of its operations and its cash flows
for each of the years in the three-year period ended
December 31, 2005, in accordance with Canadian
generally accepted accounting principles.
Chartered Accountants
Montréal, Canada
January 31, 2006
CONSOLIDATED STATEMENTS OF OPERATIONS
(in $ millions, except share amounts)
Operating revenues
Operating expenses
Total operating expenses
Operating income
Other income
Interest expense
Pre-tax earnings from continuing operations
Income taxes
Net earnings before extraordinary gain
Extraordinary gain
Net earnings
FOR THE YEAR ENDED DECEMBER 31
Net earnings (loss) per common share – basic
Extraordinary gain
Net earnings
Net earnings (loss) per common share – diluted
Extraordinary gain
Net earnings
Dividends per common share
Average number of common shares outstanding – basic (millions)
p. 61
NOTE
24
4
5
6
7
8
3
2005
2004
2003
19,105
(11,508)
(3,114)
(380)
(55)
(15,057)
4,048
8
(981)
3,075
(893)
(267)
1,915
46
1,961
–
1,961
(70)
–
1,891
18,368
(10,938)
(3,056)
(256)
(1,224)
(15,474)
2,894
407
(999)
2,302
(681)
(174)
1,447
77
1,524
69
1,593
(70)
–
1,523
18,057
(10,776)
(3,062)
(175)
(14)
(14,027)
4,030
177
(1,100)
3,107
(1,086)
(201)
1,820
(5)
1,815
–
1,815
(64)
(7)
1,744
1.99
0.05
–
2.04
1.49
0.09
0.07
1.65
1.91
(0.01)
–
1.90
1.99
0.05
–
2.04
1.32
926.8
1.49
0.09
0.07
1.65
1.20
924.6
1.90
(0.01)
–
1.89
1.20
920.3
9
9
CONSOLIDATED STATEMENTS OF DEFICIT
(in $ millions)
Balance at beginning of year, as previously reported
Accounting policy change
Balance at beginning of year, as restated
Consolidation of variable interest entity
Net earnings
Dividends declared on preferred shares
Dividends declared on common shares
Other
Balance at end of year
NOTE
1
2005
(5,424)
(8)
(5,432)
–
1,961
(70)
(1,222)
–
–
(4,763)
2004
(5,837)
(8)
(5,845)
–
1,593
(70)
(1,110)
–
–
(5,432)
2003
(6,442)
(8)
(6,450)
(25)
1,815
(64)
(1,105)
(7)
(9)
(5,845)
p. 62
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31
(in $ millions)
2005
2004
363
1,766
1,142
402
3,673
22,062
2,914
3,031
7,887
1,063
40,630
313
1,951
1,061
383
3,708
21,104
2,628
2,916
7,756
1,028
39,140
3,435
182
343
1,373
281
5,614
12,119
5,028
250
23,011
2,898
3,444
183
297
1,272
271
5,467
11,685
4,834
222
22,208
2,908
22
1,670
1,670
22
16,806
1,081
(4,763)
(73)
13,051
14,721
40,630
16,781
1,061
(5,432)
(56)
12,354
14,024
39,140
NOTE
Assets
Current assets
Accounts receivable
Current assets of discontinued operations
Total current assets
Capital assets
Other long-term assets
Indefinite-life intangible assets
Goodwill
Non-current assets of discontinued operations
Total assets
10
11
8
12
13
14
15
8
Liabilities
Current liabilities
Accounts payable and accrued liabilities
Interest payable
Dividends payable
Current liabilities of discontinued operations
Total current liabilities
Long-term debt
Non-current liabilities of discontinued operations
Total liabilities
Commitments and contingencies
16
17
8
18
19
8
20
25
Shareholders’ Equity
Preferred shares
Common shareholders’ equity
Common shares
Contributed surplus
Deficit
Currency translation adjustment
Total common shareholders’ equity
Total liabilities and shareholders’ equity
On behalf of the board of directors:
Director
Director
CONSOLIDATED STATEMENTS OF CASH FLOW
(in $ millions)
Adjustments to reconcile earnings from continuing operations
to cash flows from operating activities:
Future income taxes
Contributions to employee pension plans
Other employee future benefit plan payments
Payments of restructuring and other items
Operating assets and liabilities
Cash flows from investing activities
Increase in investments
Decrease in investments
Cash flows used in investing activities
Cash flows from financing activities
Increase (decrease) in notes payable and bank advances
Issue of long-term debt
Repayment of long-term debt
Issue of common shares
Issue of preferred shares
Redemption of preferred shares
Issue of equity securities by subsidiaries
to non-controlling interest
Redemption of equity securities by subsidiaries
from non-controlling interest
Cash dividends paid by subsidiaries to non-controlling interest
Other financing activities
Cash flows used in financing activities
Cash provided by (used in) continuing operations
Cash provided by discontinued operations
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Consists of:
Cash and cash equivalents of continuing operations
Cash and cash equivalents of discontinued operations
Total
p. 63
NOTE
24
4
5
7
24
24
27
3
22
22
22
2005
2004
2003
1,915
1,447
1,820
3,114
380
55
(33)
746
267
(226)
(93)
(176)
(390)
5,559
3,056
256
1,224
(320)
(35)
174
(112)
(81)
(253)
87
5,443
3,062
175
14
(76)
409
201
(160)
(87)
(124)
656
5,890
(3,428)
(228)
–
(233)
19
4
(3,866)
(3,319)
(1,118)
20
(58)
713
127
(3,635)
(3,101)
(54)
54
(4)
168
62
(2,875)
(66)
1,190
(1,178)
25
–
–
130
1,306
(2,256)
32
–
–
(295)
1,880
(3,412)
19
510
(357)
1
8
132
(78)
(1,195)
(86)
(192)
(64)
(1,643)
50
15
65
380
445
(58)
(1,108)
(85)
(188)
(81)
(2,300)
(492)
150
(342)
722
380
(108)
(1,029)
(61)
(184)
(44)
(2,949)
66
350
416
306
722
363
82
445
313
67
380
556
166
722
p. 64
All amounts are in millions
of Canadian dollars, except
where noted.
NOTE 1:
SIGNIFICANT ACCOUNTING POLICIES
See Note 28, Reconciliation
of Canadian GAAP to United
States GAAP, for a description and reconciliation
of the significant differences
between Canadian GAAP
and United States GAAP
that affect our financial
statements.
BASIS OF PRESENTATION
We have prepared the consolidated financial statements
according to Canadian generally accepted accounting
principles (GAAP).
We consolidate the financial statements of all of the
companies we control. We proportionately consolidate
our share of the financial statements of our joint venture
interests. All transactions and balances between these
companies have been eliminated on consolidation.
COMPARATIVE FIGURES
We have reclassified some of the figures for the comparative periods in the consolidated financial statements
to make them consistent with the presentation for the
current period.
We have restated financial information for previous
periods to reflect:
• the change in Aliant Inc.’s (Aliant) method of recognizing revenues and expenses from its directory business effective January 2005, as described under Recent
Changes to Accounting Policies and Standards
the change in classification to discontinued operations
for planned and completed business dispositions.
•
USING ESTIMATES
When preparing financial statements according to
GAAP, management makes estimates and assumptions
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. Actual results could differ from
those estimates under different assumptions or conditions. We use estimates when accounting for certain
items such as revenues, allowance for doubtful accounts,
useful lives of capital assets, asset impairments, inventory reserves, legal and tax contingencies, employee
compensation plans, employee benefit plans, evaluation
of minimum lease terms for operating leases, income
taxes and goodwill impairment. We also use estimates
when recording the fair values of assets acquired and
liabilities assumed in a business combination.
RECOGNIZING REVENUE
We recognize operating revenues when they are earned,
specifically when all the following conditions are met:
• services are provided or products are delivered to
customers
• there is clear evidence that an arrangement exists
• amounts are fixed or can be determined
• our ability to collect is reasonably assured.
In particular, we recognize:
fees for 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
• advertising revenues when advertisements are aired,
or printed and distributed
• revenues from the sale of equipment when the
equipment is delivered to customers and accepted
• revenues on long-term contracts as services are provided, equipment is delivered and accepted, or contract
milestones are met
• rebates, allowances and payments to customers as a
reduction of revenue when we do not receive an identifiable and separate benefit.
•
We enter into sales that may include a number of
products and services. We separate each product or
service in these sales and account for them separately
according to the methods described above when the
following three conditions are met:
• the product or service has value to our customer on a
stand-alone basis
• there is objective and reliable evidence of the fair
value of the product or service
• a general right of return, delivery or performance of
any undelivered product or service is probable and
substantially in our control.
If there is objective and reliable evidence of fair value
for all products and services in a sale, the total price to
the customer is allocated to the separate products and
services based on their relative fair value. Otherwise,
we first allocate the total price to any undelivered
p. 65
products and services based on their fair value and the
remainder to any that have been delivered. If the conditions to separate the product or service are not met,
we generally recognize revenue pro-rata over the term
of the sale agreement.
We may enter into arrangements with subcontractors
who provide services to our customers. When we act
as the principal in these arrangements, we recognize
revenue based on the amounts billed to customers.
Otherwise, we recognize the net amount that we keep
as revenue.
We accrue an estimated amount for sales returns,
based on our past experience, when revenue is
recognized.
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 Accounts payable and accrued liabilities or in Other
long-term liabilities on the balance sheet.
CASH AND CASH EQUIVALENTS
We classify highly liquid investments with a maturity
of three months or less from the date of purchase as
Cash and cash equivalents. Highly liquid investments
with a maturity of more than three months are
classified as short-term investments and reported in
Other current assets.
SECURITIZATION OF ACCOUNTS RECEIVABLE
We consider a transfer of accounts receivable to be a
sale when we give up control of them in exchange for
proceeds from a trust (other than our retained beneficial interest in the accounts receivable).
We determine the fair value of the accounts receivable transferred based on the present value of future
expected cash flows, which we project using management’s best estimates of discount rates, the weighted
average life of accounts receivable, credit loss ratios
and other key assumptions. We recognize a loss on
this kind of transaction, which we record in Other
income. The loss partly depends on the carrying amount
of the accounts receivable that are transferred. We
allocate this amount to accounts receivable sold or to
our retained interest, according to its relative fair
value on the day the transfer is made.
We continue to service the accounts receivable after
the transfer. As a result, we:
• recognize a servicing liability on the day accounts
receivable are transferred to the trust
• amortize this liability to earnings over the expected
life of the transferred accounts receivable.
INVENTORIES
We value inventories at cost or market value, whichever
is lower, and determine market value using replacement cost. We maintain inventory valuation reserves
for inventory that is slow moving or becomes obsolete,
using an inventory aging analysis to calculate the
amount of the reserves.
CAPITAL ASSETS
We carry capital assets at cost, less accumulated amortization. Most of our telecommunications assets are
amortized using the group depreciation method. When
we retire assets in the ordinary course of business, we
charge their original cost to accumulated amortization.
In general, we amortize capital assets on a straight-line
basis over the estimated useful lives of the assets. We
review the estimates of the useful lives of the assets
every year and adjust them if needed.
ESTIMATED USEFUL LIFE
Telecommunications assets
Machinery and equipment
Buildings
Satellites
Finite-life intangible assets:
Software
Customer relationships
10 to 25 years
2 to 20 years
10 to 40 years
10 to 15 years
3 to 7 years
5 to 40 years
We initially measure and record asset retirement obligations at fair value using a present value methodology,
adjusted subsequently for any changes to the timing
or amount of the original estimate of cash flows. We
capitalize asset retirement costs as part of the related
assets and amortize these into earnings over time,
along with the increase in the recorded obligation to
reflect the passage of time.
We capitalize construction costs, labour and overhead (including interest, when the project cost is
significant) related to assets we build or develop.
p. 66
Equity Method
The investment is initially
recorded at cost and adjustments are made to include
our share of the investment’s
net earnings or losses. These
adjustments are included
in our net earnings. The
amount of our investment
is reduced by any dividends
received or receivable from
the investment.
We capitalize certain costs of developing or buying
software for internal use. We expense software maintenance and training costs when they are incurred. The
expense is included in Operating expenses in the statement of operations.
We assess capital assets for impairment when events
or changes in circumstances indicate that we may not
be able to recover their carrying value. We calculate
impairment by deducting the assets’ fair value, based
on discounted cash flows expected from their use and
disposition, from their carrying value. Any excess is
deducted from earnings.
We account for leases that transfer substantially all
of the benefits and risks of ownership of property to us
as capital leases. We record an asset at the time a capital
lease is entered into together with a related long-term
obligation. Rental payments under operating leases
are expensed as incurred.
Cost Method
The investment is recorded
at cost. Dividends received
or receivable from the
investment are included in
our net earnings, with no
adjustment to the carrying
amount of the investment.
Goodwill
Goodwill is created when
we acquire a business. It is
calculated by deducting the
fair value of the net assets
acquired from the consideration given and represents
the value of factors that
contribute to greater earning
power, such as a good
reputation, customer loyalty
or intellectual capital.
Translation of Foreign
Currencies
The way we account for a
foreign operation depends on
whether it is self-sustaining
or integrated. A self-sustaining foreign operation is
largely independent of the
parent company. An integrated foreign operation
depends on the parent
company to finance or run
its operations.
ACCOUNTING FOR INVESTMENTS
We use the following methods to account for investments that are not consolidated or proportionately
consolidated in our financial statements:
• the equity method for our investments in companies
where we have a significant influence over their operating, investing and financing activities
• the cost method for our investments in all other
companies.
We expense any decline in the fair value of our investments below their carrying value when management
assesses the decline to be other than temporary.
We include investments in Other long-term assets on
the balance sheet. Earnings from investments and any
declines in fair value are included in Other income in
the statement of operations.
COSTS OF ISSUING DEBT AND EQUITY
The costs of issuing debt are deferred in Other longterm assets. They are amortized on a straight-line basis
over the term of the related debt and are included in
Interest expense in the statement of operations. The
costs of issuing equity are reflected in the statement
of deficit.
INDEFINITE-LIFE INTANGIBLE ASSETS
Our indefinite-life intangible assets consist mainly of
the Bell brand name, spectrum licences and television
licences. We assess these assets for impairment in the
fourth quarter of every year and when events or
changes in circumstances indicate that an asset might
be impaired. We calculate impairment by deducting
the assets’ fair value, based on estimates of discounted
future cash flows or other valuation methods, from their
carrying value. Any excess is deducted from earnings.
GOODWILL
We assess goodwill of individual reporting units for
impairment in the fourth quarter of every year and
when events or changes in circumstances indicate that
goodwill might be impaired. We assess goodwill for
impairment in two steps:
• we identify a potential impairment by comparing
the fair value of a reporting unit to its carrying value.
Fair value is based on estimates of discounted future
cash flows or other valuation methods. When the fair
value of the reporting unit is less than its carrying
value, we allocate the fair value to all of its assets and
liabilities, based on their fair values. The amount that
the fair value of the reporting unit exceeds the total of
the amounts assigned to its assets and liabilities is the
fair value of goodwill.
• we determine if there is an impairment by comparing the carrying value of goodwill to its fair value.
Any excess is deducted from earnings.
TRANSLATION OF FOREIGN CURRENCIES
Self-Sustaining Foreign Operations
For self-sustaining foreign operations, we use:
• the exchange rates on the date of the balance sheet
for assets and liabilities
• the average exchange rates during the year for revenues and expenses.
Translation exchange gains and losses are reflected as a
currency translation adjustment in shareholders’ equity.
When we reduce our net investment in a self-sustaining
foreign operation, we recognize a portion of the currency translation adjustment in earnings.
p. 67
Integrated Foreign Operations
For integrated foreign operations, we use:
for monetary assets and liabilities, such as cash, accounts
receivable and payable, and long-term debt
• the historical exchange rates for non-monetary assets
and liabilities, such as capital assets
Translation exchange gains and losses are included in
Other income in the statement of operations.
Domestic Transactions and Balances in
Foreign Currencies
For domestic transactions in foreign currencies, we use:
for monetary assets and liabilities
• the historical exchange rates for non-monetary assets
and liabilities
We follow these policies when accounting for
derivatives:
• unrealized gains or losses relating to derivatives that
qualify for hedge accounting are recognized in earnings
when the hedged item is disposed of or when the
anticipated transaction is ended early
• gains and losses related to hedges of anticipated
transactions are recognized in earnings or are recorded
as adjustments of carrying values when the transaction
takes place
• derivatives that are economic hedges but do not
qualify for hedge accounting are recognized at fair
value. We record the change in fair value in earnings.
