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In this management’s discussion and analysis (MD&A), we, us, our, BCE and the company mean, as the context may require, either BCE Inc. or, collectively, BCE Inc., Bell Canada, their subsidiaries, joint arrangements and associates. Bell means, as the context may require, either Bell Canada or, collectively, Bell Canada, its subsidiaries, joint arrangements and associates. MTS means, as the context may require, until March 17, 2017, either Manitoba Telecom Services Inc. or, collectively, Manitoba Telecom Services Inc. and its subsidiaries; and Bell MTS means, from March 17, 2017, the combined operations of MTS and Bell Canada in Manitoba.

All amounts in this MD&A are in millions of Canadian dollars, except where noted. Please refer to section 10.2, Non-GAAP financial measures and key performance indicators (KPIs) on pages 109 to 112 for a list of defined non-GAAP financial measures and key performance indicators.

Please refer to BCE’s audited consolidated financial statements for the year ended December 31, 2018 when reading this MD&A.

Effective January 1, 2018, we applied International Financial Reporting Standards (IFRS) 15, Revenue from Contracts with Customers, as described in section 10.1, Our accounting policies, retrospectively to each period in 2017 previously reported. We have also reclassified some amounts from previous periods to make them consistent with the presentation for the current period.

In preparing this MD&A, we have taken into account information available to us up to March 7, 2019, the date of this MD&A, unless otherwise stated.

You will find additional information relating to BCE, including BCE’s audited consolidated financial statements for the year ended December 31, 2018, BCE’s annual information form for the year ended December 31, 2018, dated March 7, 2019 (BCE 2018 AIF) and recent financial reports, on BCE’s website at BCE.ca, on SEDAR at sedar.com and on EDGAR at sec.gov.

This MD&A comments on our business operations, performance, financial position and other matters for the two years ended December 31, 2018 and 2017.

BCE’s 2018 annual report, including this MD&A and, in particular, but without limitation, section 1.4, Capital markets strategy, section 2, Strategic imperatives, section 3.2, Business outlook and assumptions, section 5, Business segment analysis and section 6.7, Liquidity of this MD&A, contains forward-looking statements. These forward-looking statements include, without limitation, statements relating to our projected financial performance for 2019, BCE’s dividend growth objective, common share dividend payout policy and 2019 annualized common share dividend, BCE’s financial policy targets and our intended progress towards meeting those targets, the sources of liquidity we expect to use to meet our anticipated 2019 cash requirements, our expected 2019 post-employment benefit plans funding, our network deployment and capital investment plans, BCE’s business outlook, objectives, plans and strategic priorities, and other statements that do not refer to historical facts. A statement we make is forward-looking when it uses what we know and expect today to make a statement about the future. Forward-looking statements are typically identified by the words assumption, goal, guidance, objective, outlook, project, strategy, target and other similar expressions or future or conditional verbs such as aim, anticipate, believe, could, expect, intend, may, plan, seek, should, strive and will. All such forward-looking statements are made pursuant to the safe harbour provisions of applicable Canadian securities laws and of the United States (U.S.) Private Securities Litigation Reform Act of 1995.

Unless otherwise indicated by us, forward-looking statements in BCE’s 2018 annual report, including in this MD&A, describe our expectations as at March 7, 2019 and, accordingly, are subject to change after that date. Except as may be required by applicable securities laws, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties and are based on several assumptions, both general and specific, which give rise to the possibility that actual results or events could differ materially from our expectations expressed in, or implied by, such forward-looking statements and that our business outlook, objectives, plans and strategic priorities may not be achieved. These statements are not guarantees of future performance or events, and we caution you against relying on any of these forward-looking statements.

Forward-looking statements are presented in BCE’s 2018 annual report, including in this MD&A, for the purpose of assisting investors and others in understanding our objectives, strategic priorities and business outlook as well as our anticipated operating environment. Readers are cautioned, however, that such information may not be appropriate for other purposes.

We have made certain economic, market and operational assumptions in preparing the forward-looking statements contained in BCE’s 2018 annual report and, in particular, but without limitation, the forward-looking statements contained in the previously mentioned sections of this MD&A. These assumptions include, without limitation, the assumptions described in the various sections of this MD&A entitled Business outlook and assumptions, which sections are incorporated by reference in this cautionary statement. We believe that our assumptions were reasonable at March 7, 2019. If our assumptions turn out to be inaccurate, our actual results could be materially different from what we expect.

Important risk factors including, without limitation, competitive, regulatory, security, technological, operational, economic, financial and other risks that could cause actual results or events to differ materially from those expressed in, or implied by, the previously-mentioned forward-looking statements and other forward-looking statements contained in BCE’s 2018 annual report, and in particular in this MD&A, include, but are not limited to, the risks described or referred to in section 9, Business risks, which section is incorporated by reference in this cautionary statement.

We caution readers that the risks described in the previously mentioned section and in other sections of this MD&A are not the only ones that could affect us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our financial position, financial performance, cash flows, business or reputation. Except as otherwise indicated by us, forward-looking statements do not reflect the potential impact of any special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after March 7, 2019. The financial impact of these transactions and special items can be complex and depends on facts particular to each of them. We therefore cannot describe the expected impact in a meaningful way, or in the same way we present known risks affecting our business.

Effective January 1, 2018, we applied IFRS 15, Revenue from Contracts with Customers, as described in section 10.1, Our accounting policies, retrospectively to each period in 2017 previously reported. We have also reclassified some amounts from previous periods to make them consistent with the presentation for the current period.

AT A GLANCE

BCE is Canada’s largest communications company, providing residential, business and wholesale customers with a wide range of solutions for all their communications needs. BCE’s shares are publicly traded on the Toronto Stock Exchange and on the New York Stock Exchange (TSX, NYSE: BCE).

Our results are reported in three segments: Bell Wireless, Bell Wireline and Bell Media.

Bell Wireless provides wireless voice and data communications products and services to our residential, small and medium-sized business and large enterprise customers across Canada.

Bell Wireline provides data, including Internet access and Internet protocol television (IPTV), local telephone, long distance, as well as other communications services and products to our residential, small and medium-sized business and large enterprise customers, primarily in Ontario, Québec, the Atlantic provinces and Manitoba, while satellite television (TV) service and connectivity to business customers are available nationally across Canada. In addition, this segment includes our wholesale business, which buys and sells local telephone, long distance, data and other services from or to resellers and other carriers.

Bell Media provides conventional TV, specialty TV, pay TV, streaming services, digital media services, radio broadcasting services and out-of-home (OOH) advertising services to customers nationally across Canada.

We also hold investments in a number of other assets, including:

• a 28% indirect equity interest in Maple Leaf Sports & Entertainment Ltd. (MLSE)
• a 50% indirect equity interest in Glentel Inc. (Glentel)
• an 18.4% indirect equity interest in entities that operate the Montreal Canadiens Hockey Club, evenko and the Bell Centre in Montréal, Québec, as well as Place Bell in Laval, Québec

Our goal is to be recognized by customers as Canada’s leading communications company. Our primary business objectives are to grow our subscribers profitably and to maximize revenues, operating profit, free cash flow and return on invested capital by further enhancing our position as the foremost provider in Canada of comprehensive communications services to residential, business and wholesale customers and as Canada’s premier content creation company. We seek to take advantage of opportunities to leverage our networks, infrastructure, sales channels, and brand and marketing resources across our various lines of business to create value for both our customers and other stakeholders. Our strategy is centred on our disciplined focus and execution of six strategic imperatives. The six strategic imperatives that underlie BCE’s business plan are:

We report the results of our operations in three segments: Bell Wireless, Bell Wireline and Bell Media. We describe our product lines by segment below, to provide further insight into our operations.

Bell Wireless

SEGMENT DESCRIPTION

• Provides integrated digital wireless voice and data communications products and services to residential and business customers across Canada
• Includes the results of operations of Bell Mobility Inc. (Bell Mobility) and wireless-related product sales from our wholly-owned subsidiary, national consumer electronics retailer, The Source (Bell) Electronics Inc. (The Source)

OUR NETWORKS AND REACH

We hold wireless spectrum licences, with holdings across various spectrum bands and regions across Canada, totalling more than 4.8 billion megahertz population (MHz-Pop), corresponding to an average of approximately 137 MHz of spectrum per Canadian.

The vast majority of our cell towers are connected with fibre, the latest network infrastructure technology, for a more reliable connection.

Our Fourth Generation (4G) Long-term Evolution (LTE) and LTE Advanced (LTE-A) nationwide wireless broadband networks are compatible with global standards and deliver high-quality and reliable voice and high-speed data services to virtually all of the Canadian population.

