Source : Toronto Star

BCE Inc., parent of Canada's largest telephone company, plans to cut up to 4,000 jobs, jack up prices and spin off billions of dollars worth of assets this year to better defend itself against a growing wave of rival cable, Internet and wireless services.

The Montreal-based communications giant confirmed speculation yesterday that it will convert its 1.6 million rural telephone lines and associated business into an income trust, and surprised investors by revealing plans to raise $1 billion through an initial public offering of satellite operator Telesat Canada.

Michael Sabia, president and chief executive officer of BCE, said the moves are part of the company's ongoing transformation into the "New Bell" following two years of reorganization that has failed to shore up BCE's industry-lagging share price.

BCE, which wants to focus more on its core telecom business, is aiming to have 65 per cent of its revenues come from high-growth services by 2008, including new products such as "on-demand" television, broadband wireless and online content supported by higher-speed Internet access.

The other 35 per cent will come from deteriorating "legacy" revenues from products such as long-distance and local phone service, where Bell saw 5 per cent of its subscriber base fall in 2005 as a result of increased competition from cellphones, BlackBerry devices, email and cable phone services.

"When we're done, Bell will have more diversified sources of revenue growth, and those will be profitable," said Sabia, 52, speaking yesterday at BCE's annual business review conference in Toronto. "We will not be dependent on any one line of product or any one technology."

But BCE has long stated its desire to wean itself from non-core assets. In December, it announced it would raise $2.4 billion through the sale of its stake in computer services firm CGI Group Inc. and a reduction of its interest in media division Bell Globemedia, 20 per cent of which is being purchased by Toronto Star parent Torstar Corp.

With the rural line income trust, BCE will retain 50 per cent of income-trust units and distribute the rest to shareholders in exchange for about 8 per cent of BCE shares. "In many ways the trust we're creating is just a regionally focused extension of Bell," said Sabia, adding that the equity value of the trust will be about $4.5 billion.

Telesat, wholly owned by BCE, operates a fleet of Anik and Nimiq satellites that support a variety of broadcast, telecommunications and Internet services. It was one of BCE's highest-growth businesses in 2005 with a 31 per cent jump in revenues.

Sabia, calling the satellite operator a "well-managed" company, said industry valuations for fixed-satellite ventures are at historical highs and the time was right to take a portion of Telesat public.

BCE said it would buy back 5 per cent of company shares and pay down $1.3 billion in debt with proceeds from the deals. But debt-rating agency Standard & Poor's wasn't impressed. It cut BCE's rating one level to A- from A, arguing that the debt reductions don't go far enough.

Among other major initiatives unveiled yesterday:

Between 3,000 and 4,000 jobs will be cut this year, half through attrition. The reduction amounts to about 9 per cent of Bell's workforce, which stood at 46,200 at the end of 2005. The cuts are on top of the 5,000 positions that have been eliminated so far as part of the company's "Galileo" cost-cutting program. BCE said the latest reduction, which the Communications, Energy and Paperworkers union condemned, will help lead to additional savings of $700 million to $900 million annually.

Bell plans to raise its monthly long-distance network charge to $4.50 from $2.95 and its Bell ExpressVu access charge to $5.99 from $2.99 this spring. Sympatico High Speed customers will also see a $2 increase to their monthly plans. The price increase for Bell ExpressVu customers alone will contribute more than $25 million a year to BCE's top line.

George Cope, who left Telus Mobility to become president of Bell, said some customers should expect price increases where Bell's leadership in the market lets it command a premium.

"We will be using surgical and tactical approaches as required," said Cope, adding that Bell will move away from one-year contracts and begin pressuring customers to lock into two- and three-year deals.

Cope, lured to Bell because of his no-nonsense approach and adherence to "rational" pricing, expects some customers to jump ship but will try to ensure only the undesirable ones go. "All clients are not the same. We have to make sure we lose the right ones."

Investors, encouraged by BCE's actions, boosted shares 49 cents, or 1.8 per cent, to $28 on the Toronto Stock Exchange.

"The capacity of BCE's management to disappoint should never be underestimated," said Gavin Graham, director of investments at Toronto-based Guardian Group of Funds, which holds BCE shares. "In this case, they have not disappointed."

The Yankee Group, a technology research firm in Toronto, hailed BCE's plan. "This may remove some of the shackles which have held down the share price for the last number of years."

Sabia said BCE finished the year on a strong note, considering it had to deal with a 17-week technicians' strike, significant glitches with its new billing system, missteps with its wireless business, and "mass erosion" of its local phone business caused by new cable-based telephone services introduced last year.

For example, Rogers Cable has added about 50,000 cable telephony subscribers since launching its service last summer, while Videotron has captured 163,000 phone customers over the past 12 months. Experts expect those services to gain momentum in 2006.

Despite these challenges, BCE managed to "bounce back" in the fourth quarter, said Sabia, pointing out that revenue gains from residential Internet, video, wireless and other high-growth services exceeded declines in long-distance and local line revenues.

Solid gains were also seen at Bell Globemedia, which owns The Globe and Mail and CTV, where revenues jumped 10 per cent to $1.6 billion in 2005.

Overall, fourth-quarter revenues jumped 4.6 per cent to $5 billion, and BCE ended the year with $19.1 billion, a 4 per cent increase over 2004.

Taking into account a $16 million restructuring charge, profit in the quarter was $413 million, or 44 cents a share, down slightly from $417 million, or 45 cents a share, a year earlier. The results were largely in line with analysts' expectations.

For the year, profit was $1.89 billion, or $2.04 a share, up 24 per cent over the previous year.

Looking ahead to 2006, the company forecast a profit of $1.80 to $1.90 a share, reflecting a 14-cent cut in earnings resulting from a decrease in discount rates used to calculate long-term pension obligations.

Bell said it didn't see any material impact from the launch of its IPTV service in 2006, which is currently limited to a trial in Toronto. The service promises customers the ability to order TV programming and channels "on demand," but the company said it wants to make sure the product is differentiated enough from cable offerings before full commercial deployment.

Meanwhile, the company promised that by 2008 all customers would have access to high-speed Internet service, either through increased investment in Inukshuk, its wireless broadband Internet venture, or expansion and upgrades to its digital subscriber line infrastructure.

© The Toronto Star