• any premiums paid for derivatives used in hedging
relationships are deferred and expensed to earnings
over the term of the contract
• any forward premiums or discounts on forward foreign
exchange contracts that are used to hedge long-term
debt denominated in foreign currencies are amortized
as an adjustment to interest expense over the term of
the forward contract.
The following describes our policies for specific kinds
of derivatives.
Translation exchange gains and losses are included in
Other income in the statement of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
We use various derivative financial instruments to
manage:
• interest rate risk
• foreign exchange rate risk
• changes in the price of BCE Inc. common shares
relating to special compensation payments (SCPs) and
deferred share units (DSUs).
We do not use derivative financial instruments for
speculative or trading purposes.
We document all relationships between derivatives
and the items they hedge, and our risk management
objective and strategy for using various hedges. This
process includes linking every derivative to:
• a specific asset or liability, or
• a specific firm commitment, or
• an anticipated transaction.
We assess how effective derivatives are in managing
risk when the hedge is put in place, and on an ongoing
basis. If a hedge becomes ineffective, we stop using
hedge accounting.
Interest Rate Swap Agreements
We use interest rate swap agreements to help manage
the fixed and floating interest rate mix of our debt
portfolio. These agreements often involve exchanging
interest payments without exchanging the notional
principal amount that the payments are based on. We
record the exchange of payments as an adjustment of
interest expense on the hedged debt. We include the
related amount receivable or payable from counterparties in Accounts receivable or Interest payable.
We have interest rate swaption agreements which,
if exercised, result in us entering into an interest
rate swap.
Foreign Currency Swap Agreements
We use foreign currency swap agreements to manage
the foreign exchange rate exposure of some of our debt
that is denominated in foreign currencies. We designate these agreements as hedges of firm commitments
to pay interest and/or principal in the foreign currency.
We recognize gains and losses on these contracts at the
same time we recognize the gains and losses on the
hedged item. Unrealized gains or losses are included in
Other long-term assets or Other long-term liabilities.
p. 68
Curtailment
A curtailment is a significant
reduction in plan benefits
that can result when a DB
pension plan is amended
or restructured. Types of
curtailments include
a reduction in the expected
number of years of future
service of active employees
or the elimination of the
right to earn defined benefits
for some or all of the future
service of employees.
Forward Contracts
Settlement
A company makes a settlement when it substantially
settles all or part of an
accrued benefit obligation.
An example is a lump-sum
cash payment to employees
in exchange for their rights
to receive future benefits.
We use forward foreign exchange contracts to manage:
• interest and principal denominated in foreign currencies. We designate these agreements as hedges
of firm commitments to pay the principal in the
foreign currency.
• the exposure to anticipated transactions denominated in foreign currencies. We designate these agreements as hedges of future cash flows.
We use forward contracts to manage changes in
the price of BCE Inc. common shares relating to SCPs
and DSUs.
We recognize gains and losses on these contracts
the same way we recognize the gains and losses on the
hedged item. Unrealized gains or losses are included in
Other long-term assets or Other long-term liabilities.
EMPLOYEE BENEFIT PLANS
(i) Defined Benefit Plans
We maintain defined benefit (DB) plans that provide
pension benefits for most of our employees. Benefits
are based on the employee’s length of service and average rate of pay during his or her last five years of service.
Most employees are not required to contribute to the
plans. The plans provide increasing pension benefits
to help protect a portion of 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 that are permitted
by pension regulatory bodies. Contributions reflect
actuarial assumptions about future investment returns,
salary projections and future service.
We also provide other post-employment benefits
to some of our employees, including:
• health-care and life insurance benefits during
retirement
• other benefits, including various disability plans,
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 do not fund the other future benefit plans.
We accrue our obligations and related costs under
employee benefit plans, net of the fair value of plan
assets. Pension and other retirement benefit costs are
determined using:
• the projected benefit 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 bonds with maturities that
match the timing and benefits expected to be paid by
the plans
• management’s best estimate of the plans’ expected
investment performance, pay increases, retirement
ages of employees and expected health-care costs.
We value pension plan assets at fair value, which
is determined using current market values. We use
a market-related value to calculate the expected return
on plan assets. This value is based on a four-year
weighted average of the fair value of the pension
plan assets.
We amortize past service costs from plan amendments on a straight-line basis over the average remaining service period of employees who were active on
the day of the amendment. This represents the period
that we expect to realize economic benefits from
the amendments.
Transitional assets and obligations that arose upon
implementation of new accounting standards for
employee future benefits are amortized on a straightline basis over the average remaining service period of
employees expected to receive benefits under the plans.
We use the corridor approach to recognize actuarial
gains and losses into earnings. First we deduct 10% of
the benefit obligation or the market-related value of
plan assets, whichever is greater, from the unamortized
net actuarial gains or losses based on a market-related
value basis. Then we amortize any excess over the
average remaining service period of active employees.
At the end of 2005, this period ranged from approximately 9 to 18 years, with a weighted average period
of 13 years.
When the restructuring of a benefit plan results in
both a curtailment and a settlement of obligations,
we account for the curtailment before we account for
the settlement.
December 31 is the measurement date for most of
our employee benefit plans. Our actuaries perform a
valuation at least every three years to determine the
p. 69
actuarial present value of the accrued pension and
other retirement benefits. An actuarial valuation was
last performed on most of our pension plans on
December 31, 2004.
(ii) Defined Contribution Plans
Some of our subsidiaries offer defined contribution
(DC) plans that provide certain employees with pension benefits.
In January 2005, BCE Inc. and Bell Canada introduced a DC pension plan for its employees. Current
employees had the option of retaining their DB coverage or changing over to the new DC coverage. Since
2005, new employees participate in the DC pension
arrangements only.
We recognize a pension cost for DC plans when
the employee provides service to the company, essentially coinciding with our cash contributions. The
pension cost is based on a percentage of the participant’s salary.
INCOME TAXES
Current income tax expense is the estimated income
taxes payable for the current year before any refunds
or the use of losses incurred in previous years.
We use the asset and liability method to account for
future income taxes. Future income taxes reflect:
• the temporary differences between the carrying
amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes, on an
after-tax basis
• the benefit of losses that will more likely than not be
realized and carried forward to future years to reduce
income taxes.
We calculate future income taxes using the rates
enacted by tax law and those substantively enacted.
The effect of a change in tax rates on future income
tax assets and liabilities is included in earnings in the
period when the change is substantively enacted.
SUBSCRIBER ACQUISITION COSTS
We expense all subscriber acquisition costs when services are activated.
STOCK-BASED COMPENSATION PLANS
BCE Inc.’s stock-based compensation plans include
employee savings plans (ESPs), restricted share units
(RSUs), long-term incentive plans and DSUs. Before
2000, the long-term incentive plans often included SCPs.
Starting in 2004, we made a number of prospective
changes to the key features of our stock-based compensation plans, including:
• the value of the long-term incentive plans under
which stock options are granted was reduced to account
for the introduction of a new mid-term incentive plan
that uses RSUs
• setting specific performance targets that must be
met before the stock option can be exercised.
Black-Scholes Option
Pricing Model
The Black-Scholes option
pricing model is a financial
model we use to calculate the
weighted average fair value
of a stock option granted
using four key assumptions:
stock dividend yield, expected
stock volatility, risk-free
interest rate and expected
life of the stock option.
We credit to share capital any amount employees pay
when they exercise their stock options or buy shares.
We recognize the contributions BCE Inc. makes under
ESPs as compensation expense. We also recognize
compensation expense or recovery relating to SCPs.
Restricted Share Units
For each RSU granted we record a compensation
expense that equals the market value of a BCE Inc.
common share at the date of grant prorated over the
vesting period. The compensation expense is adjusted
for subsequent changes in the market value of BCE
Inc. common shares until the vesting date and management’s assessment of the number of RSUs that will
vest in the future. The cumulative effect of the change
in value is recognized in the period of the change.
Vested RSUs will be paid in BCE Inc. common shares
purchased on the open market or in cash, as the holder
chooses, as long as minimum share ownership requirements are met.
Stock Options
We use the fair value-based method to account for
employee stock options and the Black-Scholes option
pricing model to measure the compensation expense
of options. This method is used for options granted on
or after January 1, 2002. For options that contain
specific performance-based targets, this is reflected in
the calculation of the weighted average fair value per
option granted.
p. 70
Deferred Share Units
Financial Instruments
For each DSU granted we record a compensation
expense that equals the market value of a BCE Inc.
common share at the grant date. The compensation
expense is adjusted for subsequent changes in the
market value of BCE Inc. common shares, with the
effect of this change in value recognized in the period
of the change. DSUs are paid in BCE Inc. common
shares purchased on the open market following the
cessation of a participant’s employment or when a
director leaves the board.
The CICA issued revisions to section 3860 of the CICA
Handbook, Financial Instruments – Disclosure and
Presentation. The revisions require financial instruments
that meet specific criteria to be classified as liabilities
on the balance sheet instead of equity. Adopting this
revised section on January 1, 2005 did not affect our
consolidated financial statements because we do not
have any instruments that meet the specific criteria.
REGULATION OF THE
TELECOMMUNICATIONS INDUSTRY
Our business is affected by Canadian Radio-Television
and Telecommunications Commission (CRTC) decisions
over the prices we charge for specific services, primarily
local telephone services and other operating requirements. The CRTC ensures that Canadians have access
to reliable telephone and other services at affordable
prices. Some of our subsidiaries, such as Bell Canada,
Aliant, Télébec Limited Partnership (Télébec) and
NorthernTel Limited Partnership (NorthernTel), are
regulated by the CRTC pursuant to the Telecommunications Act.
RECENT CHANGES TO ACCOUNTING
POLICIES AND STANDARDS
Aliant’s Directory Business
Effective January 1, 2005, we defer and amortize
revenues and expenses from Aliant’s directory business
over the period of circulation, which is usually
12 months. Prior to January 1, 2005, we recognized
revenues and expenses from Aliant’s directory business
on the publication date. The impact on our consolidated statements of operations for the year ended
December 31, 2005 and the comparative periods is
negligible. We did not restate the statements of operations for prior periods. At December 31, 2004, the
restatement of the balance sheet resulted in:
• a decrease of $23 million in accounts receivable
• an increase of $1 million in other current assets
• a decrease of $8 million in accounts payable and
accrued liabilities
• a decrease of $6 million in non-controlling interest
• an increase of $8 million in the deficit.
FUTURE CHANGES TO ACCOUNTING
STANDARDS
Comprehensive Income
Comprehensive Income, which describes how to report
and disclose comprehensive income and its components. These changes come into effect for fiscal years
beginning on or after October 1, 2006.
Comprehensive income is the change in a company’s
net assets that results from transactions, events and
circumstances from sources other than the company’s
shareholders. It includes items that would not normally
be included in net earnings, such as:
• changes in the currency translation adjustment
relating to self-sustaining foreign operations
• unrealized gains or losses on available-for-sale
investments.
The CICA also made changes to section 3250 of the
CICA Handbook, Surplus, and reissued it as section
3251, Equity. The section is also effective for fiscal
years beginning on or after October 1, 2006. The
changes in how to report and disclose equity and
changes in equity are consistent with the new requirements of section 1530, Comprehensive Income.
When we adopt these sections on January 1, 2007,
we will report the following items in the consolidated
financial statements:
• comprehensive income and its components
• accumulated other comprehensive income and its
components.
p. 71
Financial Instruments
Financial Instruments – Recognition and Measurement,
which describes the standards for recognizing and
measuring financial assets, financial liabilities and nonfinancial derivatives. These changes come into effect for
fiscal years beginning on or after October 1, 2006.
This section requires that:
• all financial assets be measured at fair value, with
some exceptions for loans and investments that are
classified as held to maturity
• all financial liabilities be measured at fair value if
they are derivatives or classified as held for trading
purposes. Other financial liabilities are measured at
their carrying value.
• all derivative financial instruments be measured
at fair value, even when they are part of a hedging
relationship.
The CICA has also reissued section 3860 of the CICA
Handbook as section 3861, Financial Instruments –
Disclosure and Presentation, which establishes standards for presentation of financial instruments and
non-financial derivatives, and identifies the information that should be disclosed about them. These
revisions come into effect for fiscal years beginning
on or after October 1, 2006. These new accounting
standards are not expected to have a significant effect
on our financial results in 2007.
Hedges
Hedges, which describes how and when hedge accounting can be used. These changes come into effect for
fiscal years beginning on or after October 1, 2006.
Hedging is an activity used by a company to change
an exposure to one or more risks by creating an offset
between:
• changes in the fair value of a hedged item and a
hedging item, or
• changes in the cash flows attributable to a hedged
item and a hedging item, or
• changes resulting from a risk exposure related to a
hedged item and a hedging item.
Hedge accounting ensures that all gains, losses, revenues and expenses from the derivative and the item it
hedges are recorded in the statement of operations in
the same period.
We do not expect the new standard to have a
significant effect on our financial results in 2007.
Non-Monetary Transactions
The CICA has reissued section 3830 of the CICA
Handbook as section 3831, Non-Monetary Transactions,
which establishes standards for the measurement and
disclosure of non-monetary transactions. It also includes
criteria for defining ‘commercial substance’ that
replace the criteria for defining ‘culmination of the
earnings process’ in the former section. These changes
come into effect for fiscal years beginning on or after
January 1, 2006. Adopting this section on January 1,
2006 will not have a material effect on our future
consolidated financial statements.
NOTE 2: SEGMENTED INFORMATION
We report our results of operations under five segments: Residential (formerly known as the Consumer
segment), Business, Aliant, Other Bell Canada and
Other BCE. Our segments reflect how we manage our
business and how we classify our operations for planning and measuring performance.
The Residential segment provides local telephone,
long distance, wireless, Internet access, video and
other services to Bell Canada’s residential customers,
mainly in Ontario and Québec. Wireless services are
also offered in Western Canada and video services are
provided nationwide.
The Business segment provides local telephone, long
other services to Bell Canada’s small and mediumsized businesses and large enterprise customers in
Ontario and Québec, as well as business customers in
Western Canada.
The Aliant segment provides local telephone, long
other services to residential and business customers in
Atlantic Canada, and represents the operations of our
subsidiary, Aliant. At December 31, 2005, Bell Canada
owned 53% of Aliant. The remaining 47% was publicly held.
p. 72
The accounting policies used
by the segments are the
same as those we describe in
Note 1, Significant Accounting
Policies. Segments negotiate
sales with each other as if
they were unrelated parties.
We measure the profitability of each segment based
on its operating income.
Our operations, including
most of our revenues,
capital assets and goodwill,
are located in Canada.
The Other Bell Canada segment includes Bell
Canada’s Wholesale business and the financial results of
Télébec, NorthernTel and Northwestel. Our Wholesale
business provides local telephone, long distance, wireless, data and other services to competitors who resell
these services. Télébec, NorthernTel and Northwestel
provide telecommunications services to less populated
areas of Québec, Ontario and Canada’s northern territories. At December 31, 2005, Bell Canada owned
100% of Northwestel and 63% of Télébec and
NorthernTel. The Bell Nordiq Income Fund owned
the remaining 37%.
The Other BCE segment includes the financial
results of our media and satellite businesses as well as
the costs incurred by our corporate office. This segment
includes Bell Globemedia Inc. (Bell Globemedia) and
Telesat Canada (Telesat).
Bell Globemedia provides information and entertainment services to Canadian customers and access
to distinctive Canadian content. It includes CTV Inc.
(CTV), and The Globe and Mail. BCE Inc. owns 68.5% of
Bell Globemedia. The Woodbridge Company Limited
and affiliates own the remaining 31.5%. On December 2,
2005, BCE Inc. announced its decision to reduce its
interest in Bell Globemedia to 20%, contingent on
regulatory approval. Since we will have a continuing
interest in Bell Globemedia, it is not presented as
a discontinued operation.
Telesat provides satellite communications and systems management and is a consultant in establishing,
operating and upgrading satellite systems worldwide.