• LTE coverage of 99% of the Canadian population coast to coast, with LTE-A covering approximately 91% of the Canadian population at December 31, 2018
• Expansion of our LTE and LTE-A services is supported by continued repurposing of wireless spectrum to increase capacity and coverage
• In-building coverage improvements deliver a stronger LTE signal
• LTE-A provides peak theoretical mobile data access download speeds that exceed 1 ⁽¹⁾ Gigabit per second (Gbps) (expected average speeds of 25 to 220 Megabits per second (Mbps)), while LTE offers speeds up to 150 Mbps (typical speeds of 18 to 40 Mbps) ⁽²⁾
• Reverts to the High-speed packet access plus (HSPA+) network outside LTE coverage areas, with speeds up to 42 Mbps (typical speeds of 7 to 14 Mbps)
• International voice and data roaming capabilities in more than 230 outbound destinations, including LTE roaming in 178 outbound destinations.

We manage 17,000 wireless fidelity (Wi-Fi) access points at enterprise customer locations.

We have more than 2,360 retail points of distribution across Canada, including approximately 1,360 Bell-branded stores and The Source locations, Glentel-operated stores (WIRELESSWAVE, Tbooth wireless and WIRELESS etc.) as well as other third-party dealer and retail locations.

OUR PRODUCTS AND SERVICES

• Voice and data plans: available on either postpaid or prepaid options, providing fast Internet access for video, social networking, messaging and mobile applications, as well as a host of call features
• Specialized plans: for tablets, mobile Internet, smartwatches and Connected Car
• Extensive selection of devices: leading 4G LTE and LTE-A smartphones and tablets, mobile Internet hubs and sticks, mobile Wi-Fi devices and connected things (smartwatches, Bell Connected Car, trackers, smart home, lifestyle products and virtual reality)
• Mobile content: over 40 live and on-demand channels on smartphones and tablets
• Travel: roaming services with other wireless service providers in more than 230  outbound destinations worldwide with LTE roaming in 178 outbound destinations, Roam Better feature and Travel Passes
• Mobile business solutions: push-to-talk, field service management, worker safety and mobility management
• Internet of Things (IoT) solutions: asset management, smart buildings, smart cities, fleet management and other IoT services

Bell Wireline

SEGMENT DESCRIPTION

• Provides data, including Internet access and IPTV, voice, comprising local telephone and long distance, as well as other communications services and products to residential, small and medium-sized business and large enterprise customers, primarily in Ontario, Québec, the Atlantic provinces and Manitoba, while satellite TV service and connectivity to business customers are available nationally across Canada. We also offer competitive local exchange carrier (CLEC) services in Alberta and British Columbia.
• Includes the results of our wholesale business, which buys and sells local telephone, long distance, data and other services from or to resellers and other carriers, and the wireline operations of Northwestel Inc. (Northwestel), which provides telecommunications services in Canada’s Northern Territories
• Includes wireline-related product sales from The Source

OUR NETWORKS AND REACH

• Extensive local access network in Ontario, Québec, the Atlantic provinces and Manitoba, as well as in Canada’s Northern Territories
• Broadband fibre network, consisting of fibre-to-the-node (FTTN) and fibre-to-the-premise (FTTP) locations, covering 9.5 million homes and  businesses in Ontario, Québec, the Atlantic provinces and Manitoba. Our FTTP direct fibre footprint encompassed approximately 4.6 million homes and commercial locations at the end of 2018, representing the largest FTTP footprint in Canada.
• Largest IP multi-protocol label switching footprint of any Canadian provider, enabling us to offer business customers a virtual private network (VPN) service for IP traffic and to optimize bandwidth for real-time voice and TV
• Largest data centre footprint in Canada with 28 locations in eight provinces, enabling us to offer data centre co-location and hosted services to business customers across Canada
• Approximately 1,360 Bell-branded stores and The Source locations across Canada

OUR PRODUCTS AND SERVICES

RESIDENTIAL

• TV: IPTV services (Fibe TV and Alt TV) and satellite TV service. Bell Fibe TV provides extensive content options with Full high-definition (HD) and 4K Resolution (4K) Whole Home personal video recorder (PVR), 4K Ultra HD programming, on-demand content and innovative features including wireless receivers, the Fibe TV app, Restart and access to Crave, Netflix and YouTube. Alt TV app-based live TV streaming service offers up to 500 live and on-demand channels on laptops, smartphones, tablets, Apple TV, Amazon Fire TV and other devices with no traditional TV set-top box (STB) required.
• Internet: high-speed Internet access through fibre optic broadband technology or digital subscriber line (DSL) with a wide range of options, including Whole Home Wi-Fi, unlimited usage, security services and mobile Internet. Our Internet service, marketed as Fibe Internet, offers download speeds up to 1.5 Gbps with FTTP or 100 Mbps with FTTN. We also offer Internet service under the Virgin Mobile brand offering download speeds up to 100 Mbps.
• Home Phone: local telephone service, long distance and advanced calling features
• Smart Home: home security, monitoring and automation services from Bell Smart Home in Ontario, Québec and Atlantic Canada and from AAA Security, a Bell MTS company, in Manitoba
• Bundles: multi-product bundles of TV, Internet and home phone services with monthly discounts

BUSINESS

• Internet and private networks: business Internet, Ethernet, IP VPN, Wavelength, global network solutions, virtual network services, managed Wi-Fi
• Communications: IP telephony, local and long distance, audio, video and web conferencing and webcasting, contact centre solutions
• Cloud and data centre: cloud computing, cloud services, backup and disaster recovery, co-location hosting, virtual data centre
• Other: security, managed services, professional services
  

Bell Media

SEGMENT DESCRIPTION

• Canada’s leading content creation company with premier assets in video, radio, OOH advertising and digital media
• Revenues are derived primarily from advertising and subscriber fees
  • Conventional TV, radio, OOH and digital media revenues are derived from advertising
  • Specialty TV revenue is generated from subscription fees and advertising
  • Pay TV revenue is derived from subscription fees

OUR ASSETS AND REACH

VIDEO

• 30 conventional TV stations, including CTV, Canada’s #1 TV network for 17 consecutive years
• 33 specialty and Pay TV channels, including TSN, Canada’s most-watched specialty TV channel and RDS, the top French-language sports network
• Three direct-to-consumer streaming services, including Crave, the exclusive home of HBO in Canada

RADIO

• 109 licensed radio stations in 58 markets across Canada

OOH ADVERTISING

• Network of more than 31,000 advertising faces in British Columbia, Alberta, Ontario, Québec and Nova Scotia

DIGITAL MEDIA

• More than 200 websites and more than 30 apps

BROADCAST RIGHTS

• Sports: long-term media rights to key sports properties and official Canadian broadcaster of the Super Bowl, Grey Cup and International Ice Hockey Federation (IIHF) World Junior Championship. Live sports coverage also includes the Toronto Maple Leafs, Montreal Canadiens, Winnipeg Jets and Ottawa Senators, Canadian Football League (CFL), National Football League (NFL), National Basketball Association (NBA), Major League Soccer (MLS), Fédération Internationale de Football Association (FIFA) World Cup events, Curling’s Season of Champions, Major League Baseball (MLB), Golf’s Majors, Monster Energy NASCAR Cup Series, Formula One, Grand Slam Tennis, Ultimate Fighting Championship (UFC), National Collegiate Athletic Association (NCAA) March Madness and more.
• HBO: long-term agreement to deliver all current-season, past-season and library HBO programming in Canada exclusively on our linear, on-demand and over-the-top (OTT) platforms
• SHOWTIME: long-term content licensing and trademark agreement for past, present and future SHOWTIME-owned programming
• STARZ: long-term agreement with Lionsgate bringing U.S. premium pay TV service STARZ to Canada
• iHeartRadio: exclusive partnership for digital and streaming music services in Canada

OTHER ASSETS

• Majority stake in Pinewood Toronto Studios, the largest purpose-built production studio in Canada
• Partnership in Just for Laughs, the live comedy event and TV producer
• Equity interest in Dome Productions Partnership, one of North America’s leading providers of sports and other event production and broadcast facilities

OUR PRODUCTS AND SERVICES

• Varied and extensive array of TV programming to broadcast distributors across Canada
• Advertising on our TV, radio, OOH, and digital media properties to both local and national advertisers across a wide range of industry sectors
• Crave subscription on-demand TV streaming service offering a large collection of premium content in one place, including HBO, SHOWTIME and STARZ programming, on STBs, mobile devices, Apple TV, other streaming devices and online. Crave is offered through a number of Canadian TV providers and is available directly to all Canadian Internet subscribers as an OTT service.
• TSN Direct and RDS Direct streaming services offering live and on-demand TSN and RDS content directly to consumers through a monthly subscription on computers, tablets, mobile devices, Apple TV and other streaming devices
• Mobile TV service with live and on-demand access to content from our conventional TV networks, CTV and CTV Two, BNN Bloomberg, TSN, RDS and other brands in news, sports and entertainment, is offered on commercial terms to all Canadian wireless providers

Other BCE investments

BCE also holds investments in a number of other assets, including:

• a 28% indirect equity interest in MLSE, a sports and entertainment company that owns several sports teams, including the Toronto Maple Leafs, the Toronto Raptors, Toronto FC and the Toronto Argonauts, as well as real estate and entertainment assets in Toronto
• a 50% indirect equity interest in Glentel, a Canadian-based dual-carrier, multi-brand mobile products distributor
• an 18.4% indirect equity interest in entities that operate the Montreal Canadiens Hockey Club, evenko (a promoter and producer of cultural and sports events) and the Bell Centre in Montréal as well as Place Bell in Laval, Québec

EMPLOYEES

At the end of 2018, our team comprised 52,790 employees, an increase of 1,111 employees compared to the end of 2017, due primarily to call centre hiring and acquisitions, partly offset by natural attrition, retirements and workforce reductions.