BCE Inc. owns 100% of Telesat.
In classifying our operations for planning and measuring performance, all restructuring and other items
at Bell Canada and its subsidiaries except for Aliant
are included in the Other Bell Canada segment and
not allocated to the Residential or Business segments.
The tables below are a summary of financial information by segment for the last three years.
For the year ended
December 31, 2005
Operating revenues
External customers
Inter-segment
Operating income
Other income
Interest expense
Income taxes
operations
Segment assets
Investments at equity
RESIDENTIAL
BUSINESS
ALIANT
OTHER
BELL
CANADA
7,527
72
7,599
5,965
155
6,120
1,958
139
2,097
1,768
190
1,958
2,001
910
396
448
INTERSEGMENT
ELIMINATIONS
– BELL
CANADA
INTERSEGMENT
ELIMINATIONS
– OTHER
BELL
CANADA
OTHER
BCE
CONSOLIDATED
–
(524)
(524)
17,218
32
17,250
1,887
206
2,093
–
(238)
(238)
19,105
–
19,105
–
3,755
293
–
4,048
8
(981)
(893)
(267)
1,915
14,405
–
(1,519)
12,319
–
(897)
3,681
–
(363)
3,785
–
(343)
–
–
–
34,190
–
(3,122)
6,440
89
(306)
–
–
–
40,630
89
(3,428)
p. 73
For the year ended
December 31, 2004
Operating revenues
External customers
Inter-segment
Operating income (loss)
Other income
Interest expense
Income taxes
operations
Segment assets
For the year ended
December 31, 2003
Operating revenues
External customers
Inter-segment
Operating income
Other income
Interest expense
Income taxes
operations
Segment assets
RESIDENTIAL
BUSINESS
ALIANT
OTHER
BELL
CANADA
7,440
62
7,502
5,652
199
5,851
1,894
139
2,033
1,736
203
1,939
2,119
896
268
(588)
INTERSEGMENT
ELIMINATIONS
– BELL
CANADA
INTERSEGMENT
ELIMINATIONS
– OTHER
.
BELL
CANADA
OTHER
BCE
CONSOLIDATED
–
(538)
(538)
16,722
65
16,787
1,646
196
1,842
–
(261)
(261)
18,368
–
18,368
–
2,695
199
–
2,894
407
(999)
(681)
(174)
1,447
12,965
–
(1,371)
11,764
–
(1,008)
3,685
–
(295)
4,533
4
(352)
–
–
–
32,947
4
(3,026)
6,193
106
(293)
–
–
–
39,140
110
(3,319)
7,142
61
7,203
5,564
263
5,827
1,909
150
2,059
1,868
147
2,015
–
(490)
(490)
16,483
131
16,614
1,574
187
1,761
–
(318)
(318)
18,057
–
18,057
2,019
781
415
621
–
3,836
194
–
4,030
177
(1,100)
(1,086)
(201)
1,820
13,321
–
(1,287)
11,648
–
(936)
3,840
–
(333)
NOTE 3: BUSINESS ACQUISITIONS
The consolidated statements of operations include
the results of acquired businesses from the date they
were purchased.
We made a number of business acquisitions in
2005, including:
• NR Communications Ltd. (NR Communications) – In
February and November 2005, Bell Canada acquired
100% of the outstanding shares of NR Communications,
which holds a 50% ownership in Inukshuk, a joint
venture entered into with Rogers Communications
Inc. to provide wireless broadband services.
4,698
398
(336)
•
–
–
–
33,507
398
(2,892)
5,895
98
(209)
–
–
–
39,402
496
(3,101)
Nexxlink Technologies Inc. (Nexxlink) – In February
2005, Bell Canada acquired 100% of the outstanding
shares of Nexxlink, a provider of integrated IT solutions.
Of the goodwill acquired in 2005:
• $90 million relates to the Business segment, $23 million relates to the Residential segment, $11 million
relates to the Other Bell Canada segment and $7 million
relates to the Other BCE segment
• $43 million is deductible for tax purposes.
p. 74
Infostream is a systems and
storage technology firm that
provides networking solutions for voice over Internet
protocol (VoIP), storage
area networks and network
management.
We made the following business acquisitions in 2004:
•
•
Canadian operations of 360networks Corporation
(360networks) – In November 2004, Bell Canada
2004, Bell Canada acquired 100% of the outstanding
acquired the Canadian operations of 360networks, a
telecommunications service provider. The purchase
included the shares of 360networks’ subsidiary GT
Group Telecom Services Corporation and certain related
interconnected U.S. network assets. Following the
purchase, Bell Canada sold the retail customer operations in Central and Eastern Canada to Call-Net
Enterprises Inc. (Call-Net). For a share of the revenues,
Bell Canada now provides network facilities and other
operations and support services to Call-Net so it can
service its new customer base. The fair value of the
net assets acquired exceeded the purchase price. For
accounting purposes, the excess was eliminated by:
– reducing the amounts assigned to the acquired
non-monetary assets to nil
– recognizing the balance of $69 million as an
extraordinary gain in our consolidated statement
of operations.
• DownEast Mobility Limited (DownEast) – In October
2004, Aliant acquired 100% of the outstanding shares
of DownEast, a communication solutions retailer.
• Bell West – In August 2004, Bell Canada acquired
Manitoba Telecom Services Inc.’s (MTS) 40% interest in
Bell West. Bell Canada now owns 100% of Bell West.
Charon Systems Inc. (Charon) – In May 2004, Bell
Canada acquired 100% of the assets of Charon.
• Elix Inc. (Elix) – In March 2004, Bell Canada acquired
75.8% of the outstanding shares of Elix.
Charon is a full-service
IT solutions provider that
specializes in server-based
computing, systems
integration, IT security,
software development and
IT consulting.
Elix offers technology consulting, integration and
implementation of call
routing and management
systems, IT application
integration, and design
and implementation of
electronic voice-driven
response systems.
Infostream Technologies Inc. (Infostream) – In May
shares of Infostream.
•
Accutel Conferencing Systems Inc. (Canada) and Accutel
Conferencing Systems Corp. (U.S.) (collectively Accutel) –
•
In February 2004, Bell Canada acquired 100% of the
outstanding shares of Accutel, which provides teleconferencing services.
Of the goodwill acquired in 2004:
• $451 million relates to the Business segment, $4 million relates to the Residential segment, $31 million
relates to the Aliant segment, and $75 million relates
to the Other Bell Canada segment
• $18 million is deductible for tax purposes.
The following tables provide a summary of all business acquisitions made in 2005 and 2004. The purchase price allocation for all 2005 acquisitions includes
certain estimates. The final purchase price allocation
for each business acquisition will be completed within
12 months of the acquisition date.
2005
Consideration received:
Non-cash working capital
Capital assets
Goodwill
Long-term debt
Cash and cash equivalents (bank indebtedness) at acquisition
Net assets acquired
Consideration given: (1)
Cash
Acquisition costs
Non-cash
ALL OTHER
BUSINESS
ACQUISITIONS
NR
COMMUNICATIONS LTD.
NEXXLINK
TECHNOLOGIES INC.
(16)
19
–
57
–
–
–
60
10
70
9
24
–
–
47
–
(6)
74
(3)
71
(12)
85
3
20
84
(61)
(12)
107
13
120
(19)
128
3
77
131
(61)
(18)
241
20
261
69
1
–
70
67
4
–
71
105
2
13
120
241
7
13
261
TOTAL
(1) This does not include contingent payments of $8 million that may be paid if certain conditions specified in the purchase agreements are met.
If the payments are made, the amounts will be allocated to goodwill.
p. 75
2004
CANADIAN
OPERATIONS
OF
360NETWORKS
Consideration received:
Non-cash working capital
Capital assets
Goodwill
Bank indebtedness at acquisition
Net assets acquired
Extraordinary gain
Consideration given:
Cash
Acquisition costs
Future cash payment
Issuance of 582,081 Alliant common shares
NOTE 4: RESTRUCTURING AND
OTHER ITEMS
2005
Restructuring initiatives
Loss on long-term contract
Settlement with MTS
Other charges
Restructuring and
other items
ALL OTHER
BUSINESS
ACQUISITIONS
TOTAL
(9)
–
429
–
(58)
–
362
–
362
–
(15)
5
395
–
261
646
–
646
10
12
10
166
–
–
198
(4)
194
1
(3)
444
561
(58)
261
1,206
(4)
1,202
69
–
–
69
283
10
–
–
293
645
1
–
–
646
174
1
4
15
194
1,102
12
4
15
1,133
EMPLOYEE DEPARTURE PROGRAM –
BELL CANADA
2004
2003
(55)
–
–
–
(1,063)
(128)
75
(108)
–
–
–
(14)
(55)
(1,224)
(14)
The table below provides a summary of the restructuring costs recognized in 2005 as well as the corresponding liability as at December 31, 2005.
Balance in accounts payable
and accrued liabilities at
December 31, 2004
2005 restructuring initiatives
Less:
Cash payments
Reversal of excess provision
Balance in accounts payable
and accrued liabilities at
December 31, 2005
40%
INTEREST
IN BELL
WEST
BELL
CANADA
ALIANT
CONSOLIDATED
120
51
67
–
187
51
(74)
(45)
(54)
–
(128)
(45)
52
13
65
In 2005, we recorded pre-tax restructuring charges of
$55 million consisting of:
• charges of $51 million related to new restructuring
initiatives for the involuntary departure of approximately 950 employees
• charges of $49 million for relocating employees and
closing real estate facilities that are no longer needed
because of the reduction in the workforce from the
2004 employee departure program.
These charges were partly offset by reversals of
restructuring provisions of $45 million that were no
longer necessary since actual payments were lower
than estimated.
The 2004 employee departure program is complete
and the remaining payments extend to 2007. In addition, we expect to spend approximately $25 million in
2006 for relocating employees and closing real estate
facilities that are no longer needed because of our
restructuring initiatives.
p. 76
In 2004, we recorded a pre-tax restructuring charge
of $985 million related to approximately 5,000 employee
departures under the departure program that Bell
Canada announced in June 2004. The program consisted
of two phases:
• an early retirement plan – 3,950 employees chose
to receive a package that included a cash allowance,
immediate pension benefits, an additional guaranteed
pension payable up to 65 years of age, career transition
services and post-employment benefits
• a departure plan – 1,050 employees chose to receive
a special cash allowance.
We also recorded a pre-tax charge of $11 million for
relocating employees and closing real estate facilities
that were no longer needed because of the employee
departure program.
EMPLOYEE DEPARTURE PROGRAM – ALIANT
In 2004, Aliant recorded a pre-tax restructuring charge
of $67 million. Under the employee departure program,
693 employees chose to receive a cash allowance. The
program is complete and the remaining payments
extend to 2008.
LOSS ON LONG-TERM CONTRACT
In 2001, we entered into a contract with the Government of Alberta to build a next-generation network to
bring high-speed Internet and broadband capabilities
to rural communities in Alberta. In 2004, we identified
cost overruns on the contract and recorded a charge of
$128 million. We obtained acceptance from the Government of Alberta during the fourth quarter of 2005.
SETTLEMENT WITH MTS
On May 20, 2004, Bell Canada filed a lawsuit against
MTS after MTS announced it would purchase Allstream
Inc. (Allstream). Bell Canada sought damages and an
injunction that would prevent MTS from breaching
the terms and conditions of the commercial agreements it had with Bell Canada. On June 3, 2004, Bell
Canada also filed a lawsuit against Allstream seeking
damages related to the same announcement.
On June 30, 2004, BCE Inc. reached an agreement
with MTS to settle the lawsuits. The terms of the
settlement included:
• a payment of $75 million by MTS to Bell Canada for
unwinding various commercial agreements. This settlement was recorded in the second quarter of 2004 and
received on August 3, 2004.
• the removal of contractual competitive restrictions
to allow Bell Canada and MTS to compete freely with
each other, effective June 30, 2004
• the orderly disposition of our interest in MTS. Our
voting rights in MTS were waived after receiving the
$75 million payment. We sold our interest in MTS in
December 2004. See Note 5, Other Income, for more
information.
• a premium payment to us by MTS in the event there
is a change in control of MTS before 2006. The payment will equal the appreciation in MTS’s share price
from the time of our divestiture to the time of any
takeover transaction.
OTHER CHARGES
During 2004, we recorded other pre-tax charges
totalling $108 million. These costs consisted mostly
of future lease costs for facilities that were no longer
needed, asset write-downs and other provisions, net of
a reversal of previously recorded restructuring charges
that were no longer necessary because of the introduction of a new employee departure program.
In 2003, Bell Canada recorded other charges of
$65 million that related to various asset write-downs
and other provisions. These charges were offset by a
credit of $66 million relating to the reversal of the
restructuring charges recorded in 2002, which were no
longer necessary because fewer employees were terminated than expected. This resulted from an increase in
the number of employees being transferred to other
positions within Bell Canada.
In 2003, Aliant recorded a pre-tax restructuring
charge of $15 million. This was a result of a restructuring plan at its subsidiary Xwave Solutions Inc. Costs
associated with the restructuring include severance
and related benefits, technology lease cancellation
penalties and real estate rationalization costs. The
restructuring was completed in 2004.
p. 77
NOTE 5: OTHER INCOME
NOTE
Interest income
Securitization losses
Bell Canada International Inc. (BCI) loss monetization charge
Debt restructuring costs
Income (loss) from cost and equity investments
Foreign currency gains (losses)
Other
Other income
NET GAINS ON INVESTMENTS
Net gains on investments of $33 million in 2005
included:
• a $39 million dilution gain in our interest in TerreStar
Networks Inc., a mobile satellite services company
• a $7 million write-down of Bell Globemedia’s investment in TQS Inc.
• other net gains on investments of $1 million.
were from:
• a $108 million gain from the sale of Bell Canada’s
remaining 3.24% interest in YPG General Partner Inc.
(YPG) for net cash proceeds of $123 million
• a $217 million gain from the sale of BCE Inc.’s 15.96%
interest in MTS for net cash proceeds of $584 million.
On August 1, 2004, the MTS shares were transferred
from Bell Canada to BCE Inc. as part of a corporate
reorganization. The purpose of this reorganization was
to ensure that capital loss carryforwards at BCE Inc.
would be available to be utilized against the gain on
the sale of the MTS shares.
• other net losses on investments of $5 million.
were from:
• a $120 million gain from the sale of a 3.66% interest
in YPG for net cash proceeds of $135 million
• a $44 million loss from the write-down of a number
of our cost-accounted investments.
12
10
2005
33
19
15
(34)
(33)
(14)
(11)
(4)
37
8
2004
2003
320
30
19
(26)
–
–
24
3
37
407
76
67
24
(33)
–
–
35
33
(25)
177
NOTE 6: INTEREST EXPENSE
2005
Interest expense on long-term debt (939)
Interest expense on other debt
(42)
Total interest expense
(981)
2004
(954)
(45)
(999)
2003
(1,030)
(70)
(1,100)
NOTE 7: INCOME TAXES
The table below reconciles the amount of reported
income tax expense in the statements of operations
with income tax expense at Canadian statutory rates of
34.4% in 2005, 34.4% in 2004, and 35.4% in 2003.
2005
Income taxes computed at
statutory rates
Savings from BCI
monetization transaction
Large corporations tax
Other
2004
2003
(1,057)
(790)
(1,100)
99
–
(34)
99
(893)
–
120
(37)
26
(681)
–
28
(46)
32
(1,086)
The table below shows the significant components of
income tax expense that related to earnings from
continuing operations.
Current income taxes
Future income taxes
Utilization of loss
carryforwards
Change in statutory rate
Change in temporary
differences and other
2005
2004
2003
(147)
(716)
(677)
(244)
–
(38)
(2)
(402)
(21)
(502)
(893)
75
(681)
14
(1,086)
p. 78
The table below shows future income taxes resulting
from temporary differences between the carrying
amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes, as well
as tax loss carryforwards.
2005
Non-capital loss carryforwards
Capital loss carryforwards
Capital assets
Employee benefit plans
Investments
Other
Future income taxes are comprised of:
Future income tax asset –
current portion
Future income tax asset –
long-term portion
Future income tax liability –
current portion
Future income tax liability –
long-term portion
2004
565
23
(508)
(339)
82
35
(986)
(1,128)
809
23
(289)
(339)
91
49
(756)
(412)
474
485
511
744
(5)
(8)
(2,108)
(1,128)
(1,633)
(412)
At December 31, 2005, BCE had $1,770 million in
non-capital loss carryforwards. We:
• recognized a future tax asset of $565 million for financial reporting purposes for approximately $1,686 million
of the non-capital loss carryforwards. Of the total,
$1,614 million expires in varying annual amounts until
the end of 2015. The balance expires in varying annual
amounts from 2016 to 2025.
• did not recognize a future tax asset for financial
reporting purposes for approximately $84 million of
the non-capital loss carryforwards. Of the total, $12 million expires in varying annual amounts until the end
of 2015. The balance expires in varying annual amounts
from 2016 to 2025.
At December 31, 2005, BCE had $4,507 million in
capital loss carryforwards, which can be carried forward
indefinitely. We:
• recognized a future tax asset of $23 million for financial reporting purposes for approximately $102 million
of the capital loss carryforwards
• did not recognize a future tax asset for financial
reporting purposes on the balance.
BCI LOSS MONETIZATION TRANSACTION
On April 15, 2005, 3787915 Canada Inc., a whollyowned subsidiary of Bell Canada, acquired $17 billion
in preferred shares from 3787923 Canada Inc., a whollyowned subsidiary of BCI. 3787923 Canada Inc. used
the proceeds to advance $17 billion to BCI through
a subordinated interest-free loan. BCI then advanced
$17 billion to 3787915 Canada Inc. by way of a subordinated interest-bearing demand loan, the funds being
used to repay a daylight loan granted to 3787915
Canada Inc. to make the initial preferred share investment. The dividend rate on the preferred shares was
equal to 5.1%, which was essentially the same as the
interest rate on the loan.
This transaction was unwound on August 18, 2005,
and was part of a tax loss consolidation strategy that
followed the transaction steps laid out in an advance
tax ruling granted by the Canada Revenue Agency to
Bell Canada and BCI. The transaction also received the
approval of the Ontario Superior Court of Justice,
which is supervising BCI’s voluntary plan of arrangement pursuant to which BCI is monetizing its assets
and resolving outstanding claims against it, with the
ultimate objective of distributing the net proceeds to
its shareholders and dissolving the company.
3787915 Canada Inc. had the legal right and intention to offset the demand loan payable to BCI and the
investment in preferred shares of 3787923 Canada Inc.
As a result, these items and the related interest
expense and dividend income were presented on a net
basis. The tax savings of $99 million resulting from
the interest expense were presented as a reduction of
income tax expense.
BCI will be compensated for the use of its losses by
Bell Canada through a capital contribution to be made
by BCE Inc. of 88% of the realized tax savings. BCE
Inc.’s ownership interest in BCI remains at 62%. As
a result:
• BCE Inc.’s carrying value of its investment in BCI was
increased to reflect the increase in BCE Inc.’s share of
the expected proceeds upon BCI’s eventual liquidation
• a charge to other income was recorded to reflect the
non-controlling interest’s portion of the capital contribution to be made by BCE Inc.
p. 79
NOTE 8: DISCONTINUED OPERATIONS
CGI Group Inc. (CGI)
Emergis
Teleglobe Inc. (Teleglobe)
Aliant’s emerging
business segment
Aliant’s emerging
communications segment
Net gain (loss) from
discontinued operations
2005
2004
46
–
–
54
23
–
51
(154)
39
–
–
(4)
–
–
63
46
77
(5)
2003
The table below is a summarized statement of operations for the discontinued operations.
Revenue
Operating gain from discontinued
operations, before tax
Future income tax asset
impairment charge
Gain (loss) from discontinued
operations, before tax
Income tax expense on
operating gain
Income tax recovery (expense)
on loss (gain)
Net gain (loss) from
2005
2004
2003
897
941
1,629
74
84
150
–
(56)
–
(1)
70
(70)
(27)
(40)
(62)
–
–
(3)
22
17
(40)
46
77
(5)
The table below is a summary of cash provided by
discontinued operations.
Cash flows from operating
activities
Cash flows (used in) from
investing activities
Cash flows (used in) from
financing activities
Cash provided by
2005
2004
2003
128
91
260
(19)
(42)
150
(94)
101
(60)
15
150
350
CGI
On December 16, 2005, we announced our decision to
sell our investment in CGI and that CGI would purchase 100 million of the Class A shares held by us. As
at December 31, 2005, we have accounted for CGI as a
discontinued operation and no longer proportionately
consolidate its financial results. CGI was previously
presented in the Other BCE segment.
The transaction was finalized on January 12, 2006
and we realized total proceeds of $859 million. The
gain on disposition was approximately $90 million. As
a result of the transaction, our ownership in CGI
decreased from 29.8% to 8.6%. Our remaining investment will be accounted for at cost.
Our current IS/IT outsourcing contract with CGI
has been extended by four years until June 2016.
Our proportionate share of CGI’s operating leases
and other contractual obligations is $378 million
($72 million in 2006, $53 million in 2007, $39 million
in 2008, $33 million in 2009, $28 million in 2010 and
$153 million thereafter).
EMERGIS
In May 2004, our board of directors approved the
sale of our 63.9% interest in Emergis, and in June
2004 we completed the sale by way of a secondary
public offering.
In June 2004, Bell Canada paid $49 million to
Emergis for:
• the purchase of Emergis’ Security business
• the early termination of the Bell Legacy Contract on
June 30, 2004 rather than December 31, 2004
• the transfer of related intellectual property to
Bell Canada.
Emergis provides e-business
solutions to the financial
services industry in North
America and the health-care
industry in Canada. It automates transactions between
companies and allows them
to interact and transact electronically. Before Emergis
sold its Security business it
also provided organizations
with the related security
services. Before it sold its
US Health operations,
Emergis also operated cost
containment networks that
processed medical claims for
health-care payers, including
insurance companies and
self-insured entities.
These transactions were recorded on a net basis. The
net proceeds from the sale of Emergis were $285 million
(net of $22 million of selling costs and a $49 million
consideration given to Emergis). The gain on the
transaction was $58 million.
The operating loss includes a future income tax
asset impairment charge of $56 million ($36 million
after non-controlling interest), which Emergis recorded
before the sale as a result of the unwinding of tax loss
utilization strategies that had been in place between
Emergis, 4122780 Canada Inc. (a wholly-owned subsidiary of Emergis) and Bell Canada.
Emergis completed the sale of its US Health operations in March 2004 for US$223 million in cash. The
loss on the transaction was $87 million ($160 million
after non-controlling interest and BCE Inc.’s incremental goodwill), which was recorded in December 2003.
Emergis was presented previously as a separate segment.
p. 80
Teleglobe provided international voice and data
telecommunications services.
It also provided retail
telecommunications services
through its investment in
the Excel Communications
group until the second
quarter of 2002. These services included long distance,
paging and Internet services
to residential and business
customers in North America.
TELEGLOBE
Aliant’s emerging business
segment consisted mainly
of Aliant’s investments in
iMagicTV Inc., Prexar LLC
and AMI Offshore Inc.
iMagicTV Inc. is a software
development company that
provides broadband TV
software and solutions to
service providers around the
world. Prexar LLC is an
Internet services provider.
AMI Offshore Inc. provides
process and systems control
technical services, and
contracts manufacturing
solutions to offshore oil and
gas and other industries.
Aliant’s remote communications segment consisted of
Aliant’s 53.2% investment
in Stratos. Stratos offers
Internet Protocol (IP), data
and voice access services
through a range of emerging
and established technologies,
including satellite and
microwave, to customers
in remote locations.
Effective April 24, 2002, we started presenting the
financial results of Teleglobe as a discontinued operation. They were previously presented as a separate
segment.
The net gain of $39 million in 2003 related mainly to
the use of available loss carryforwards that were applied
against the taxes payable relating to Bell Canada’s sale of
a 3.66% interest in the directories business and Aliant’s
sale of Stratos Global Corporation (Stratos). The tax
benefit associated with the remaining unused capital
losses has not been reflected in the financial statements.
ALIANT’S REMOTE COMMUNICATIONS
SEGMENT
Effective December 2003, we started presenting the
financial results of Aliant’s remote communications
segment as a discontinued operation. They were previously presented in the Bell Canada segment.
In December 2003, Aliant completed the sale
of Stratos after receiving the required regulatory
approvals. Aliant received $340 million ($320 million
net of selling costs) in cash for the sale. The transaction resulted in a gain on sale of $105 million
($48 million after taxes and non-controlling interest).
ALIANT’S EMERGING BUSINESS
SEGMENT
Effective May 2003, we started presenting the financial
results of Aliant’s emerging business segment as a discontinued operation. They were previously presented
in the Bell Canada segment.
Almost all of the assets of Aliant’s emerging business segment were sold at December 31, 2003.
NOTE 9: EARNINGS PER SHARE
The table below is a reconciliation of the numerator and the denominator used in the calculation of basic and
diluted earnings per common share from continuing operations.
2005
2004
2003
Earnings from continuing operations (numerator)
Earnings from continuing operations – basic
1,915
(70)
–
1,845
1,447
(70)
–
1,377
1,820
(64)
(7)
1,749
Weighted average number of common shares outstanding (denominator) (in millions)
Weighted average number of common shares outstanding – basic
Assumed exercise of stock options (1)
Weighted average number of common shares outstanding – diluted
926.8
0.3
927.1
924.6
0.6
925.2
920.3
1.6
921.9
(1) The calculation of the assumed exercise of stock options includes the effect of the average unrecognized future compensation cost of dilutive
options. It does not include anti-dilutive options. These are options that would not be exercised because their exercise price is higher than the
average market value of a BCE Inc. common share for each of the periods shown in the table. Including them would cause our diluted earnings per
share to be overstated. The number of excluded options was 24,466,767 in 2005, 26,693,305 in 2004 and 22,176,302 in 2003.
p. 81
NOTE 10: ACCOUNTS RECEIVABLE
Trade accounts receivable
Allowance for doubtful accounts
Allowance for revenue adjustments
Income taxes receivable
Other accounts receivable
2005
2004
1,842
(130)
(118)
48
124
1,766
2,100
(144)
(102)
1
96
1,951
SECURITIZATION OF ACCOUNTS RECEIVABLE
Bell Canada sold an interest in a pool of accounts
receivable to a securitization trust for a total of $1.2 billion in cash at December 31, 2005 ($1 billion at December 31, 2004), under a revolving sales agreement that
came into effect on December 12, 2001. The agreement
expires on December 12, 2006. Bell Canada had a
retained interest of $133 million in the pool of accounts
receivable at December 31, 2005 ($133 million at
December 31, 2004), which equals the amount of overcollateralization in the receivables it sold.
Aliant sold an interest in a pool of accounts receivable to a securitization trust for a total of $120 million
in cash at December 31, 2005 ($125 million at December 31, 2004), under a revolving sales agreement that
came into effect on December 13, 2001. The agreement
expires on December 13, 2006. Aliant had a retained
interest of $39 million in the pool at December 31,
2005 ($43 million at December 31, 2004).
Bell Canada and Aliant continue to service these
accounts receivable. The buyers’ interest in the collection of these accounts receivable ranks ahead of the
interests of Bell Canada and Aliant, which means that
Bell Canada and Aliant are exposed to certain risks of
default on the amount securitized. They have provided
various credit enhancements in the form of overcollateralization and subordination of their retained interests.
The buyers will reinvest the amounts collected by
buying additional interests in the Bell Canada and
Aliant accounts receivable until the agreements expire.
The buyers and their investors have no claim on Bell
Canada’s and Aliant’s other assets if customers do not
pay amounts owed on time.
In 2005, we recognized a pre-tax loss of $34 million
on the revolving sale of accounts receivable for the
combined securitizations, compared to $26 million in
2004 and $33 million in 2003.
The table below shows balances for the combined
securitizations at December 31, 2005 and the assumptions that were used in the model on the date of transfer and at December 31, 2005. A 10% or 20% adverse
change in each of these assumptions would have no
significant effect on the current fair value of the
retained interest.
RANGE
Securitized interest in
accounts receivable
Retained interest
Servicing liability
Average accounts
receivable managed
Assumptions:
Cost of funds
Average
delinquency ratio
Average net
credit loss ratio
Weighted average
life (days)
Servicing fee liability
2005
2004
1,354
172
1.8
1,125
176
1.3
1,972
1,513
2.54%–2.86%
2.86%
2.58%
7.70%–12.32%
12.32%
7.20%
0.55%–0.90%
0.56%
0.90%
32–37
2.00%
37
2.00%
32
2.00%
The table below is a summary of certain cash flows
received from and paid to the trusts during the year.
Collections reinvested in revolving sales
Increase in sale proceeds
2005
2004
17,724
229
14,360
95
NOTE 11: OTHER CURRENT ASSETS
Future income taxes
Inventory
Prepaid expenses
Other
NOTE
2005
2004
7
474
338
205
125
1,142
485
295
232
49
1,061
p. 82
NOTE 12: CAPITAL ASSETS
2005
Telecommunications assets:
Inside plant
Outside plant
Station equipment
Machinery and equipment
Buildings
Plant under construction
Satellites
Land
Other
Total property, plant and equipment
Finite-life intangible assets:
Software
Customer relationships
Other
Total capital assets
COST
NET BOOK
VALUE
19,246
14,433
2,655
6,273
3,157
1,852
1,552
94
200
49,462
13,358
9,475
1,311
3,685
1,340
–
404
–
66
29,639
3,163
623
27
53,275
1,497
64
13
31,213
The cost of assets under capital leases was $1,283 million at December 31, 2005, and $848 million at
December 31, 2004. The net book value of these
assets was $887 million at December 31, 2005, and
$530 million at December 31, 2004.
Amortization of capital assets was $3,111 million
in 2005, $3,044 million in 2004, and $3,048 million
in 2003.
We capitalized total interest costs of $15 million in
2005, $19 million in 2004, and $24 million in 2003.
Additions to finite-life intangible assets were
$503 million in 2005 and $619 million in 2004.
NOTE 13: OTHER LONG-TERM ASSETS
NOTE
2005
2004
Accrued benefit asset
24
Future income taxes
7
Investments at cost
Investment tax credits receivable
Deferred debt issuance costs
Long-term notes and other receivables
Deferred development costs
Other
1,164
511
465
345
89
77
63
16
184
2,914
1,128
744
261
–
110
82
135
8
160
2,628
2004
ACCUMULATED
AMORTIZATION
COST
ACCUMULATED
AMORTIZATION
NET BOOK
VALUE
5,888
4,958
1,344
2,588
1,817
1,852
1,148
94
134
19,823
18,011
14,303
3,167
5,529
2,681
1,605
1,769
95
215
47,375
12,452
9,107
1,910
3,039
1,384
–
758
–
71
28,721
5,559
5,196
1,257
2,490
1,297
1,605
1,011
95
144
18,654
1,666
559
14
22,062
3,158
603
10
51,146
1,274
42
5
30,042
1,884
561
5
21,104
Investments at equity include goodwill of $28 million at December 31, 2005 and December 31, 2004.
Amortization of deferred charges was $3 million in
2005, $12 million in 2004, and $14 million in 2003.
NOTE 14: INDEFINITE-LIFE
INTANGIBLE ASSETS
Brand name
Spectrum licences
Television licences
Cable licences
2005
2004
1,986
895
132
18
3,031
1,986
778
134
18
2,916
p. 83
NOTE 15: GOODWILL
NOTE
RESIDENTIAL
BUSINESS
ALIANT
OTHER
BELL
CANADA
OTHER
BCE
CONSOLIDATED
3
3,062
23
3,085
1,833
90
1,923
562
–
562
289
11
300
2,010
7
2,017
7,756
131
7,887
Balance – December 31, 2004
Additions
Balance – December 31, 2005
NOTE 16: ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
NOTE
Trade accounts payable
and accruals
Compensation payable
Deferred revenues
Taxes payable
Restructuring charges payable
Future income taxes
Other current liabilities
4
7
2005
2004
1,782
548
441
274
65
5
320
3,435
1,830
506
385
216
187
8
312
3,444
NOTE 17: DEBT DUE WITHIN ONE YEAR
NOTE
Bank advances
Notes payable
Long-term debt due within one year
WEIGHTED
AVERAGE
INTEREST RATE
3.37%
4.11%
18
WEIGHTED
AVERAGE
MATURITY
N/A
30 days
2005
2004
7
80
1,286
1,373
18
137
1,117
1,272
N/A: Not applicable.