Approximately 44% of total BCE employees were represented by labour unions at December 31, 2018.

BELL CODE OF BUSINESS CONDUCT

The ethical business conduct of our people is core to the integrity with which we operate our business. The Bell Code of Business Conduct sets out specific expectations and accountabilities, providing employees with practical guidelines to conduct business in an ethical manner.

Our commitment to the Code of Business Conduct is renewed by employees each year in an ongoing effort to ensure that all employees are aware of, and adhere to, Bell’s standards of conduct.

On October 4, 2018, BCE appointed Mirko Bibic as Chief Operating Officer (COO) for BCE and Bell Canada. As COO, Mr. Bibic is leveraging his deep knowledge of Bell’s business and his experience in executing major corporate initiatives to lead the company’s largest customer-facing business units. Mr. Bibic also continues to lead legal and regulatory strategy for the BCE group of companies. Mr. Bibic has been a key driver in the success of Bell’s broadband investment and innovation strategy as Executive Vice President of Corporate Development. This includes his oversight of strategic mergers and acquisitions transactions such as the acquisitions of Astral Media Inc. and MTS, Bell’s participation in multiple wireless spectrum auctions, and a wide range of other investment and partnership initiatives.

On August 31, 2018, BCE completed its acquisition of Axia NetMedia Corporation (Axia), the Calgary-based operator of SuperNet, the Alberta broadband network connecting thousands of provincial and municipal offices, Indigenous communities, schools, libraries, healthcare institutions, businesses and Internet service providers throughout the province. In addition to the multi-year contract to supply all SuperNet services, which was awarded to Bell on July 3, 2018, Bell now owns and operates Axia network assets connecting a total of 402 rural Alberta communities, along with the 27 urban areas already connected to SuperNet by Bell. The acquisition also creates new opportunities to provide advanced solutions in security, data centres and unified communications to Alberta-based and national enterprise customers and Internet service providers in the province.

Bell Let’s Talk Day on January 30, 2019, set new records with 145,442,699 text messages, mobile calls and long distance calls by our customers and social media messages of support for mental health, taking total interactions since the first Bell Let’s Talk Day in 2011 to 1,013,915,275. Canadians everywhere, including leaders like Prime Minister Justin Trudeau, and people worldwide, including influencers like Anderson Cooper and Ellen DeGeneres, helped spread the mental health message across social media. With a donation of 5 cents for each interaction, Bell’s funding commitment grew by $7,272,134.95 to a total of $100,695,763.75 since 2010 for anti-stigma and mental health care, research and workplace initiatives throughout Canada.

Bell was named one of Canada’s Greenest Employers by Canada’s Top 100 Employers program for the second consecutive year in 2018. The award recognizes Bell’s focus on minimizing our environmental impact, our leadership in implementing an ISO 14001 certified Environmental Management System and the success of our ongoing initiatives to reduce waste and save energy. The following are some highlights from 2017:

• At Bell offices across Canada, we reduced electricity consumption by over 30,000 Megawatt hours (MWh), enough to power 3,000 homes for a year
• We reduced fuel consumption by more than 500,000 litres by using telematics systems in 85% of Bell vehicles and following eco-driving practices such as limiting idling
• We diverted 64% of our waste, including 100 tonnes of computer equipment, from landfills through reuse and recycling programs
• We recovered 200,536 phones through the Bell Blue Box program, which donates proceeds to mental health organizations across Canada as part of Bell Let’s Talk

For the second year in a row, Bell was named one of Canada’s Best Diversity Employers in Mediacorp’s 2018 report on workplace diversity and inclusion. The award recognizes Bell’s commitment to providing an inclusive and accessible workplace that reflects Canada’s diversity and highlights our wide range of initiatives to support women, persons with disabilities, Aboriginal people, visible minorities and other groups.

We seek to deliver sustainable shareholder returns through consistent dividend growth. This objective is underpinned by continued growth in free cash flow and a strong balance sheet, supporting a healthy level of ongoing capital investment on advanced broadband networks and services that are essential to driving the long-term growth of our business.

On February 7, 2019, we announced a 5%, or 15 cents, increase in the annualized dividend payable on BCE’s common shares for 2019 to $3.17 per share from $3.02 per share in 2018, starting with the quarterly dividend payable on April 15, 2019. This represents BCE’s 15th increase to its annual common share dividend since the fourth quarter of 2008, representing a total increase of 117%. This is BCE’s 11th consecutive year of 5% or better dividend growth.

Our objective is to seek to achieve dividend growth while maintaining our dividend payout ratio ⁽¹⁾ within the target policy range of 65% to 75% of free cash flow and balancing our strategic business priorities. BCE’s dividend payout policy, increases in the common share dividend and the declaration of dividends are subject to the discretion of the BCE board of directors (BCE Board or Board) and, consequently, there can be no guarantee that BCE’s dividend policy will be maintained, that the dividend on common shares will be increased or that dividends will be declared.

We have a strong alignment of interest between shareholders and our management’s equity-based long-term incentive compensation plan. The vesting of performance share units depends on the realization of our dividend growth policy, while stock options reflect our objective to increase the share price for our shareholders.

Stringent share ownership requirements Emphasis on pay-at-risk for executive compensation Double trigger change-in-control policy Anti-hedging policy on share ownership and incentive compensation Clawbacks for the President and Chief Executive Officer (CEO) and all Executive Vice-Presidents as well as all options holders Caps on BCE supplemental executive retirement plans (SERPs) and annual bonus payouts, in addition to mid-term and long-term incentive grants Vesting criteria fully aligned to shareholder interests

Our dividend payout policy allows BCE to retain a high level of free cash flow after payment of dividends on common shares. Consistent with our capital markets objective to deliver sustainable shareholder returns through dividend growth, while maintaining appropriate levels of capital investment, investment-grade credit ratings and considerable overall financial flexibility, we deploy amounts of remaining free cash flow, after payment of dividends on common shares, in a balanced manner and on uses that include, but are not limited to:

• Financing of strategic acquisitions and investments (including wireless spectrum purchases) that support the growth of our business
• Debt reduction
• Voluntary contributions to BCE’s defined benefit (DB) pension plans to improve the funded position of the plans and reduce the use of letters of credit for funding deficits
• Share buybacks through normal course issuer bid (NCIB) programs

In 2018, free cash flow, after payment of dividends on common shares, in the amount of $888 million, down from $906 million in 2017, was directed towards a $240 million voluntary pension plan contribution to better align the funded status of a number of BCE’s subsidiary DB plans with Bell Canada’s; the funding of various acquisitions, including AlarmForce Industries Inc. (AlarmForce) and Axia; and a $175 million repurchase of common shares through a NCIB program.

This graph compares the yearly change in the cumulative annual total shareholder return of BCE common shares against the cumulative annual total return of the S&P/TSX Composite Index ⁽³⁾, for the five-year period ending December 31, 2018, assuming an initial investment of $100  on December 31, 2013 and the quarterly reinvestment of all dividends.

BCE’s balance sheet is underpinned by a healthy liquidity position and an investment-grade credit profile, providing the company with a solid financial foundation and a high level of overall financial flexibility. BCE is well-positioned with an attractive long-term debt maturity profile and no requirements to repay publicly issued debt securities until the second quarter of 2020. We continue to monitor the capital markets for opportunities where we can further reduce our cost of debt and optimize our cost of capital. We seek to proactively manage financial risk in terms of currency exposure of our U.S. dollar-denominated purchases, as well as equity risk exposure under BCE’s long-term equity-based incentive plans and interest rate and foreign currency exposure under our various debt instruments. We also seek to maintain investment-grade credit ratings with stable outlooks.

We monitor capital by utilizing a number of measures, including net debt leverage ratio ⁽¹⁾, adjusted EBITDA to net interest expense ratio ⁽¹⁾, and dividend payout ratio.