Restrictions
Some of the credit agreements:
• require us to meet specific financial ratios
• restrict our acquisition of capital assets
• restrict the payment of dividends.
We are in compliance with all conditions and restrictions.
p. 84
NOTE 18: LONG-TERM DEBT
WEIGHTED
AVERAGE
INTEREST RATE
MATURITY
2005
2004
BCE Inc. – Notes (a)
6.86%
2006–2009
2,000
2,000
Bell Canada
Debentures and notes (b)
Subordinated debentures
Capital leases (c)
Other
7.14%
8.21%
6.16%
2006–2054
2026–2031
2006–2047
8,380
275
854
73
9,582
8,246
275
400
75
8,996
7.65%
2007–2025
885
19
904
885
11
896
Bell Globemedia (e)
Revolving reducing term credit agreements
Notes
Total – Bell Globemedia
3.97%
6.44%
2006
2009–2014
30
450
480
40
450
490
Telesat – Notes and other
7.84%
2006–2009
340
289
–
18
13,306
99
(1,286)
12,119
12,689
113
(1,117)
11,685
NOTE
Total – Bell Canada
Aliant
Debentures, notes and bonds (d)
Other
Total – Aliant
Other
Total debt
Unamortized premium (f)
Less: Amount due within one year
Long-term debt
17
(a) BCE Inc.
All notes are unsecured. BCE Inc. has the option to
redeem $1.7 billion in notes at any time.
(b) Bell Canada
All debentures and notes are unsecured. They include:
• US$200 million maturing in 2006 and US$200 million maturing in 2010, both of which have been swapped
into Canadian dollars
• $125 million of long-term debt, which includes a
call option that allows for early redemption of the
debentures.
(c) Bell Canada
Capital leases include $353 million in 2005 and
$364 million in 2004, netted by loans receivable of
$267 million in 2005 and $284 million in 2004. These
obligations arose from agreements that Bell Canada
entered into in 1999 and 2001 to sell and lease back
telecommunications equipment for a total of $391 mil-
lion. Some of the proceeds were invested in interestbearing loans receivable. The capital lease obligations,
net of loans, were originally issued for US$39 million
and have been swapped into Canadian dollars.
(d) Aliant
All debentures and notes are unsecured. The bonds
($185 million in 2005 and 2004) are secured by deeds
of trust and mortgage, and by supplemental deeds.
These instruments contain a first fixed and specific
mortgage, a pledge and charge upon all real and tangible property and equipment, which includes inventory and all capital investments except software, and
all rights and licences related to that property of
Aliant Telecom Inc., based on province of issue. The
bonds also provide, based on province of issue, a floating charge on all future real and tangible property of
Aliant Telecom Inc. and all revenues and proceeds
derived from that property. Aliant Telecom Inc. has
swapped $100 million of debt from fixed to floating
interest rates.
p. 85
In addition, it has also issued swaptions related to
two outstanding issues of long-term debt with a total
notional amount of $90 million. The swaptions will
permit the counterparty to enter into interest rate
swap transactions. If exercised, these swaptions will
involve the payment of fixed interest rates in exchange
for the receipt of the three-month bankers’ acceptance
floating rate from 2006 until maturity in 2013.
NOTE 20: NON-CONTROLLING INTEREST
(e) Bell Globemedia
Preferred shares issued by subsidiaries:
Bell Canada
Aliant
Telesat
Assets of CTV and one of its subsidiaries, CTV Specialty
Television Inc. (CTV Specialty), are collateral for these
agreements. $95 million of the short-term advances at
December 31, 2004 were repaid to BCE Inc. in January
2005. These were replaced with long-term debt under
existing long-term facilities. CTV and CTV Specialty
have fixed interest rates through swap agreements on
$95 million of bank debt.
Non-controlling interest in subsidiaries:
Bell Globemedia
Aliant
Bell Nordiq Group Inc.
(Bell Nordiq)
Other
2005
2004
817
585
775
640
150
24
1,576
143
28
1,586
1,100
172
50
1,322
2,898
1,100
172
50
1,322
2,908
NOTE 21: FINANCIAL INSTRUMENTS
(f) Unamortized Premium
DERIVATIVES
This amount represents the unamortized purchase
price allocated to long-term debt resulting from BCE’s
repurchase of SBC Communications Inc.’s 20% interest
in Bell Canada Holdings Inc.
We use derivative instruments to manage our exposure to interest rate risk, foreign currency risk and
changes in the price of BCE Inc. common shares that
may be issued under our compensation plans (SCPs
and DSUs). We do not use derivative instruments for
speculative purposes. Since we do not trade actively in
derivative instruments, we are not exposed to any
significant liquidity risks relating to them.
The following derivative instruments were outstanding at December 31, 2005:
• cross-currency swaps and forward contracts that
hedge foreign currency risk on a portion of our longterm debt
• interest rate swaps that hedge interest rate risk on a
portion of our long-term debt
• forward contracts that hedge foreign currency risk
on anticipated transactions
• forward contracts on BCE Inc. common shares that
hedge the fair value exposure related to SCPs and DSUs.
Restrictions
Some of the debt agreements:
require us to meet specific financial ratios
• impose covenants, maintenance tests and new issue
tests
• restrict the payment of dividends
• restrict how we can dispose of Bell Canada voting
shares.
•
We are in compliance with all conditions and
restrictions.
NOTE 19: OTHER LONG-TERM LIABILITIES
Future income taxes
Accrued benefit liability
Deferred revenue on
long-term contracts
Deferred contract payments
Other
Total other long-term liabilities
NOTE
2005
2004
7
24
2,108
1,606
1,633
1,519
389
199
762
5,028
446
254
982
4,834
CREDIT RISK
We are exposed to credit risk if counterparties to our
derivative instruments are unable to meet their obligations. We expect that they will be able to meet their
obligations because we deal with institutions that
have strong credit ratings and we regularly monitor
our credit risk and credit exposure.
p. 86
There was minimal credit risk relating to derivative
instruments at December 31, 2005. We are also exposed
to credit risk from our customers, but the concentration of this risk is minimized because we have a large
and diverse customer base.
CURRENCY EXPOSURES
We use cross-currency swaps and forward contracts to
hedge debt that is denominated in foreign currencies.
We also use forward contracts to hedge foreign currency risk on anticipated transactions. Derivatives that
qualify for hedge accounting, and the underlying
hedged items, are marked-to-market at current rates.
The principal amount to be received under currency
contracts was US$600 million at December 31, 2005.
The principal amount to be paid under these contracts
was $798 million at December 31, 2005.
INTEREST RATE EXPOSURES
We use interest rate swaps to manage the mix of fixed
and floating interest rates on our debt. We have entered
into interest rate swaps with a notional amount of
$895 million, as follows:
• $700 million of interest rate swaps whereby we pay
interest at a rate equal to the three-month bankers’
acceptance floating interest rate plus 0.42%. We receive
interest on these swaps at a rate of 5.0%. The swaps
mature in 2017.
• $100 million interest rate swap whereby we pay
interest at a rate equal to the three-month bankers’
acceptance floating interest rate plus 2.1%. We receive
interest on the swap at a rate of 6.8%. The swap
matures in 2011.
$75 million interest rate swap whereby we pay interest
at a rate of 3.2%. We receive interest on the swap at a
rate equal to the three-month bankers’ acceptance
floating rate. The swap matures in 2006.
• $20 million interest rate swap whereby we pay interest
at a rate of 4.7%. We receive interest on the swap at a
rate equal to the three-month bankers’ acceptance
floating rate. The swap matures in 2006.
•
We have also issued swaptions to permit the counterparty to enter into interest rate swap transactions for a
notional amount of $90 million. If exercised, these
swaptions will involve the payment of fixed interest
rates of 10.5% and 11.1% in exchange for the receipt of
the three-month bankers’ acceptance floating rate
from 2006 until maturity in 2013.
FAIR VALUE
Fair value is the amount that willing parties would
accept to exchange a financial instrument based on
the current market for instruments with the same
risk, principal and remaining maturity. We base fair
values on estimates using present value and other
valuation methods.
These estimates are affected significantly by assumptions we make about the amount and timing of estimated future cash flows and discount rates, which all
reflect varying degrees of risk. Potential income taxes
and other expenses that would be incurred on disposition of these financial instruments are not reflected
in the fair values. As a result, the fair values are not
necessarily the net amounts that would be realized if
these instruments were actually settled.
The carrying value of all financial instruments approximates fair value, except for those noted in the table below.
2005
Investment in Nortel (1)
Long-term debt due within one year
Long-term debt
Derivative financial instruments, net asset (liability) position:
Forward contracts – BCE Inc. shares
Currency contracts (2)
Interest rate swaps and swaptions
2004
CARRYING
VALUE
FAIR
VALUE
CARRYING
VALUE
FAIR
VALUE
55
1,286
12,119
52
1,304
13,800
54
1,117
11,685
59
1,130
13,623
–
(83)
(8)
(1)
(120)
(17)
(37)
(65)
(10)
(41)
(97)
(29)
(1) We have designated 4 million of our approximately 15 million Nortel common shares to manage our exposure to outstanding rights to SCPs.
(2) Currency contracts include cross-currency interest rate swaps and foreign currency forward contracts. Some of the cross-currency interest rate
swaps are economic hedges that do not qualify for hedge accounting. We carry these at fair value and all gains or losses are recorded in the
statement of operations.
p. 87
NOTE 22: SHARE CAPITAL
PREFERRED SHARES
BCE Inc.’s articles of amalgamation provide for an
unlimited number of First Preferred Shares and Second
Preferred Shares. The terms set out in the articles
authorize BCE Inc.’s directors to issue the shares in one
or more series and to set the number of shares and
conditions for each series.
The table below is a summary of the principal
terms of BCE Inc.’s First Preferred Shares. There were
no Second Preferred Shares issued and outstanding at
December 31, 2005. BCE Inc.’s articles of amalgamation describe the terms and conditions of these shares
in detail.
NUMBER OF SHARES
ANNUAL
DIVIDEND
SERIES
RATE
CONVERTIBLE INTO
CONVERSION
DATE
REDEMPTION
DATE
REDEMPTION
PRICE
AUTHORIZED
ISSUED
AND OUTSTANDING
Q
R
S
T
Y
Z
AA
AB
AC
AD
Series R
Series Q
Series T
Series S
Series Z
Series Y
Series AB
Series AA
Series AD
Series AC
December 1, 2015
December 1, 2010
November 1, 2006
November 1, 2011
December 1, 2007
December 1, 2007
September 1, 2007
September 1, 2012
March 1, 2008
March 1, 2013
At any time
December 1, 2010
At any time
November 1, 2011
At any time
December 1, 2007
September 1, 2007
At any time
March 1, 2008
At any time
$25.50
$25.00
$25.50
$25.00
$25.50
$25.00
$25.00
$25.50
$25.00
$25.50
8,000,000
8,000,000
8,000,000
8,000,000
10,000,000
10,000,000
20,000,000
20,000,000
20,000,000
20,000,000
–
8,000,000
8,000,000
–
1,147,380
8,852,620
20,000,000
–
20,000,000
–
floating
4.54%
floating
fixed
floating
5.319%
5.45%
floating
5.54%
floating
STATED
CAPITAL
AT
DECEMBER 31
2005
2004
–
200
200
–
29
221
510
–
510
–
1,670
–
200
200
–
29
221
510
–
510
–
1,670
Voting Rights
Conversion Features
All of the issued and outstanding preferred shares at
December 31, 2005 were non-voting, except under
special circumstances when the holders are entitled to
one vote per share.
All of the issued and outstanding preferred shares at
December 31, 2005 are convertible at the holder’s
option into another associated series of preferred
shares on a one-for-one basis according to the terms
set out in BCE Inc.’s articles of amalgamation.
Entitlement to Dividends
Holders of Series R, Z, AA and AC shares are entitled
to fixed cumulative quarterly dividends. The dividend
rate on these shares is reset every five years, as set out
in BCE Inc.’s articles of amalgamation.
Holders of Series S and Y shares are entitled to
floating adjustable cumulative monthly dividends.
If Series Q, AB and AD shares are issued, their
holders will be entitled to floating adjustable cumulative monthly dividends.
If Series T shares are issued, their holders will be
entitled to fixed cumulative quarterly dividends.
Redemption Features
BCE Inc. may redeem Series R, Z, AA and AC shares
on the redemption date and every five years after
that date.
If Series T shares are issued, BCE Inc. may redeem
them on the redemption date and every five years after
that date.
BCE Inc. may redeem Series S and Y shares at any
time at $25.50 per share (being a 2% premium to the
issue price). If Series Q, AB and AD shares are issued,
BCE Inc. may redeem them at any time at $25.50
per share.
p. 88
COMMON SHARES AND CLASS B SHARES
BCE Inc.’s articles of amalgamation provide for an
unlimited number of voting common shares and nonvoting Class B shares. The common shares and the
Class B shares rank equally in the payment of dividends and in the distribution of assets if BCE Inc. is
liquidated, dissolved or wound up, after payments due
to the holders of preferred shares.
The table below provides details about the outstanding common shares of BCE Inc. No Class B shares
were outstanding at December 31, 2005 and 2004.
2005
2004
NUMBER
OF SHARES
STATED
CAPITAL
NUMBER
OF SHARES
STATED
CAPITAL
Outstanding, beginning of year
Shares issued under employee stock option plan
Outstanding, end of year
925,935,682
1,383,234
927,318,916
16,781
25
16,806
923,988,818
1,946,864
925,935,682
16,749
32
16,781
Dividend Reinvestment Plan
The trustee of the ESPs buys BCE Inc. common
shares for the participants on the open market, by private purchase or from BCE Inc. (where the shares are
issued from Treasury). BCE Inc. chooses the method
that the trustee uses to buy the shares.
There were 34,544 employees participating in the
plans at December 31, 2005. The total number of
common shares bought for employees was 6,222,262
in 2005 and 6,818,079 in 2004. The compensation
expense related to ESPs was $38 million in 2005, 2004
and 2003. At December 31, 2005, 13,513,812 common
shares were reserved for issuance under the ESPs.
The dividend reinvestment plan allows eligible common
shareholders to use their dividends to buy additional
common shares. A trustee buys BCE Inc. common shares
for the participants on the open market, by private
purchase or from BCE Inc. (where the shares are issued
from Treasury). BCE Inc. chooses the method the trustee
uses to buy the shares.
A total of 3,039,870 common shares were bought on
the open market under this plan for $91 million in
2005. A total of 3,198,015 common shares were bought
on the open market under this plan for $89 million
in 2004.
STOCK OPTIONS
NOTE 23:
STOCK-BASED COMPENSATION PLANS
EMPLOYEE SAVINGS PLANS
ESPs are designed to encourage employees of BCE Inc.
and its participating subsidiaries to own shares of
BCE Inc. Each year, employees who participate in the
plans can choose to have up to a certain percentage of
their annual earnings withheld through regular payroll
deductions in order to buy BCE Inc. common shares.
In some cases, the employer will also contribute up
to a maximum percentage of the employee’s annual
earnings to the plan.
Each participating company decides on its maximum percentages. For Bell Canada, employees can
contribute up to 12% of their annual earnings. Bell
Canada contributes up to 2%.
Under BCE Inc.’s long-term incentive programs,
BCE Inc. may grant options to key employees to buy
BCE Inc. common shares. The subscription price is
usually equal to the market value of the shares on the
last trading day before the grant comes into effect. At
December 31, 2005, 25,255,113 common shares were
authorized for issuance under these programs.
For options granted before January 1, 2004, the
right to exercise options generally vests or accrues at
25% a year for four years of continuous employment
from the date of grant, unless a special vesting period
applies. Options become exercisable when they vest
and can generally be exercised for a period of up to
10 years from the date of grant.