As a result of financing a number of strategic acquisitions made since 2010, including CTV Inc., Astral Media Inc., MLSE, Bell Aliant Inc. (Bell Aliant), Q9 Networks (Q9) and MTS; voluntary pension plan funding contributions to reduce our pension solvency deficit; wireless spectrum purchases; as well as the incremental debt that was assumed as a result of the privatization of Bell Aliant and the acquisition of MTS, our net debt leverage ratio has increased above the limit of our internal target range. At December 31, 2018, we had exceeded the limit of our internal net debt leverage ratio target range of 1.75 to 2.25 times adjusted EBITDA by 0.47. Additionally, our net debt leverage ratio in 2019 will reflect a one-time unfavourable impact due to the adoption of IFRS 16, Leases, reflecting the addition of $2.1 billion to $2.3 billion of capital leases to net debt ⁽¹⁾ on our balance sheet on January 1, 2019. As a result, we increased our net debt leverage ratio target range from 1.75 to 2.25 times adjusted EBITDA to 2.0 to 2.5 times adjusted EBITDA. The new target range remains aligned with our investment-grade credit rating profile and is consistent with the target net debt leverage ratios of our direct Canadian telecom peers. Neither the change in the net debt leverage ratio target range nor the higher net debt leverage resulting from the implementation of IFRS 16 accounting standards is expected to affect our credit ratings or outlooks. Our net debt leverage ratio is expected to improve over time and return within the net debt leverage ratio target range through growth in free cash flow and applying a portion of free cash flow, after payment of dividends on common shares, to the reduction of BCE’s indebtedness.

BCE’s adjusted EBITDA to net interest expense ratio remains significantly above our internal target range of greater than 7.5 times adjusted EBITDA, providing good predictability in our debt service costs and protection from interest rate volatility for the foreseeable future. This ratio was unaffected by the adoption of IFRS 16.

Bell Canada successfully accessed the capital markets in March 2018, August 2018 and September 2018, raising a total of $1.5 billion in gross proceeds from the issuance of seven-year and 10-year medium-term note (MTN) debentures, and US $1.15 billion (C$1.493 billion) in gross proceeds from the issuance of 30-year notes. The U.S.-dollar financing represented the first public debt issuance by Bell Canada in the U.S. market in more than 20 years. Both the Canadian-dollar and U.S.-dollar issuances contributed to lowering our after-tax cost of outstanding publicly issued debt securities to 3.1% (4.3% on a pre-tax basis), and increased the average term to maturity to approximately 11 years. The net proceeds of the  2018 offerings were used to fund the early redemption of $2.1  billion of Bell Canada and MTS debt securities maturing in 2018 and 2019, to repay short-term debt and for general corporate purposes.

On March 20, 2018, Bell Canada renewed its short form base shelf prospectus, enabling Bell Canada to offer up to $4 billion of debt securities from time to time until April 20, 2020. The debt securities will be fully and unconditionally guaranteed by BCE. Consistent with past practice, the short form base shelf prospectus was renewed to continue to provide Bell Canada with financial flexibility and efficient access to the Canadian and U.S. capital markets. As at December 31, 2018, Bell Canada had issued approximately $2.5 billion principal amount of debt securities calculated on a Canadian-dollar basis under its new short form base shelf prospectus.

The BCE Board and management believe that strong corporate governance practices contribute to superior results in creating and maintaining shareholder value. That is why we continually seek to strengthen our leadership in corporate governance and ethical business conduct by adopting best practices, and providing full transparency and accountability to our shareholders.

Key governance strengths and actions in support of our governance philosophy include:

• Separation of the Board Chair and CEO roles
• Director independence standards
• Audit Committee, Management Resources and Compensation Committee (Compensation Committee) and Corporate Governance Committee (Governance Committee) of the Board composed of independent directors
• Annual director effectiveness and performance assessments
• Ongoing reporting to Board committees regarding ethics programs and the oversight of corporate policies across BCE
• Share ownership guidelines for directors and executives

For more information, please refer to BCE’s most recent notice of annual general shareholder meeting and management proxy circular (the Proxy Circular) filed with the Canadian provincial securities regulatory authorities (available at sedar.com) and furnished to the U.S. Securities and Exchange Commission (available at sec.gov), and available on BCE’s website at BCE.ca.

BOARD OVERSIGHT

BCE’s full Board is entrusted with the responsibility for identifying and overseeing the principal risks to which our business is exposed and seeking to ensure there are processes in place to effectively identify, monitor and manage them. These processes seek to mitigate rather than eliminate risk. A risk is the possibility that an event might happen in the future that could have a negative effect on our financial position, financial performance, cash flows, business or reputation. While the Board has overall responsibility for risk, the responsibility for certain elements of the risk oversight program is delegated to Board committees in order to ensure that they are treated with appropriate expertise, attention diligence, with reporting to the Board in the ordinary course.

Risk information is reviewed by the Board or the relevant committee throughout the year, and business leaders present regular updates on the execution of business strategies, risks and mitigation activities.

• The Audit Committee is responsible for overseeing financial reporting and disclosure as well as overseeing that appropriate risk management processes are in place across the organization. As part of its risk management activities, the Audit Committee reviews the organization’s risk reports and ensures that responsibility for each principal risk is formally assigned to a specific committee or the full Board, as appropriate. The Audit Committee also regularly considers risks relating to financial reporting, legal proceedings, the performance of critical infrastructure, information and physical security, journalistic independence, privacy and records management, business continuity and the environment.
• The Compensation Committee oversees risks relating to compensation, succession planning, and health and safety practices
• The Governance Committee assists the Board in developing and implementing BCE’s corporate governance guidelines and determining the composition of the Board and its committees. The Governance Committee also oversees matters such as the organization’s policies concerning business conduct, ethics and public disclosure of material information.
• The Pension Fund Committee (Pension Committee) has oversight responsibility for risks associated with the company’s pension funds.

RISK MANAGEMENT CULTURE

There is a strong culture of risk management at BCE that is actively promoted by the Board and the company’s President and CEO at all levels within the organization. It has become a part of how the company operates on a day-to-day basis and is woven into its structure and operating principles, guiding the implementation of the organization’s strategic imperatives.

The President and CEO, selected by the Board, has set his strategic focus through the establishment of six strategic imperatives and focuses risk management around the factors that could impact the achievement of those strategic imperatives. While the constant state of change in the economic environment and the industry creates challenges that need to be managed, clarity around strategic objectives, performance expectations, risk management and integrity in execution ensures discipline and balance in all aspects of our business.

RISK MANAGEMENT FRAMEWORK

While the Board is responsible for BCE’s risk oversight program, operational business units are central to the proactive identification and management of risk. They are supported by a range of corporate support functions that provide independent expertise to reinforce implementation of risk management approaches in collaboration with the operational business units. The Internal Audit function provides a further element of expertise and assurance, working to provide insight and support to the operational business units and corporate support functions, while also providing the Audit Committee with an independent perspective on the state of risk and control within the organization. Collectively, these elements can be thought of as a “three lines of defence” approach to risk management. Although the risk management framework described in this section 1.5 is aligned with industry best practices and is endorsed by the Institute of Internal Auditors, there can be no assurance that it will be sufficient to prevent the occurrence of events that could have a material adverse effect on our financial position, financial performance, cash flows, business or reputation.

FIRST LINE OF DEFENCE – OPERATIONAL BUSINESS UNITS

The first line refers to management within our operational business segments (Bell Wireless, Bell Wireline and Bell Media), who are expected to understand their operations in great detail and the financial results that underpin them. There are regular reviews of operating performance involving the organization’s executive and senior management. The discipline and precision associated with this process, coupled with the alignment and focus around performance goals, create a high degree of accountability and transparency in support of our risk management practices.

As risks emerge in the business environment, they are discussed in a number of regular forums to share details and explore their relevance across the organization. Executive and senior management are integral to these activities in driving the identification, assessment, mitigation and reporting of risks at all levels. Formal risk reporting occurs through strategic planning sessions, management presentations to the Board and formal enterprise risk reporting, which is shared with the Board and the Audit Committee during the year.

Management is also responsible for maintaining effective internal controls and for executing risk and control procedures on a day-to-day basis. Each operational business unit develops its own operating controls and procedures that fit the needs of its unique environment.

SECOND LINE OF DEFENCE – CORPORATE SUPPORT FUNCTIONS

BCE is a very large enterprise, with 52,790 employees as at December 31, 2018, multiple business units and a diverse portfolio of risks that is constantly evolving based on internal and external factors. In a large organization, it is common to manage certain functions centrally for efficiency, scale and consistency. While the first line of defence is often central to identification and management of business risks, in many instances operational management works collaboratively with, and also relies on, the corporate functions that make up the second line of defence for support in these areas. These corporate functions include Finance, Corporate Security and Corporate Risk Management, as well as Legal and Regulatory, Corporate Responsibility, Human Resources, Real Estate and Procurement.

Finance function: BCE’s Finance function plays a pivotal role in seeking to identify, assess and manage risks through a number of activities, which include financial performance management, external reporting, pension management, capital management, and oversight and execution practices related to the U.S. Sarbanes-Oxley Act of 2002 and equivalent Canadian securities legislation, including the establishment and maintenance of appropriate internal control over financial reporting. BCE has also established and maintains disclosure controls and procedures to seek to ensure that the information it publicly discloses, including its business risks, is accurately recorded, processed, summarized and reported on a timely basis. For more details concerning BCE’s internal control over financial reporting and disclosure controls and procedures, refer to the Proxy Circular and section 10.3, Effectiveness of internal controls of this MD&A.

Corporate Security function: This function is responsible for all aspects of security, which requires a deep understanding of the business, the risk environment and the external stakeholder environment. Based on this understanding, Corporate Security sets the standards of performance required across the organization through security policy definitions and monitors the organization’s performance against these policies. In high and emerging risk areas such as information security, Corporate Security leverages its experience and competence and, through collaboration with the operational business units, develops strategies intended to seek to mitigate the organization’s risks. For instance, we have implemented security awareness training and policies and procedures that seek to mitigate information security threats. We further rely on security assessments to identify risks, projects and implementation controls with the objective of ensuring that systems are deployed with the appropriate level of control based on risk and technical capabilities, including access management, vulnerability management, security monitoring and testing, to help identify and respond to attempts to gain unauthorized access to our information systems and networks. We evaluate and seek to adapt our security policies and procedures designed to protect our information and assets in light of the continuously evolving nature and sophistication of information security threats. However, given the complexity and scale of our business, network infrastructure, technology and IT supporting systems, there can be no assurance that the security policies and procedures that we implement will prevent the occurrence of all potential information security breaches. In addition, there can be no assurance that any insurance we may have will cover the costs, damages, liabilities or losses that could result from the occurrence of any information security breach.

Corporate Risk Management function: This function works across the company to gather information and report on the organization’s assessment of its principal risks and the related exposures. Annually, senior management participate in a risk survey that provides an important reference point in the overall risk assessment process.

In addition to the activities described above, the second line of defence is also critical in building and operating the oversight mechanisms that bring focus to relevant areas of risk and reinforce the bridges between the first and second lines of defence, thereby seeking to ensure that there is a clear understanding of emerging risks, their relevance to the organization and the proposed mitigation plans.

To further coordinate efforts between the first and second lines of defence, BCE has established a Health and Safety, Security, Environment and Compliance Oversight Committee. A significant number of BCE’s most senior leaders are members of this committee, the purpose of which is to oversee BCE’s strategic security (including information security), compliance, and environmental, health and safety risks and opportunities. This cross-functional committee seeks to ensure that relevant risks are adequately recognized and mitigation activities are well integrated and aligned across the organization and are supported with sufficient resources.

THIRD LINE OF DEFENCE – INTERNAL AUDIT FUNCTION

Internal Audit is a part of the overall management information and control system and has the responsibility to act as an independent appraisal function. Its purpose is to provide the Audit Committee and management with objective evaluations of the company’s risk and control environment, to support management in fulfilling BCE’s strategic imperatives and to maintain an audit presence throughout BCE and its subsidiaries.

Our success is built on the BCE team’s dedicated execution of the six strategic imperatives that support our goal to be recognized by customers as Canada’s leading communications company.

We invest in wireline and wireless broadband platforms to deliver the most advanced wireless, TV, Internet and other IP-based services available, to support continued subscriber and data growth across all our residential product lines as well as the needs of our business market customers.

2018 PROGRESS

• Expanded our LTE-A wireless network to reach 91% of the Canadian population with data speeds up to 260 Mbps (expected average download speeds of 18 to 74 Mbps). In addition, our Quad-band LTE-A footprint covered more than 24% of the population with speeds up to 750 Mbps (expected average download speeds of 25 to 220 Mbps in select areas).
• Became the first wireless provider in Canada to achieve Gigabit LTE speeds in testing and deployed these advanced speeds in Toronto and Kingston. To boost LTE-A speeds to the Gigabit level, Bell employed a combination of carrier aggregation, 256 QAM (quadrature amplitude modulation) and 4×4 Multiple Input Multiple Output (MIMO) technologies to increase spectrum efficiency and multiply capacity.
• Continued to expand our FTTP direct fibre footprint, reaching approximately 4.6 million homes and businesses in seven provinces. Approximately 50 percent of our long-term broadband fibre program was completed at the end of 2018. FTTP delivers broadband access speeds of up to 1.5 Gbps currently, with faster speeds expected in the future as equipment evolves to support these higher speeds.
• Launched an all-fibre broadband network in the city of Toronto, enabling fast Internet speeds, advanced TV and business connectivity to more than 1 million homes and business locations. Bell began the Toronto project in 2015, working closely with the city of Toronto and Toronto Hydro and employing innovative installation techniques and new heavy equipment to roll out the network as efficiently and quickly as possible.
• Began the buildout of all-fibre connections to an additional 1.3 million homes and businesses throughout the populous and fast-growing Greater Toronto Area (GTA)/905 region surrounding Toronto. Bell commenced projects in a number of communities including the City of Oshawa, the Municipality of Clarington, the City of Orillia and the Chatham-Kent region.
• Launched wireless-to-the-premise (WTTP) to 28 rural communities in Ontario and Québec following successful trials in the 3.5 Gigahertz (GHz) spectrum band utilizing Fifth Generation (5G)-oriented MIMO and 8T8R technology. WTTP is fixed wireless technology that will take full advantage of 5G to deliver high-speed Internet service to residents in smaller and underserved communities. Bell’s WTTP solution is expected to deliver broadband speeds 5  to 10  times faster than average speeds currently available in these areas. In addition, Bell accelerated its fixed wireless WTTP buildout plan from 800,000 to 1.2 million rural households following the introduction of the federal government’s Accelerated Investment Incentive program.

2019 FOCUS

• Expand LTE-A network footprint to approximately 94% of the Canadian population
• Deploy Quad-band LTE-A to approximately 60% of the Canadian population enabling theoretical speeds up to 750 Mbps (expected average speeds of 25 to 220 Mbps)
• Increase LTE-A peak theoretical speeds to 950 Mbps with 4×4 MIMO technology in select urban areas covering approximately 40% of the Canadian population
• Continue with preparations for 5G through market trials in various markets, continue to deploy mobile small cells and equip more cell sites with high-speed fibre backhaul
• Expand combined FTTP direct fibre and fixed wireless WTTP broadband footprint to over 5.3 million homes and commercial locations
  • Increase FTTP footprint by approximately 500,000 homes and businesses to 5.1 million locations, with focus on the Montréal and the GTA/905 geographic areas
  • Accelerate buildout of fixed wireless WTTP network to approximately 200,000 additional households in 138 rural communities

Our objective is to grow our Bell Wireless business profitably by focusing on postpaid subscriber acquisition and retention, increasing our share of the prepaid market, maximizing average billing per user (ABPU) by targeting premium smartphone subscribers in all geographic markets we operate in, leveraging our wireless networks, and maintaining device and mobile content leadership to drive greater wireless data penetration and usage.

2018 PROGRESS

• Acquired 43% of total postpaid and prepaid net activations among the three national wireless carriers
• Increased the number of postpaid subscribers on our LTE network to 91% of our total postpaid subscribers, up from 88% at the end of 2017
• Grew prepaid market share with 32,129 net activations, achieving our first year of growth in prepaid net activations since 2009, driven by strong demand for our low-cost Lucky Mobile service
• Maintained the highest reported blended ABPU in the Canadian wireless industry
• Expanded our smartphone and tablet lineup with 38 new devices, including Apple’s iPhone XS, XS Max, XR and Apple Watch Series 4, the Samsung Galaxy S9 and S9+, the Samsung Galaxy Note 9, Google’s Pixel 3 and Pixel 3 XL and the LG G7, adding to our extensive selection of 4G LTE and LTE-A devices
• First Canadian wireless service provider to enable built-in Wi-Fi hotspots in supported Ford and Lincoln vehicles with Bell’s Connected Car – Built In service. Ideal for mobile workers, commuters and long family trips, Connected Car enables passengers to browse, stream and share on Bell’s broadband LTE wireless network when they are on the road or up to 50 feet from the vehicle when it is parked.
• Expanded the availability of Lucky Mobile, our low-cost prepaid wireless service, to all 10  provinces with launches in Manitoba, Saskatchewan, Québec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador
• Expanded lineup of IoT applications, which enable the interconnection of a range of devices and applications that send and receive data
  • Partnered with the City of Kingston and the City of Orillia to employ Bell’s Smart City platform to provide a series of connected IoT applications to improve municipal operating efficiencies
  • Launched a managed IoT security service that offers businesses, Smart Cities and other organizations employing IoT solutions with an advanced layer of comprehensive security services to detect and respond to evolving cyber threats
  • Partnered with Echologics, an industry leader in leak detection technology, to implement a water management solution for Medicine Hat, Alberta
  • Concluded a multi-year agreement with Superior Propane to deliver a comprehensive fuel tank monitoring solution for its business and residential customers on Bell’s national LTE mobile network

2019 FOCUS

• Profitably grow our wireless postpaid subscriber base, while maintaining market share momentum of incumbent postpaid subscriber activations
• Improve blended ABPU
• Offer the latest handsets and devices in a timely manner to enable customers to benefit from ongoing technological improvements by manufacturers and from faster data speeds to optimize the use of our services
• Continue to increase the number of postpaid smartphone subscribers using our 4G LTE and LTE-A networks
• Leverage Lucky Mobile to grow prepaid subscriber market share, while providing Canadians with affordable wireless service options
• Expand voice and video over LTE (VoLTE) technology coverage areas and broaden rollout to more supported devices
• Accelerate new revenue streams by continuing to drive the commercialization of IoT services and applications
• In February 2019, we partnered with the City of Markham for the launch of the Smart City Accelerator Research Program. The program will deploy Bell’s Smart City platform, an advanced solution of interconnected IoT applications, to improve the efficiency of municipal operations and enhance City services for residents.