For most options granted after January 1, 2004, the
right to exercise options vests after two and three
years of continuous employment from the date of
grant and if a specific company wide performance
p. 89
target is met. Options become exercisable when they
vest and can be exercised for a period of up to six
years from the date of grant. Subject to achieving
this specific performance target, 50% of the options
will vest after two years and the remaining 50% after
three years. Special vesting provisions may apply if:
• there is a change of control of BCE Inc. and the option
holder’s employment ends under certain circumstances
• the option holder is employed by a designated subsidiary of BCE Inc., and BCE Inc.’s ownership interest
in that subsidiary falls below the percentage set out in
the program.
When the Nortel common shares were distributed in
May 2000, each outstanding BCE Inc. stock option
was cancelled and replaced by two new stock options.
The first option gives the holder the right to buy one
BCE Inc. common share. The second option gives the
holder the right to buy approximately 1.57 post-split
common shares of Nortel (Nortel option) at exercise
prices that maintain the holder’s economic position.
The table below is a summary of the status of BCE Inc.’s stock option programs.
2005
NUMBER
OF SHARES
Granted
Exercised
Forfeited
Exercisable, December 31
2004
WEIGHTED
AVERAGE
EXERCISE
PRICE ($)
28,481,679
1,481,924
(1,383,234)
(1,237,634)
27,342,735
16,505,709
$32
$28
$18
$34
$32
$34
NUMBER
OF SHARES
2003
WEIGHTED
AVERAGE
EXERCISE
PRICE ($)
25,750,720
5,911,576
(1,946,864)
(1,233,753)
28,481,679
14,633,433
NUMBER
OF SHARES
$32
$30
$16
$34
$32
$34
24,737,423
6,008,051
(552,681)
(4,442,073)
25,750,720
10,722,294
WEIGHTED
AVERAGE
EXERCISE
PRICE ($)
$34
$28
$17
$35
$32
$33
The table below shows more about BCE Inc.’s stock option programs at December 31, 2005.
STOCK OPTIONS OUTSTANDING
NUMBER
WEIGHTED
AVERAGE
REMAINING
LIFE
749,254
12,852,301
7,750,392
5,990,788
27,342,735
2.36 years
5.67 years
5.68 years
4.78 years
5.39 years
RANGE OF
EXERCISE PRICES
Below $20
$20–$29
$30–$39
Over $40
ASSUMPTIONS USED IN STOCK OPTION
PRICING MODEL
The following table shows the assumptions used to
determine the stock-based compensation expense
using the Black-Scholes option pricing model.
STOCK OPTIONS EXERCISABLE
WEIGHTED
AVERAGE
EXERCISE
PRICE ($)
$15
$29
$34
$41
$32
NUMBER
WEIGHTED
AVERAGE
EXERCISE
PRICE ($)
749,254
3,198,525
6,567,142
5,990,788
16,505,709
$15
$28
$34
$41
$34
2005
2003
2004
Compensation expense
($ millions)
16
22
22
Number of stock
options granted
1,481,924 5,911,576 6,008,051
Weighted average fair value
3
4
6
per option granted ($)
Weighted average assumptions:
Dividend yield
4.4%
4.0%
3.6%
Expected volatility
19%
27%
30%
Risk-free interest rate
3.6%
3.1%
4.0%
Expected life (years)
3.5
3.5
4.5
p. 90
Starting in 2004, most of the stock options granted
contain a specific performance target that must be met
before the option can be exercised. This is reflected in
the calculation of the weighted average fair value per
option granted.
RESTRICTED SHARE UNITS
In 2004, BCE Inc. granted RSUs to executives and
other key employees. The value of an RSU is always
equal to the value of one BCE Inc. common share.
Dividends in the form of additional RSUs are credited
to the participant’s account on each dividend payment
date and are equivalent in value to the dividend paid
on BCE Inc. common shares. Each executive is granted
a specific number of RSUs for a given performance
period, based on his or her position and level of
contribution. At the end of each given performance
period, RSUs vest if performance objectives are met or
are forfeited.
Vested RSUs are paid in BCE Inc. common shares
purchased on the open market, in cash or through
a combination of both, as the holder chooses, as long
as individual share ownership requirements are met.
The table below is a summary of the status of RSUs.
NUMBER OF RSUS
2005
Granted
Dividends credited
Forfeited
1,996,522
504,427
100,657
(80,825)
2,520,781
2004
–
1,986,513
61,086
(51,077)
1,996,522
For the year ended December 31, 2005, we recorded
a compensation expense for RSUs of $37 million
($25 million in 2004).
SPECIAL COMPENSATION PAYMENTS
Before 2000, when BCE Inc. granted options to executives and other key employees, related rights to SCPs
were also often granted. SCPs are cash payments representing the amount that the market value of the
shares on the date of exercise of the related options
exceeds the exercise price of these options.
When the distribution of Nortel common shares
was made in 2000, the outstanding options were
cancelled and replaced with options to buy BCE Inc.
common shares and options to buy Nortel common
shares. The related SCPs were adjusted accordingly.
For each right to an SCP held before the distribution, right holders now have rights related to both
BCE Inc. and Nortel common shares.
The number of SCPs outstanding at December 31,
2005 was:
• 490,058 relating to BCE Inc. common shares
• 2,332,004 relating to Nortel common shares.
All of the outstanding SCPs cover the same number of
shares as the options that they relate to. It is the
employer’s responsibility to make the payments under
the SCPs. There was income related to SCPs of $3 million in 2005, $9 million in 2004, and $29 million in
2003. These amounts included the recovery of SCP
expense as a result of forfeitures in the amounts of
$3 million, $14 million and $50 million for the years
2005, 2004 and 2003 respectively.
DEFERRED SHARE UNITS
Eligible bonuses may be paid in the form of DSUs
when executives or other key employees elect or are
required to participate in the plan. For non-management directors, their compensation is paid in DSUs
until the minimum share ownership requirement is
met or as elected by the directors thereafter.
The value of a DSU is always equal to the value of
one BCE Inc. common share. 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 Inc.
common shares.
DSUs are paid in BCE Inc. common shares purchased on the open market following the cessation of
a participant’s employment or when a director leaves
the board.
p. 91
The table below is a summary of the status of DSUs.
NUMBER OF DSUS
2005
2004
2003
886,714 703,995 890,834
Granted
173,158 306,225 154,417
Dividends credited
40,668
37,226
31,472
Payments
(115,892) (160,732) (372,728)
Outstanding, December 31 984,648 886,714 703,995
For the year ended December 31, 2005, we recorded
a compensation expense for DSUs of $4 million
(expense of $5 million in 2004 and income of $5 million in 2003).
NOTE 24: EMPLOYEE BENEFIT PLANS
We provide pension, other retirement and postemployment benefits for almost all of our employees.
These include DB pension plans, plans that provide
other employee future benefits and DC pension plans.
Pension benefits:
DB plans cost
DC plans cost
Other future benefits costs
2005
2004
2003
236
26
118
380
85
15
156
256
13
5
157
175
COMPONENTS OF DEFINED BENEFIT PLANS COST
The table below shows the defined benefit plans cost before and after recognizing its long-term nature. The recognized net benefit plans cost reflects the amount reported in our statements of operations and is calculated according
to our accounting policy.
PENSION BENEFITS
2005
Interest cost on accrued benefit obligation
Actual (return) loss on plan assets
Past service costs arising during period
Actuarial loss (gain) on accrued benefit obligation
Elements of employee future benefit plans cost (credit),
before recognizing its long-term nature
Excess (deficiency) of actual return over expected return (1)
Deferral of amounts arising during period:
Past service costs
Actuarial (loss) gain on accrued benefit obligation
Amortization of previously deferred amounts:
Past service costs
Net actuarial losses
Transitional (asset) obligation
Curtailment gain (2)
Adjustments to recognize long-term nature of employee
future benefit plans cost (credit)
Increase (decrease) in valuation allowance
Other
DB plans cost, recognized
2004
OTHER BENEFITS
2003
2005
2004
2003
221
876
(1,573)
3
1,803
228
806
(1,074)
77
772
217
757
(1,583)
4
513
35
110
(12)
(120)
499
31
104
(4)
14
102
31
105
(8)
2
(52)
1,330
628
809
121
(92)
648
512
2
247
(6)
78
(1)
(3)
(1,803)
(77)
(772)
(4)
(513)
120
(499)
(14)
(102)
(2)
52
9
97
–
–
10
33
(44)
–
9
23
(44)
–
1
–
26
(44)
–
1
30
–
–
–
30
–
(1,072)
(24)
2
236
(729)
3
2
85
119
(12)
(2)
13
(394)
–
–
118
(91)
–
–
156
79
–
–
157
(1) The expected return on plan assets for a given year is calculated based on the market-related value of plan assets at the beginning of that year.
The market-related value of pension plan assets was $12,928 million at January 1, 2005, $13,044 million at January 1, 2004, and $12,542 million at January 1, 2003.
(2) 2005 includes a curtailment gain associated with the phase-out, over the next three years, of a discretionary allowance program.
p. 92
COMPONENTS OF ACCRUED BENEFIT ASSET (LIABILITY)
The table below shows the change in benefit obligations, change in fair value of plan assets and the funded status
of the DB plans.
PENSION BENEFITS
2005
2004
OTHER BENEFITS
2005
2004
Accrued benefit obligation, beginning of year
Interest cost on accrued benefit obligation
Actuarial losses
Benefit payments
Special termination costs (1)
Plan amendment (2)
Transfers from DC pension plans
Other
Accrued benefit obligation, end of year
14,348
221
876
1,803
(897)
11
(17)
3
221
–
16,569
12,505
228
806
772
(725)
8
660
77
–
17
14,348
1,772
35
110
499
(93)
–
(21)
(120)
–
(1)
2,181
1,615
31
104
102
(81)
–
(12)
14
–
(1)
1,772
Fair value of plan assets, beginning of year
Actual return on plan assets
Benefit payments
Employer contributions
Transfers from DC pension plans
Other
Fair value of plan assets, end of year
13,030
1,573
(897)
215
11
221
(15)
14,138
12,569
1,074
(725)
97
8
–
7
13,030
137
12
(93)
93
–
–
–
149
133
4
(81)
81
–
–
–
137
Plan deficit
Unamortized net actuarial losses
Unamortized past service costs
Unamortized transitional (asset) obligation
Valuation allowance
Accrued benefit asset (liability), end of year
(2,431)
3,361
121
(35)
(103)
913
(1,318)
2,304
129
(35)
(127)
953
(2,032)
491
(1)
187
–
(1,355)
(1,635)
47
17
227
–
(1,344)
Accrued benefit asset included in other long-term assets
Accrued benefit liability included in other long-term liabilities
1,164
(251)
1,128
(175)
–
(1,355)
–
(1,344)
(1) Costs in 2004 relate to the employee departure programs announced at Bell Canada. See Note 4, Restructuring and Other Items, for
more information.
(2) 2005 includes a curtailment gain associated with the phase-out, over the next three years, of a discretionary allowance program. Costs in
2004 mainly relate to DB pension plan amendments at Aliant whereby certain bargaining unit employees and eligible management employees
were awarded past service benefits.
For DB pension plans with an accrued benefit obligation that was more than plan assets:
• the accrued benefit obligation was $16,430 million at December 31, 2005, and $14,087 million at
December 31, 2004
• the fair value of plan assets was $13,866 million
at December 31, 2005, and $12,630 million at December 31, 2004.
For DB pension plans with an accrued benefit obligation that was less than plan assets:
• the accrued benefit obligation was $139 million
at December 31, 2005, and $261 million at December 31, 2004
• the fair value of plan assets was $272 million at
December 31, 2005, and $400 million at December 31,
2004.
p. 93
SIGNIFICANT ASSUMPTIONS
We used the following key assumptions to measure the accrued benefit obligation and the net benefit plans cost
for the DB pension plans and plans that provide other employee future benefits. These assumptions are long-term,
which is consistent with the nature of employee benefit plans.
PENSION BENEFITS
2005
2004
OTHER BENEFITS
2003
2005
2004
2003
At December 31
Accrued benefit obligation:
Discount rate, end of year
Rate of compensation increase, end of year
5.2%
3.0%
6.2%
3.5%
6.5%
3.5%
5.2%
3.0%
6.2%
3.5%
6.5%
3.5%
For the year ended December 31
Net benefit plans cost:
Discount rate, end of preceding year
Expected return on plan assets, end of preceding year
Rate of compensation increase, end of preceding year
6.2%
7.5%
3.5%
6.5%
7.5%
3.5%
6.5%
7.5%
3.5%
6.2%
7.5%
3.5%
6.5%
7.5%
3.5%
6.5%
7.5%
3.5%
We assumed the following trend rates in healthcare costs:
• an annual rate of increase of 4.5% in the cost per
person of covered health-care benefits for 2005 and the
foreseeable future
• an annual rate of increase of 10.5% in the cost of
medication for 2005 and a gradual decline to 4.5%
over six years.
Assumed trend rates in health-care costs have a significant effect on the amounts reported for the health-care
plans. The table below, for example, shows the effect
of a 1% change in the assumed trend rates in healthcare costs.
1% INCREASE
Effect on other benefits –
total service and interest cost
Effect on other benefits –
accrued obligation
PENSION PLAN ASSETS
The investment strategy for the major benefit plans is
to maintain a diversified portfolio of assets, invested in
a prudent manner to maintain the security of funds
while maximizing returns within our guidelines. The
expected rate of return assumption is based on our
target asset allocation policy and the expected future
rates of return on these assets. The table on the next
page shows the allocation of our pension plan assets
at December 31, 2005 and 2004, target allocations for
2005 and the expected long-term rate of return by
asset class.
1% DECREASE
19
(18)
231
(217)
p. 94
PERCENTAGE
OF PLAN
ASSETS AT
DECEMBER 31
WEIGHTED
AVERAGE
EXPECTED
LONG-TERM
RATE OF RETURN
2005
2004
2005
59%
41%
100%
57%
43%
100%
WEIGHTED
AVERAGE
TARGET
ALLOCATION
2005
ASSET CATEGORY
Equity securities
Debt securities
Total/average
45%–65%
35%–55%
Equity securities included approximately $62 million
of BCE Inc. common shares or 0.4% of total plan assets
at December 31, 2005, and approximately $95 million
of BCE Inc. common shares or 0.7% of total plan assets
at December 31, 2004.
Debt securities included approximately $14 million
of BCE Inc. and affiliates’ debentures or 0.1% of total
plan assets at December 31, 2005, and approximately
$8 million of BCE Inc. and affiliates’ debentures or 0.1%
of total plan assets at December 31, 2004.
ESTIMATED FUTURE BENEFIT PAYMENTS
The table below shows the estimated future defined
benefit payments for the next 10 years as at December 31, 2005.
2006
2007
2008
2009
2010
2011–2015
Total estimated future benefit payments
PENSION
BENEFITS
OTHER
BENEFITS
907
928
950
973
995
5,284
10,037
97
103
108
114
121
698
1,241
9.0%
5.5%
7.5%
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.
We contribute to the DC pension plans as employees
provide service.
The table below shows the amounts we contributed
to the DB and DC pension plans and the payments
made to beneficiaries under other employee future
benefit plans.
PENSION BENEFITS
OTHER BENEFITS
2005
2004
2003
2005
2004
2003
Aliant
Bell Canada
Bell Globemedia
BCE Inc.
Total
172
27
20
7
226
67
20
17
8
112
125
17
11
7
160
5
88
–
–
93
4
77
–
–
81
4
83
–
–
87
Comprised of:
Contributions to DB plans
Contributions to DC plans
215
11
97
15
155
5
93
–
81
–
87
–
We expect to contribute approximately $470 million
to the DB pension plans in 2006, subject to actuarial
valuations being completed. We expect to pay approximately $100 million to beneficiaries under other
employee benefit plans in 2006. We expect to contribute approximately $30 million to the DC pension
plans in 2006.
p. 95
NOTE 25: COMMITMENTS AND CONTINGENCIES
CONTRACTUAL OBLIGATIONS
The table below is a summary of our contractual obligations at December 31, 2005 that are due in each of the next
five years and after 2010.