We focus on leveraging our fibre-based TV and Internet services to develop attractive residential offers that drive higher multi-product bundle sales and improve customer satisfaction and retention. These broadband services contribute to the ongoing shift of our operating mix away from legacy wireline voice services.

In our business markets, we remain focused on expanding our broadband network and strengthening our delivery of integrated solutions to Canadian businesses, while continuing to manage the transformation of our business from legacy network services to a fully-integrated data hosting, cloud computing and managed services provider.

2018 PROGRESS

• Built on our position as the leading Internet service provider (ISP) in Canada with a high-speed Internet subscriber base of 3,933,931, up 3.8% over 2017, including 1.2 million FTTP customers
• Maintained our position as Canada’s largest TV provider with 2,853,081  subscribers, and increased our total number of IPTV subscribers by 8.1% to 1,675,706
• Increased Fibe Internet access speeds to 1.5 Gbps, the fastest speed to the home available in Canada. Unlimited Gigabit Fibe 1.5 service was rolled out in Ontario, Québec and the Atlantic provinces. This enhanced Internet service offers total download speeds of up to 1.5 Gbps and uploads of up to 940 Mbps.
• Took the top spot in PCMag’s “The Fastest ISPs of 2018: Canada”, delivering the highest overall Internet speed index ever recorded in Canada to date by the magazine and scoring more than 30% higher than our nearest competitor. Our operations in the Atlantic provinces marketed under the Bell Aliant brand took second place in the speed tests while Manitoba’s Bell MTS moved into the top 10 for the first time.
• Launched an exclusive Whole Home Wi-Fi service that combines Wi-Fi access points with the cloud-based networking intelligence of Bell’s Home Hub 3000 and Home Hub 2000 modems to learn how households use the Internet and ensure all devices receive the strongest signal and fastest speeds possible
• Continued to lead TV innovation in Canada with ongoing enhancements to our IPTV service
  • Launched Download & Go feature, enabling Fibe TV customers in Ontario, Québec and Atlantic Canada to download their PVR recordings with the Fibe TV app to watch on iOS and Android mobile devices even without an Internet connection
  • Expanded access to Alt TV with Amazon Fire TV Stick and a variety of Android TV devices including Sony, NVIDIA, Xiaomi and other Google certified products
  • Concluded a multi-year agreement with Ericsson to leverage its next generation, cloud-based MediaFirst platform to enable an even more personalized and converged multiscreen TV experience for Fibe TV and Alt TV customers
• Offered access to Amazon Web Services as part of our leading lineup of cloud solutions for Canadian businesses. Bell Cloud Connect provides flexible cloud computing and storage solutions from Bell and partners like Microsoft, IBM, and now Amazon over Bell’s broadband networks, offering better reliability, faster speeds and enhanced security with private end-to-end connections.
• Launched Virtual Network Services (VNS) platform, offering enterprise business customers a catalogue of on-demand network functions that reside securely in Bell’s private cloud. The first of its kind in Canada, Bell VNS responds to customers’ on-demand needs by transforming and centralizing hardware-based networks in virtualized, software-driven networks.
• Bell was named a Canadian leader in security services by global IT and telecom advisory firm International Data Corporation (IDC) in its 2018 Canadian Security Services Vendor Assessment Report for the third consecutive year. IDC’s review of Canada’s major security service providers highlighted Bell’s exceptionally broad range of professional services including cloud security, advanced threat detection and proactive mitigation, backed by our highly qualified team and world-class networks.

2019 FOCUS

• Further grow our residential IPTV and Internet subscriber bases as well as FTTP and WTTP customer penetration
• Drive higher residential ARPU from the flow-through of price changes and increased penetration of multi-product households
• Continue to enhance our TV services with more advanced ways to enjoy Fibe TV and Alt TV
  • Make the Fibe TV app available on more devices, including Chromecast
  • Update our satellite receiver lineup to include Whole Home PVR and access to Netflix and YouTube
• Maintain product superiority through new service offerings and product innovation to provide the best Wi-Fi coverage and better customer experience in the home
  • Extend the availability of the Bell Wi-Fi app to all Bell Internet and TV subscribers
• Reduce total wireline residential NAS net losses
• Invest in direct fibre expansion and new solutions in key portfolios such as Internet and private networks, data centre and cloud services, unified communications, security services and IoT to improve the business client experience and increase overall business customer spending on telecommunications products and services
• Increase share of wallet of large enterprise customers through greater focus on business service solutions and connectivity growth
• Increase the number of net new customer relationships in both large and mid-sized businesses and reduce small business customer losses

We strive to deliver leading sports, news, entertainment and business content across all screens and platforms to grow audiences. We are also creating our own world class content, ensuring that Canadian attitudes, opinions, values and artistic creativity are reflected in our programming and in our coverage of events in Canada and around the world, and to introduce new services in support of new revenue streams.

2018 PROGRESS

• Maintained CTV’s #1 ranking as the most-watched TV network in Canada for the 17th year in a row, and continued to lead with 10 of the top 20 programs nationally in all key demographics
• TSN was Canada’s most-watched specialty TV channel and RDS remained the top French-language sports network
• Launched TSN Direct and RDS Direct, making TSN and RDS content available direct to consumers through a monthly subscription. Available for a monthly fee with no contract, TSN Direct and RDS Direct allow digital subscribers to access TSN and RDS’ programming through their computer, tablet, mobile device, Apple TV, Samsung SmartTV and Xbox One.
• TSN and RDS extended their broadcast partnership with UFC, the world’s premier mixed martial arts organization, including extensive broadcast and digital rights across TSN, RDS and Bell Media platforms
• Launched the all-new Crave streaming service, combining TMN, HBO Canada, SHOWTIME and other premium content into a single service and making current HBO programming available directly to all Canadians with access to the Internet for the first time ever. Crave grew to 2.3 million subscribers at the end of 2018.
• Concluded a long-term agreement with Lionsgate to bring premium U.S. pay TV platform STARZ to Canada and distribute the first pay window of Lionsgate’s future theatrical releases in the territory
• Secured exclusive long-term deals with most major movie studios, including 20th Century Fox and Fox Searchlight Films, Entertainment One, Sony Pictures Entertainment, Universal Pictures and Focus Features, MGM Studios Inc. and Warner Bros. International Television Distribution, to bring the biggest Hollywood hit movies and film franchises across a variety of platforms including linear, on-demand and digital
• Launched CTV Movies and CTV Throwback, two new ad-supported video-on-demand (VOD) services featuring thousands of hours of content, marking the first step in the evolution of the CTV Super Hub as Canada’s premiere destination for entertainment on digital platforms
• Acquired a majority stake in Pinewood Toronto Studios, in partnership with Comweb Studio Holdings Inc., Castlepoint Studio Partners 2 Limited and the City of Toronto, and broke ground on its multi-stage expansion, which will increase total new production space to 200,000 square feet (18,580 square metres) of sound stages and support space. With this expansion, Pinewood Toronto Studios will become the largest purpose-built production studio in Canada and will be better able to support its growing roster of domestic and international film and TV clients.
• Partnered with Bloomberg Media to create and launch BNN Bloomberg, Canada’s leading multi-platform business news brand. BNN Bloomberg provides audiences and advertisers with a broad suite of products across digital, TV and radio, targeting Canada’s business decision makers.
• Entered into a long-term agreement with VICE Media (VICE) making Bell Media the exclusive Canadian broadcaster of new original programming from VICE’s U.S. linear network, VICELAND, along with hundreds of hours of library VICE programming
• Launched Snackable TV, a mobile-first, short-form video app delivering premium and shareable entertainment targeted at viewers looking to consume snack-size pieces of content, featuring exclusive content from HBO, Comedy Central, Etalk and more
• Bell Media’s OOH advertising division, Astral, entered into new partnerships with Campsite, a Montréal-based leader in programmatic OOH advertising, and Vistar Media, a U.S.-based leader in programmatic technology for digital OOH advertising. These agreements make Astral’s 240 digital large format and street furniture faces across Canada accessible through programmatic platforms.