Long-term debt (excluding capital leases)
Notes payable and bank advances
Capital leases
Operating leases
Commitments for capital expenditures
Purchase obligations
Other long-term liabilities (including current portion)
Total
2006
2007
2008
2009
2010
THEREAFTER
TOTAL
1,160
87
126
231
184
1,413
143
3,344
1,686
–
110
204
52
1,001
119
3,172
1,043
–
63
181
8
716
79
2,090
1,624
–
47
158
2
287
80
2,198
1,013
–
45
134
16
205
4
1,417
5,955
–
533
679
–
530
25
7,722
12,481
87
924
1,587
262
4,152
450
19,943
Long-term debt and notes payable and bank advances
include $58 million drawn under our committed credit
facilities. They do not include $455 million of letters
of credit. The total amount available under these
committed credit facilities and under our commercial
paper programs, including the amount currently drawn,
is $2.4 billion. Current commercial paper credit lines
expire during August 2008.
The imputed interest to be paid on capital leases is
$649 million.
Rental expense relating to operating leases was
$316 million in 2005, $358 million in 2004, and
$327 million in 2003.
Purchase obligations consist mainly of contractual
obligations under service contracts. Our commitments for capital expenditures include investments
to expand and update our networks, and to meet
customer demand.
Other long-term liabilities included in the table
relate to:
• Bell Canada’s future payments over the remaining
life of its contract with Amdocs Canadian Managed
Services, Inc. (formerly Certen Inc.) for the development of Bell Canada’s billing system. The total
amount was $254 million at December 31, 2005.
• Bell Globemedia’s remaining obligations relating to
CRTC benefits owing on previous business combinations. These and other long-term liabilities were
$85 million at December 31, 2005.
• Telesat’s deferred satellite performance incentive
payments and their deferred milestone payments. The
total amount was $111 million at December 31, 2005.
Excluded from the table above is our proportionate
share of CGI’s operating leases and other contractual
obligations, which are disclosed in Note 8, Discontinued
Operations.
At December 31, 2005, we had other long-term liabilities that were not included in the table, including
an accrued employee benefit liability, future income
tax liabilities, deferred revenue and gains on assets and
various other long-term liabilities.
We did not include the accrued employee benefit
liability and future income tax liabilities in the table
because we cannot accurately determine the timing
and amount of cash needed for them. This is because:
• future contributions to the pension plans depend
largely on how well they are funded. This varies based
on the results of actuarial valuations that are performed
periodically and on the investment performance of the
pension fund assets.
• future payments of income taxes depend on the
amount of taxable earnings and on whether there
are tax loss carryforwards available to reduce income
tax liabilities.
We did not include deferred revenue and gains on
assets in the table because they do not represent future
cash payments.
p. 96
COMMITMENT UNDER THE CRTC
DEFERRAL MECHANISM
The total balance of Bell Canada’s and Aliant’s deferral
obligation at December 31, 2005 is estimated to be
approximately $107 million. This amount represents
BCE’s estimated annual commitment under the deferral
account mechanism, calculated in terms of permanent
rate reductions, from January 1, 2006 onwards. The
amount in the account can be cleared by means of
permanent rate reductions or other initiatives, including capital initiatives as directed by the CRTC. The
deferral account obligation will change as amounts are
added to the account or the CRTC approves initiatives
that serve to reduce the deferral account obligation,
and any amounts remaining in the deferral accounts
will bear interest at the Incumbent Local Exchange
Carrier’s (ILEC) short-term cost of debt each year
until disposition.
LITIGATION
Teleglobe Lending Syndicate Lawsuit
On July 12, 2002, some members of the Teleglobe and
Teleglobe Holdings (U.S.) Corporation lending syndicate filed a lawsuit against BCE Inc. in the Ontario
Superior Court of Justice. The lawsuit includes several
allegations, including that BCE Inc. and its management, in effect, made a legal commitment to repay the
advances the plaintiffs made as members of the lending
syndicate, and that the Court should disregard Teleglobe
as a corporate entity and hold BCE Inc. responsible to
repay the advances as Teleglobe’s alter ego.
On November 2, 2004, Canadian Imperial Bank of
Commerce and Canadian Imperial Bank of Commerce,
N.Y. Agency withdrew from the lawsuit and on May 3,
2005, BNP Paribas (Canada) also withdrew from this
lawsuit. The remaining plaintiffs claim damages of
US$1.04 billion, plus interest and costs. This represents
approximately 83% of the US$1.25 billion that the
lending syndicate advanced to Teleglobe and Teleglobe
Holdings (U.S.) Corporation.
While we cannot predict the outcome of any legal
proceeding, based on information currently available,
BCE Inc. believes that it has strong defences, and it
intends to vigorously defend its position.
Kroll Restructuring Lawsuit
In February 2003, a lawsuit was filed in the Ontario
Superior Court of Justice by Kroll Restructuring Ltd.,
in its capacity as interim receiver of Teleglobe, against
five former directors of Teleglobe. This lawsuit was filed
in connection with Teleglobe’s redemption of its third
series preferred shares in April 2001 and the retraction
of its fifth series preferred shares in March 2001.
The plaintiff is seeking a declaration that such
redemption and retraction were prohibited under the
Canada Business Corporations Act and that the five
former directors should be held jointly and severally
liable to restore to Teleglobe all amounts paid or
distributed on such redemption and retraction, being an
aggregate of approximately $661 million, plus interest.
While BCE Inc. is not a defendant in this lawsuit,
Teleglobe was at the relevant time a subsidiary of
BCE Inc. Pursuant to standard policies and subject
to applicable law, the five former Teleglobe directors
are entitled to seek indemnification from BCE Inc. in
connection with this lawsuit.
BCE Inc. believes that the defendants have strong
defences and that the claims of the plaintiff will be
vigorously defended against.
Teleglobe Unsecured Creditors Lawsuit
On May 26, 2004, a lawsuit was filed in the United
States Bankruptcy Court for the District of Delaware.
The United States District Court for the District
of Delaware subsequently withdrew the reference
from the Bankruptcy Court and the matter is now
pending in the District Court for the District of
Delaware. The lawsuit is against BCE Inc. and 10
former directors and officers of Teleglobe and certain
of its subsidiaries. The plaintiffs are comprised of
Teleglobe Communications Corporation, certain of
its affiliated debtors and debtors in possession, and
the Official Committee of Unsecured Creditors of
these debtors. The lawsuit alleges breach of an alleged
funding commitment of BCE Inc. towards the debtors,
promissory estoppel, misrepresentation by BCE Inc.
and breach and aiding and abetting breaches of fiduciary duty by the defendants. The plaintiffs seek an
unspecified amount of damages against the defendants.
BCE Inc. believes that it and the other defendants have
strong defences, and they intend to vigorously defend
their position.
p. 97
Teleglobe Plan Administrator Lawsuit
Other Litigation
On November 16, 2005, Kathy Morgan, in her capacity
as Plan Administrator for Teleglobe, filed a lawsuit in
the Ontario Superior Court of Justice against BCE Inc.
and seven former directors of Teleglobe. The plaintiff
is seeking a declaration that Teleglobe and its creditors have been oppressed by the former directors of
Teleglobe and by BCE Inc. within the meaning of
the Canada Business Corporations Act. The plaintiff is
also seeking a declaration that the former directors of
Teleglobe breached their fiduciary duty to Teleglobe and
failed to act in accordance with the standard of care
prescribed under the Canada Business Corporations Act.
The plaintiff is seeking compensation for oppression in the amount of $3 billion and damages for
breach of fiduciary duty in the amount of $3 billion,
in each case plus interest and costs.
BCE Inc. believes that it and the other defendants
have strong defences and they intend to vigorously
defend their position.
We become involved in various other claims and litigation as a part of our business.
While we cannot predict the final outcome of claims
and litigation that were pending at December 31,
2005, based on information currently available, management believes that the resolution of these claims
and litigation will not have a material and negative
effect on our consolidated financial position or results
of operations.
NOTE 26: GUARANTEES
As a regular part of our business, we enter into agreements that provide for indemnifications and guarantees
to counterparties that may require us to pay for costs
and losses incurred in various types of transactions. We
cannot reasonably estimate the maximum potential
amount we could be required to pay counterparties.
While some of the agreements specify a maximum
potential exposure, many do not specify a maximum
amount or limited period. The amount also depends
on the outcome of future events and conditions, which
cannot be predicted. Historically, we have not made
any significant payments under these indemnifications
or guarantees.
The following table represents guarantees that BCE has entered into which have a fixed maximum potential
exposure, and their respective terms.
Sale of assets and businesses
Sale of services
Purchase and development of assets
Other
Total guarantees
2006
2007
2008
2009
2010+
INDEFINITE
TOTAL
–
10
–
–
10
15
15
–
–
30
–
10
11
–
21
–
91
1
–
92
1,502
55
–
–
1,557
134
–
10
12
156
1,651
181
22
12
1,866
p. 98
BCE also has guarantees where no maximum potential
amount is specified.
SALE OF ASSETS AND BUSINESSES
As part of transactions involving business dispositions
and sales of assets, we may be required to pay counterparties for costs and losses incurred as a result of
breaches of representations and warranties, loss or
damages to property, environmental liabilities, changes
in or in the interpretation of laws and regulations
(including tax legislation), valuation differences, earnout guarantees if the disposed business does not meet
specific targets, contingent liabilities of a disposed
business, or reassessments of previous tax filings of the
corporation that carries on the business.
A total of $15 million has been accrued in the
consolidated balance sheet relating to this type of
indemnification or guarantee at December 31, 2005.
Historically, we have not made any significant payments under this type of indemnification or guarantee.
SALE OF SERVICES
In transactions involving sales of services, we may be
required to pay counterparties for costs and losses
incurred as a result of breaches of representations and
warranties, or changes in or in the interpretation of
laws and regulations (including tax legislation).
No amount has been accrued in the consolidated
balance sheet relating to this type of indemnification
or guarantee at December 31, 2005. Historically, we
have not made any significant payments under such
indemnifications or guarantees.
PURCHASE AND DEVELOPMENT OF ASSETS
As part of transactions involving purchases and development of assets, we may be required to pay counterparties for costs and losses incurred as a result of
breaches of representations and warranties, loss or
damages to property, or changes in or in the interpretation of laws and regulations (including tax legislation).
OTHER TRANSACTIONS
As part of other transactions, such as securitization
agreements and operating leases, we may be required
to pay counterparties for costs and losses incurred as
a result of breaches of representations and warranties,
loss or damages to property, or changes in or in the
interpretation of laws and regulations (including
tax legislation).
NOTE 27: SUPPLEMENTAL DISCLOSURE FOR
STATEMENTS OF CASH FLOWS
Interest paid
Income taxes paid (net of refunds)
Cash provided by (used in)
non-cash operating assets
and liabilities is as follows:
Accounts receivable
Accounts payable and
accrued liabilities
Other
2005
2004
2003
960
249
981
176
1,105
(47)
371
(41)
(94)
(350)
(119)
(22)
217
(25)
17
(527)
(138)
39
(390)
601
12
(35)
87
559
(105)
(7)
656
NOTE 28: RECONCILIATION OF CANADIAN
GAAP TO UNITED STATES GAAP
We have prepared these consolidated financial statements according to Canadian GAAP. The following
tables are a reconciliation of significant differences
relating to the statement of operations and total shareholders’ equity reported according to Canadian GAAP
and United States GAAP.
p. 99
RECONCILIATION OF NET EARNINGS
2005
2004
2003
Canadian GAAP – Earnings from continuing operations
Adjustments:
Deferred costs (a)
Employee future benefit costs (b)
Equity income (c) (e)
Derivative instruments (d)
Other
United States GAAP – Earnings from continuing operations
Discontinued operations – United States GAAP (e) (k)
Cumulative effect of change in accounting policy (f)
United States GAAP – Net earnings before extraordinary gain
Extraordinary gain
United States GAAP – Net earnings
Dividends on preferred shares (d)
United States GAAP – Net earnings applicable to common shares
1,915
1,447
1,820
–
(65)
46
(2)
5
1,899
–
–
1,899
–
1,899
(85)
–
1,814
7
(75)
52
–
–
1,431
107
–
1,538
69
1,607
(85)
–
1,522
(1)
(132)
50
(12)
(8)
1,717
(56)
(25)
1,636
–
1,636
(70)
(7)
1,559
Other comprehensive earnings items:
Change in currency translation adjustment
Change in unrealized gain (loss) on investments and derivative instruments (d) (g)
Additional minimum liability for pension obligations (b)
Comprehensive earnings
(17)
131
(1,112)
816
(10)
(12)
(72)
1,428
(56)
17
(40)
1,480
1.96
–
–
1.96
1.46
0.12
0.07
1.65
1.78
(0.09)
–
1.69
1.95
–
–
1.95
1.32
926.8
1.45
0.12
0.07
1.64
1.20
924.6
1.78
(0.09)
–
1.69
1.20
920.3
Net earnings per common share – basic
Discontinued operations and change in accounting policy
Extraordinary gain
Net earnings
Net earnings per common share – diluted
Discontinued operations and change in accounting policy
Extraordinary gain
Net earnings
Dividends per common share
Average number of common shares outstanding (millions)
STATEMENTS OF ACCUMULATED OTHER
COMPREHENSIVE LOSS
2005
Currency translation adjustment
(73)
Unrealized gain on investments and derivative
135
instruments (d) (g)
Additional minimum liability
for pension obligations (b)
(1,305)
Accumulated other
comprehensive loss
(1,243)
2004
RECONCILIATION OF TOTAL
SHAREHOLDERS’ EQUITY (k)
2003
(56)
(46)
4
16
(193)
(121)
(245)
(151)
Canadian GAAP
Adjustments:
Deferred costs (a)
Employee future benefits (b)
Goodwill (h)
Other
Discontinued operations (e)
Unrealized gain on investments and derivative
instruments (d) (g)
United States GAAP
2005
2004
2003
14,721
14,024
13,565
(37)
(1,460)
63
21
–
(37)
(283)
63
33
–
(44)
(136)
63
47
(81)
135
13,443
4
13,804
16
13,430
p. 100
DESCRIPTION OF UNITED STATES
GAAP ADJUSTMENTS
(a) Deferred Costs
Under Canadian GAAP, certain expenses, such as development and pre-operating costs, can be deferred and
amortized if they meet certain criteria. Under United
States GAAP, these costs are expensed as incurred.
(b) Employee Future Benefits
The accounting for future benefits for employees
under Canadian GAAP and United States GAAP is
essentially the same, except for the recognition of
certain unrealized gains and losses.
Canadian GAAP requires companies to recognize a
pension valuation allowance for any excess of the
accrued benefit asset over the expected future benefit.
Changes in the pension valuation allowance are recognized in the consolidated statement of operations.
United States GAAP does not specifically address
pension valuation allowances. United States regulators have interpreted this to be a difference between
Canadian and United States GAAP.
Under United States GAAP, an additional minimum liability is recorded for the excess of the unfunded
accumulated benefit obligation over the recorded pension benefit liability. An offsetting intangible asset
equal to the unrecognized prior service costs is recorded.
Any difference is recorded as a reduction in accumulated
other comprehensive income. The accumulated benefit
obligation at December 31, 2005 was $15.5 billion.
(c) Equity Income
Under Canadian GAAP, we account for our joint venture investments using the proportionate consolidation
method. Under United States GAAP, we account for
our joint venture investments using the equity method.
There is no impact on net earnings.
In 2005, we reclassified the results of our interest
in CGI as a discontinued operation under Canadian
GAAP. Under United States GAAP, we must continue
to account for our investment in CGI using the equity
method until its disposal. An adjustment is made to
reclassify the results of CGI from discontinued operations to continuing operations as equity income.
(d) Accounting for Derivative Instruments
and Hedging Activities
Under United States GAAP, all derivatives must be
recorded on the balance sheet at fair value. Changes
in the fair value of derivatives designated as fair value
hedges are recorded in income and are generally offset
by changes in the fair value of the hedged items
attributable to the hedged risk. With respect to derivatives designated as cash flow hedges, the effective
portion of the changes in fair value is recorded as
a separate component of comprehensive earnings and
is reclassified to net earnings in the period or periods
during which the hedged items are recognized in net
earnings. The ineffective portion of the changes in
fair value of a hedging item is always recognized in
net earnings.
In the third quarter of 2003, we elected to settle the
dividend rate swaps used to hedge $510 million of
BCE Inc. Series AA preferred shares and $510 million
of BCE Inc. Series AC preferred shares. These dividend
rate swaps in effect converted the fixed-rate dividends
on these preferred shares to floating-rate dividends.