2019 FOCUS

• Increase revenue generation from monetization of content rights and Bell Media properties across all platforms as well as from OOH and digital advertising platforms, while controlling TV programming and premium content cost escalation
• Maintain strong audience levels and ratings across all TV and radio properties
• Continue scaling Crave on-demand streaming service
• Reinforce industry leadership in conventional TV, specialty TV, pay TV, streaming and sports services
  • On March  1, 2019, we rebranded Pay TV channel Encore as STARZ, featuring a slate of premium STARZ programming and a broad selection of Lionsgate hit films and TV series, facilitating its transformation into a world-class platform. STARZ also became available directly to all Canadians with access to the Internet as an add-on to Crave.
  • In January 2019, TSN and RDS announced Day Pass subscriptions to their TSN Direct and RDS Direct streaming services. The all-new, single-day subscription option is the first of its kind in Canada, providing full access to TSN and RDS channels for 24 hours with no contract.
• Successfully renew agreements with broadcasting distribution undertakings (BDUs)
• Develop in-house production and content creation for distribution and use across all screens and platforms
• Expand live and on-demand content through TV Everywhere services
• Build on our OOH leadership position in Canada
• Leverage cross-platform and integrated sales and sponsorship
• Grow revenues through unique partnerships and strategic content investments

Our objective is to enhance customers’ overall experience by delivering call centre efficiency, meeting commitments for the installation and timely repair of services, increasing network quality, and implementing process improvements to simplify customer transactions and interactions with our front-line employees and self-serve tools. All of these will help differentiate us from our competitors and gain long-term customer loyalty. We intend to achieve this by making the investments we need to improve our front-line service capabilities, our networks, our products and our distribution channels to win and keep customers.

2018 PROGRESS

• Virgin Mobile Canada (Virgin Mobile) was ranked highest in overall customer care satisfaction in the J.D. Power 2018 Canada Wireless Customer Care Study for the second consecutive year, cited for its strong performance in satisfaction with phone, in-store and online support as well as clarity of information on company websites, user forums and social media
• Improved wireless postpaid churn by 0.03 pts, driven by our investments in network quality and customer retention
• MyBell app was selected as the Best Telecommunications Mobile Application of 2018 at the annual MobileWebAwards
• Updated MyBell app with ability for customers to change their Internet package and manage almost every aspect of their TV service, including changing their channel selection or programming package, ordering Pay Per View and on-demand content, and upgrading their receiver
• Redesigned MyBell.ca to a mobile-friendly format, making it easier for customers to find what they need and transact online. Mobile transactions increased by 22%.
• Introduced ability for customers to reboot their modem remotely on Bell.ca, allowing customers to resolve over 40% of Internet connectivity issues
• Enhanced the Manage Your Appointment web service with new self-serve features that enable customers to reschedule appointments online and provide technicians with handy information such as building entry codes and parking instructions
• Reduced FTTP installation time by 9%
• Reduced FTTP Residential Fibe TV repair truck rolls per customer by 6%
• Offered residential installation appointments 33% earlier

2019 FOCUS

• Further evolve our self-serve tools
• Continue to invest in customer service initiatives to simplify complexity for all customers, including billing
• Further reduce the total volume of customer calls to our call centres as well as the number of truck rolls
• Further improve customer satisfaction scores
• Achieve better consistency in customer experience
• Continue to improve customer personalization
• Reduce FTTP installation times and improve service quality
• Deploy new diagnostic technology enabling enhanced troubleshooting and proactive service monitoring for our customers
• Simplify the technician in-field experience through simplification and innovation of technician tools
• Improve troubleshooting and diagnostic processes to manage increasing customer and device complexity

Cost containment is a core element of our financial performance. It remains a key factor in our objective to preserve steady margins as we continue to experience revenue declines in our legacy wireline voice and data services and further shift our product mix towards growth services. We aim to accomplish this through operating our business in the most cost-effective way possible to extract maximum operational efficiency and productivity gains.

2018 PROGRESS

• Completed a net reduction in our management workforce of 4%, or approximately 700 positions, that is expected to deliver annualized cash savings of approximately $75 million. These changes reflect the further integration of Bell MTS, Bell Aliant and other acquisitions.
• Realized productivity improvements and cost efficiencies resulting from the expansion of Bell’s all-fibre network footprint and service innovations enabled by new broadband technologies
• Maintained relatively stable Bell Wireline and BCE consolidated adjusted EBITDA margins ⁽¹⁾
• Lowered Bell Canada’s average after-tax cost of publicly issued debt securities to 3.1%

2019 FOCUS

• Realize operating cost savings from:
  • workforce reductions completed in 2018
  • lower contracted rates from our suppliers
  • reduction in traffic that is not on our wireline network
  • broader deployment of FTTP
  • consumer behaviour changes expected to be driven by product innovation and customer service improvements
  • the realization of further Bell MTS operating synergies
• Optimize operating cost structure to align with revenue results

This section provides information pertaining to our performance against 2018 targets, our consolidated business outlook and operating assumptions for 2019 and our principal business risks.

FINANCIAL GUIDANCE	2018 TARGET	2018 PERFORMANCE AND RESULTS		ACHIEVED
Revenue growth	2%–4%	3.1%	BCE revenues increased by 3.1% in 2018 compared to last year, driven by growth across all three of our segments and reflected both higher service and product revenues of 1.7% and 13.7%, respectively. This included the contribution from the acquisition of MTS in March 2017.
Adjusted EBITDA growth	2%–4%	2.7%	BCE adjusted EBITDA grew by 2.7% in 2018 compared to last year, driven by growth in our Bell Wireless segment of 5.6% and our Bell Wireline segment of 1.7%, offset in part by a decline in our Bell Media segment of 3.2%. The increase was attributable to the growth in revenues, effective cost containment and the contribution from the acquisition of MTS, offset in part by higher cost of goods sold relating to greater wireless handset sales and higher product sales to enterprise customers, as well as increased content and programming costs at Bell Media.
Capital intensity	Approx. 17%	16.9%	BCE capital investments totaled $3,971 million in 2018, down 1.6% from last year, with a corresponding capital intensity ratio of 16.9%, down from 17.7% in 2017. We continued to focus our strategic investments on the expansion of our FTTP footprint to more homes and businesses, the ongoing deployment of our LTE-A mobile network, spectrum carrier aggregation, the deployment of wireless small-cells to optimize mobile coverage, signal quality and data backhaul, along with the expansion of network capacity to support the growth in subscribers and data consumption and the initial rollout of fixed wireless broadband to rural locations in Ontario and Québec. Our capital expenditures also reflected the acquisition and integration of MTS.
Adjusted net earnings per share (adjusted EPS) (1)	$3.45–$3.55	$3.51	Net earnings attributable to common shareholders in 2018 decreased by $81 million, or $0.10 per common share, compared to 2017, due to higher other expense which included impairment charges of $200 million mainly relating to our Bell Media segment, higher depreciation and amortization expense and higher finance costs. This was partly offset by higher adjusted EBITDA, as growing revenues more than offset an increase in operating costs, lower income taxes and lower severance, acquisition and other costs. Excluding the impact of severance, acquisition and other costs, net mark-to-market (losses) gains on derivatives used to economically hedge equity settled share-based compensation plans, net losses on investments, early debt redemption costs and impairment charges, adjusted net earnings in 2018 was $3,151 million, or $3.51 per common share, compared to $3,058 million, or $3.42 per common share, in 2017.
Free cash flow growth	3%–7%	4.4%	Free cash flow increased $149 million in 2018 due mainly to higher cash flows from operating activities excluding voluntary DB pension plan contributions and acquisition and other costs paid, and lower capital expenditures.
Annualized common dividend per share	$3.02	$3.02	Annualized BCE common dividend per share for  2018 increased by 15  cents, or 5.2%, to $3.02 compared to $2.87 per share in 2017.
Dividend payout ratio	65%–75% of free cash flow	75%	Dividend payout ratio increased from 73% in 2017 to 75% in 2018.

BCE’s 2019 outlook builds on the solid financial results achieved in 2018 that reflected higher wireless subscriber net additions and operating profitability; improved organic wireline financial performance; broadband Internet and TV market share growth enabled by an expanded direct fibre footprint offering more competitive Internet speeds and product innovation such as Alt TV; as well as the flow-through of operating cost savings realized from workforce reductions and other productivity improvements.