They were to mature in 2007. As a result of the early
settlement, we received total proceeds of $83 million
in cash. Since the settlement, all of our derivative contracts qualify for hedge accounting. Under Canadian
GAAP, the proceeds are being deferred and amortized
against the dividends on these preferred shares over
the remaining original terms of the swaps. Under
United States GAAP, these dividend rate swaps did
not qualify for hedge accounting and were recorded on
the balance sheet at fair value. As a result, the amortization of the deferred gain under Canadian GAAP is
reversed for purposes of United States GAAP.
(e) Discontinued Operations
Differences between Canadian GAAP and United States
GAAP will cause the historical carrying values of the
net assets of discontinued operations to be different.
p. 101
(f) Impact of Adopting Recent Changes to
Accounting Standards
Effective July 1, 2003, we adopted FASB Interpretation
(FIN) No. 46, Consolidation of Variable Interest Entities,
on a prospective basis. This interpretation clarifies how
to apply ARB No. 51, Consolidated Financial Statements,
to variable interest entities when equity investors are
not considered to have a controlling financial interest
or they have not invested enough equity to allow the
entity to finance its activities without additional subordinated financial support from other parties.
We determined a transitional loss of $25 million
net of tax in the third quarter of 2003. We recorded it
as a cumulative effect of a change in accounting policy
as of July 1, 2003, as required by the transitional
provisions of FIN No. 46. Under Canadian GAAP, the
transitional loss is recorded as an adjustment to
retained earnings.
disclosures of net earnings, and basic and diluted
earnings per share, assuming that the fair value-based
method of accounting had been applied from the date
that SFAS No. 123 was adopted.
The table below shows compensation expense for
stock options and pro forma net earnings using the
Black-Scholes option pricing model.
Net earnings as reported
Compensation cost included
in net earnings
Total compensation cost
Pro forma net earnings
per common share (basic)
per common share (diluted)
2005
2004
2003
1,899
1,607
1,636
22
(23)
1,898
29
(38)
1,598
29
(51)
1,614
1.96
1.64
1.67
1.95
1.64
1.67
(j) Presentation and Disclosure of Guarantees
(g) Change in Unrealized Gain (Loss) on Investments
Our portfolio investments are recorded at cost under
Canadian GAAP. They would be classified as availablefor-sale under United States GAAP and would be carried at fair value, with any unrealized gains or losses
included in other comprehensive earnings, net of tax.
(h) Goodwill
Under Canadian GAAP and United States GAAP,
goodwill created on business acquisitions and the
purchase of non-controlling interests of subsidiaries
is calculated in a similar manner. Differences between
Canadian GAAP and United States GAAP, however,
may cause the underlying carrying value of the net
assets acquired or the fair value of the consideration
given to be different. This will cause the resulting
goodwill to be different.
(i) Accounting for Stock-Based Compensation
We adopted the fair value-based method of accounting
on a prospective basis, effective January 1, 2002.
Under Statement of Financial Accounting Standards
(SFAS) No. 123, we are required to make pro forma
Under Canadian GAAP, guarantees do not include
indemnifications against intellectual property right
infringement, whereas under United States GAAP
they are included. At December 31, 2005, such indemnifications amounted to $1.3 billion, of which $32 million expires in 2006, $100 million in 2007, $26 million
in 2008, $26 million in 2009, $173 million after 2009
and $914 million with an indefinite term. We also
have guarantees where no maximum potential amount
is specified.
(k) Comparative Periods
We have reclassified some of the figures for the comparative periods to make them consistent with the
presentation for the current period.
We performed an extensive review of the historical
reconciling balances between Canadian GAAP and
United States GAAP, which resulted in adjustments
to prior periods mainly related to the elimination of
differences arising from changes in accounting policies
and large transactions. As a result, we increased United
States GAAP net earnings by $23 million in 2004 and
decreased United States GAAP shareholders’ equity by
$67 million in 2004 and $90 million in 2003.
BOARD OF DIRECTORS
EXECUTIVES *
As at March 1, 2006
As at March 1, 2006
Richard J. Currie, O.C.
Toronto, Ontario
Chair of the Board,
BCE Inc. and Bell Canada
Director since May 1995
Brian M. Levitt
Montréal, Québec
Partner and Co-Chair,
Osler, Hoskin & Harcourt LLP
James A. Pattison, O.C., O.B.C.
Vancouver, British Columbia
Chairman and Chief Executive Officer,
The Jim Pattison Group
Director since February 2005
André Bérard, O.C.
Montréal, Québec
Corporate Director
Director since January 2003
The Honourable
Edward C. Lumley, P.C.
South Lancaster, Ontario
Vice-Chairman,
BMO Nesbitt Burns Inc.
Robert C. Pozen
Boston, Massachusetts
Chairman of the Board,
MFS Investment Management
Director since February 2002
Ronald A. Brenneman
Calgary, Alberta
President and Chief Executive
Officer and a director,
Petro-Canada
Director since November 2003
Anthony S. Fell, O.C.
Toronto, Ontario
Chairman of the Board,
RBC Dominion Securities Limited
Donna Soble Kaufman
Toronto, Ontario
Corporate Director and Lawyer
Director since June 1998
Judith Maxwell, C.M.
Ottawa, Ontario
Research Fellow, Canadian Policy,
Research Networks Inc.
John H. McArthur
Wayland, Massachusetts
Dean Emeritus, Harvard University,
Graduate School of
Business Administration
Thomas C. O’Neill, F.C.A.
Don Mills, Ontario
Corporate Director and
Chartered Accountant
Michael J. Sabia
Montréal, Québec
President and Chief Executive
Officer and a director, BCE Inc.,
and Chief Executive Officer and
a director, Bell Canada
Director since October 2002
Paul M. Tellier, P.C., C.C., Q.C.
Montréal, Québec
Corporate Director
Director since April 1999
Victor L. Young, O.C.
St. John’s, Newfoundland
and Labrador
Corporate Director
Michael J. Sabia
President and Chief Executive Officer
George A. Cope
President and Chief Operating Officer,
Bell Canada
Stephen G. Wetmore
Group President – Corporate Performance
and National Markets, Bell Canada
Laurier (Larry) J. Boisvert
President and Chief Executive Officer,
Telesat Canada
Michael T. Boychuk
Senior Vice-President and Treasurer
Mark R. Bruneau
Executive Vice-President and
Chief Strategy Officer
Isabelle Courville
President – Enterprise, Bell Canada
Kevin W. Crull
President – Residential Services,
Bell Canada
William J. Fox
Executive Vice-President –
Communications and
Corporate Development
Leo Houle
Chief Talent Officer
COMMITTEES OF THE BOARD Members of Committees of the Board
AUDIT COMMITTEE
CORPORATE GOVERNANCE COMMITTEE
T.C. O’Neill (Chair), A. Bérard, J. Maxwell, R.C. Pozen,
V. L. Young
The audit committee assists the board in the oversight of:
• the integrity of BCE’s financial statements and
related information
• BCE’s compliance with applicable legal and
regulatory requirements
• the independence, qualifications and appointment of the
external auditor
• the performance of the internal and external auditors
• management’s responsibility for reporting on internal controls
and risk management.
D. Soble Kaufman (Chair), A. Bérard, A.S. Fell,
The Honourable E.C. Lumley, J.H. McArthur
The CGC assists the board in:
• developing and implementing our corporate
governance guidelines
• identifying individuals qualified to become directors
• 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 board
chair, the board committees, chairs of committees and
individual directors
• overseeing our policies concerning business conduct, ethics,
public disclosure of material information and other matters.
PENSION FUND COMMITTEE
R.C. Pozen (Chair), B.M. Levitt, J.A. Pattison, P.M. Tellier
The PFC assists the board in the oversight of:
• the administration, funding and investment of our pension
plans and fund
• the unitized pooled fund sponsored by BCE for the
collective investment of the fund in which certain of BCE’s
subsidiaries’ pension funds invest.
MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE
R.J. Currie (Chair), R.A. Brenneman, A.S. Fell,
J.H. McArthur, V.L.Young
The MRCC assists the board in the oversight of the:
• compensation, nomination, evaluation and succession of
officers and other management personnel
• BCE’s health and safety policies and practices.
Lawson A.W. Hunter
Executive Vice-President and
Chief Corporate Officer
Robert Odendaal
President – Bell Mobility and
Bell Distribution Inc., Bell Canada
Patricia A. Olah
Corporate Secretary
Patrick Pichette
President – Operations, Bell Canada
Eugene Roman
Group President – Systems and Technology,
Bell Canada
Karen H. Sheriff
President – Small and Medium Business,
Bell Canada
Martine Turcotte
Chief Legal Officer
Siim A. Vanaselja
Chief Financial Officer
* For a complete list of BCE Inc.’s and Bell Canada’s
officers, please see BCE Inc.’s and Bell Canada’s
respective Annual Information Forms for the year
ended December 31, 2005.
2006 SHAREHOLDER MEETING
TAX INFORMATION
SHAREHOLDER SERVICES
The shareholder meeting will take place at
9:30 a.m. (Eastern time), Wednesday, June 7,
2006, at Le Centre Sheraton Montréal, 1201
René-Lévesque Blvd. West, Montréal, Québec,
in the ballroom.
The meeting will also be webcast live on
our website, www.bce.ca.
We offer various ways to vote your shares.
For more details, consult BCE’s proxy circular
or visit our website.
Dividends and Capital Gains
on Your BCE Shares
Dividend Reinvestment and
Stock Purchase Plan
BCE common 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,
you should contact the Investor Relations
group to learn more on the tax implications
of the BCE/Nortel Plan of Arrangement or
visit www.bce.ca.
This plan provides a convenient method for
eligible holders of BCE common shares to reinvest their dividends and make optional cash
contributions to purchase additional common
shares without brokerage costs.
2006 QUARTERLY EARNINGS
RELEASE DATES
First quarter . . . . . . . . . . . . . . . May 3, 2006
Second quarter . . . . . . . . . . . August 2, 2006
Third quarter . . . . . . . . . November 1, 2006
Fourth quarter . . . . . . . . . . February 7, 2007
Quarterly and annual reports as well as other
corporate documents can be found on our website. If you wish to be notified electronically
when documents are posted, register online
at www.bce.ca for our service ‘News Alerts’.
Corporate documents can also be requested
from the Investor Relations group.
SHARE FACTS
Symbol
BCE
Listings
Foreign Investors
Dividends on BCE shares paid or credited to
nonresidents of Canada are subject to a 25%
withholding tax unless reduced by treaty. Under
current tax treaties, U.S. and U.K. residents
are subject to a 15% withholding tax.
U.S. Investors
BCE is required to solicit taxpayer identification numbers (TIN) and Internal Revenue
Service (IRS) Form W-9 certifications of residency from certain U.S. investors. Where these
have not been received, BCE may be required
to deduct the IRS’ specified backup withholding tax.
For additional information, please contact
BCE Investor Relations or the transfer agent,
Computershare Trust Company of Canada.
Avoid postal delays and trips to the bank by
joining the dividend direct deposit service.
E-Delivery Service
Enrol in our e-delivery service to receive the
proxy material, the annual report and/or quarterly documents by e-mail. By doing so, you
will receive your documents faster and in
an environmentally friendly manner while
helping your company reduce printing and
postage costs.
Duplicate Mailings
Help us control costs and eliminate duplicate
mailings by consolidating your accounts.
For more details on any of these services, registered shareholders (holders of share certificates)
must contact the transfer agent. Non-registered shareholders must contact their brokers.
CONTACT INFORMATION
TSX, NYSE, and the Zurich (SWX) stock
exchange
Normal Course Issuer Bid
Transfer Agent and Registrar
You will find a summary of the differences
between our governance practices and the NYSE
corporate governance rules in the governance
section of BCE’s website at www.bce.ca.
On February 1, 2006, BCE received acceptance
from the Toronto Stock Exchange (TSX) of its
For information on shareholder services or any
other inquiries regarding your account (including stock transfer, address change, lost certificates and tax forms), contact:
Common Shares Outstanding
927,318,916 as at December 31, 2005
Stock Splits
Three-for-one on April 26, 1979 and
two-for-one on May 15, 1997
Quarterly Dividend *
$0.33 per common share
2006 Dividend Schedule*
Record Date
Payment Date
March 15, 2006
June 15, 2006
September 15, 2006
December 15, 2006
*
Dividend Direct Deposit Service
April 15, 2006
July 15, 2006
October 15, 2006
January 15, 2007
Subject to approval by the Board of Directors
Notice of Intention to Make a Normal Course
Issuer Bid. The filing of this notice allows
BCE to purchase, from February 3, 2006 until
February 2, 2007, up to 46,000,000 of its common shares, representing approximately 5% of
BCE’s 927,321,825 common shares outstanding
as of the close of market on January 16, 2006. As
a result of transactions that have recently been
completed, BCE has funds available for which
the purchase of common shares represents an
appropriate use of corporate funds. Purchases
under the normal course issuer bid will be made
at the discretion of BCE’s management on the
open market through the facilities of the TSX
and/or the New York Stock Exchange (NYSE).
A copy of the Notice of Intention is available on
SEDAR at www.sedar.com. You can also obtain
a copy on request without charge from BCE’s
Investor Relations group.
Computershare Trust Company of Canada
9th Floor, 100 University Avenue
Toronto, Ontario M5J 2Y1
e-mail [email protected]
tel
(514) 982-7555 or 1 800 561-0934
(toll free in Canada and the U.S.)
fax
(416) 263-9394 or 1 888 453-0330
(toll free in Canada and the U.S.)
or visit their website at www.computershare.com
BCE Investor Relations
1000 de La Gauchetière Street West, Suite 3700,
Montréal, Québec H3B 4Y7
e-mail [email protected]
tel
1 800 339-6353
fax
(514) 786-3970
or visit the Investors section on our website at www.bce.ca
Trademarks: The following is a list of all our trademarks referred to and used as such in this annual report. Aliant is a trademark of Aliant Inc. BCE is a trademark of BCE Inc. The Rings and Head Design, 10-4 & Design, Bell Canada
Enterprises corporate logo, Bell, Bell Canada, Bell Globemedia, Bell Making It Simple, Bell Mobility, Bell Nordiq, Bell West, Bell World, Emily, GoTrax, Group Telecom, Kidsmania, Seek & Find, Sympatico, VDN & Design are trademarks of
Bell Canada. ExpressVu is a trademark of Bell ExpressVu Limited Partnership. The Globe and Mail is a trademark of Bell Globemedia Publishing Inc. Mobile Browser is a trademark of Bell Mobility Inc. CTV is a trademark of CTV Inc.
Expertech is a trademark of Expertech Network Installation Inc. Northwestel is a trademark of Northwestel Inc. Infostream is a trademark of Infostream Technologies Inc. Solo and Solo Mobile are trademarks of Solo Branding Inc. Télébec is a
trademark of Telebec Limited Partnership. Anik, Nimiq and Telesat are trademarks of Telesat Canada. TSN and RDS are trademarks of The Sports Network Inc. Any other trademarks, or corporate, trade or domain names used in this report are
the property of their owners. We believe that our trademarks and domain names are very important to our success. Our exclusive trademark rights are perpetual provided that their registrations are timely renewed and that the trademarks are used in
commerce by us or our licensees. We take appropriate measures to protect, renew and defend our trademarks. We also spend considerable time and resources overseeing, registering, renewing, licensing and protecting our trademarks and domain names and
prosecuting those who infringe on them. We take great care not to infringe on the intellectual property and trademarks of others.
Cette publication est disponible en français. BCE’s Annual Report is printed with vegetable-based ink and is recyclable.
Printed in Canada
BCE’s website has extensive information about the company’s governance practices,
community investment, and corporate responsibility.
Building The New Bell: 2006 Business Update is an in-depth presentation of
our strategy and is available at www.bce.ca/businessupdate.
BCE Inc. 1000 de La Gauchetière Street West, Suite 3700, Montréal (Québec) h3b 4y7
www.bce.ca
Communications e-mail [email protected] tel 1888 932-6666 fax (514) 870-4385
Investor Relations e-mail [email protected] tel 1800 339-6353 fax (514) 786-3970

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