Our projected financial performance for  2019 is underpinned by continued execution of our six strategic imperatives in a highly competitive and dynamic market. Wireless, Internet and TV subscriber base growth, together with pricing discipline and focused cost management, is projected to drive revenue and adjusted EBITDA growth. This is expected to contribute to higher free cash flow, providing a stable foundation for a higher BCE common share dividend for 2019, as well as continued significant capital investment in broadband fibre and wireless network infrastructure to support future growth.

The key 2019 operational priorities for BCE are to:

• Maintain market share of incumbent wireless postpaid net additions
• Grow wireless prepaid market share
• Further expand our LTE-A mobile network coverage to approximately 94% of the Canadian population, while continuing with preparations for 5G through market trials in various markets, continuing to deploy mobile small cells and equipping more cell sites with high-speed fibre backhaul
• Increase our FTTP footprint by approximately 500,000 homes and businesses to 5.1 million locations
• Accelerate the buildout of our fixed wireless WTTP network to approximately 200,000 additional households in rural communities
• Further grow our residential IPTV and Internet subscriber bases as well as FTTP and WTTP customer penetration
• Drive higher wireline residential ARPU from the flow-through of price changes and increased penetration of multi-product households
• Enhance Internet and TV product superiority through new service offerings and innovation to provide the best Wi-Fi coverage and better customer experience in the home
• Invest in direct fibre expansion and new solutions in key portfolios such as Internet and private networks, data centre and cloud services, unified communications, security services and IoT to improve the business client experience and increase overall business customer spending on telecommunications products and services
• Realize operating cost savings from workforce reductions completed in 2018, lower contracted rates from our suppliers, reduction in traffic that is not on our wireline network, broader deployment of FTTP, consumer behaviour changes driven by product innovation, customer service improvements, and the realization of further Bell MTS operating synergies
• Increase revenue generation from monetization of content rights and Bell Media properties across all platforms as well as from OOH and digital advertising platforms, while controlling TV programming and premium content cost escalation
• Continue scaling Bell Media’s Crave on-demand streaming service

Our projected financial performance for 2019 enabled us to increase the annualized BCE common share dividend for 2019 by 15 cents, or 5.0%, to $3.17 per share.

ASSUMPTIONS ABOUT THE CANADIAN ECONOMY

• A slightly slower rate of economic growth, given the Bank of Canada’s most recent estimated growth in Canadian gross domestic product of 1.7% in 2019, down from 2.0% in 2018
• Employment gains expected to continue in 2019, as the overall level of business investment is expected to grow but remain variable
• Interest rates expected to increase modestly in 2019
• Canadian dollar expected to remain at near current levels. Further movements may be impacted by the degree of strength of the U.S. dollar, interest rates and changes in commodity prices

MARKET ASSUMPTIONS

• A consistently high level of wireline and wireless competition in consumer, business and wholesale markets
• Higher, but slowing, wireless industry penetration and smartphone adoption
• A shrinking data and voice connectivity market as business customers migrate to lower-priced traditional telecommunications solutions or alternative OTT competitors
• Advertising market expected to be impacted by audience declines and variable demand
• Continued escalation of media content costs to secure TV programming
• Ongoing linear TV subscriber erosion, due to growing cord-cutter and cord-never customer segments

Provided below is a summary description of certain of our principal business risks that could have a material adverse effect on all of our segments. Certain additional business segment-specific risks are reported in section 5, Business segment analysis. For a detailed description of the principal risks relating to our regulatory environment and a description of the other principal business risks that could have a material adverse effect on our financial position, financial performance, cash flows, business or reputation, refer to section 8, Regulatory environment and section 9, Business risks, respectively.

As the scope of our businesses increases and evolving technologies drive new services, delivery models and strategic partnerships, our competitive landscape intensifies and expands to include new and emerging competitors, certain of which were historically our partners or suppliers, as well as global-scale competitors including, in particular, OTT TV service providers, IoT hardware and software providers, voice over IP (VoIP) providers and other web-based and OTT players that are penetrating the telecommunications space with significant resources and a large customer base to amortize costs. Certain of these competitors are changing the competitive landscape by moving beyond being mere disruptors and newer entrants to the industry to establishing material positions. Greater customer adoption of data services, including mobile TV, international data roaming, mobile commerce and mobile banking, as well as other IoT applications in the areas of retail (e.g., home automation), business (e.g., remote monitoring), transportation (e.g., connected car and asset tracking) and urban city optimization

(smart cities), is expected to accelerate growth opportunities as well as competition in these areas. If we are unable to develop and deploy retail, business and government IoT product solutions in advance of or concurrently with our competitors, our business and financial results could be adversely affected.

Pricing and investment decisions of market participants are based on many factors, such as strategy, market position, technology evolution, customer confidence and economic climate, and collectively these factors could adversely affect our market share, service volumes and pricing strategies and, consequently, our financial results.

Technology substitution, IP networks and recent regulatory decisions, in particular, continue to reduce barriers to entry in our industry. In addition, the effects of government policies regarding the set-aside of spectrum at favourable pricing for newer wireless entrants have begun to impact market dynamics. Together, these factors have changed industry economics and allowed competitors to launch new products and services and gain market share with far less investment in financial, marketing, human, technological and network resources than has historically been required. In particular, some competitors deliver their services over our networks, leveraging regulatory obligations applicable to us, therefore limiting the need to invest in building their own networks. Such lower required investment has enabled some competitors to be very disruptive in their pricing. Moreover, foreign OTT players such as Netflix are currently not subject to the same taxation and Canadian content investment obligations as those imposed on Canadian domestic digital suppliers, which provides them with a competitive advantage over us. We expect these trends to continue in the future and the increased competition we face as a result could negatively impact our business including, without limitation, in the following ways:

• Competitors’ aggressive market offers, combined with heightened customer sensitivity around pricing, could result in pricing pressures, lower margins and increased costs of customer acquisition and retention, and our market share and sales volumes could decrease if we do not match competitors’ pricing levels or increase customer acquisition and retention spending
• Higher Canadian wireless penetration could slow opportunities for new customer acquisition
• Product substitutions could result in an acceleration of NAS erosion beyond our current expectations
• The continued OTT-based substitution and market expansion of lower-cost VoIP and software-defined networking in a wide area network (SD WAN) solutions, which are attracting global competitors including traditional software players, are changing our approach to service offers and pricing and could have an adverse effect on our business
• Spending rationalization by business customers could lead to higher declines in traditional connectivity value-added services sold and margin erosion, driven by technology substitution, economic factors and customers’ operational efficiencies
• The pressure from simpler, lower cost, agile service models is driving in-sourcing trends, which could have an adverse impact on our managed services business
• The fundamental separation of content and connectivity allows the expansion and market penetration of low-cost OTT TV providers and other alternative service providers, some of which may offer content as loss leaders to support their core business, which is changing our TV and media ecosystems and could lower our revenue streams, affecting our business negatively
• Competition with global competitors such as Netflix and Amazon, in addition to traditional Canadian TV competitors, for programming content could drive significant increases in content acquisition costs as these competitors, along with other global-scale entities such as Google, gain a significant presence in local markets as a result of innovative and flexible global market strategies
• The proliferation of content piracy could negatively impact subscriber growth and our ability to monetize products and services, while creating bandwidth pressure without corresponding revenue growth in the context of regulated wholesale high-speed Internet access rates
• Regulatory decisions regarding wholesale access to our wireless and fibre networks could bring new competitors, including OTT players, or strengthen the market position of current competitors, which may negatively impact our retail subscriber base in favour of lower margin wholesale subscribers
• Adverse economic conditions, such as economic downturns or recessions, adverse conditions in the financial markets or a declining level of retail and commercial activity, could have a negative impact on the demand for, and prices of, our wireline, wireless and media products and services, as well as drive an increase in bad debts as the creditworthiness of some customers declines

For a further discussion of our competitive environment and competition risk, as well as a list of our main competitors, on a segmented basis, refer to Competitive landscape and industry trends and Principal business risks in section 5, Business segment analysis.

Although most of our retail services are not price-regulated, government agencies and departments such as the Canadian Radio-television and Telecommunications Commission (CRTC), Innovation, Science and Economic Development Canada (ISED), Canadian Heritage and the Competition Bureau continue to play significant roles in regulatory matters such as mandatory access to networks, spectrum auctions, consumer-related codes of conduct, approval of acquisitions, broadcast licensing and foreign ownership requirements. As with all regulated organizations, planned strategies are contingent upon regulatory decisions. Adverse decisions by regulatory agencies or increased regulation could have negative financial, operational, reputational or competitive consequences for our business. For a discussion of our regulatory environment and the principal risks related thereto, refer to section 8, Regulatory environment as well as the applicable segmented risk discussions under Competitive landscape and industry trends and Principal business risks in section 5, Business segment analysis.

Our operations, service performance, reputation and business continuity depend on how well we protect our physical and non-physical assets, including networks, information technology (IT) systems, offices, corporate stores and sensitive information, from events such as information security attacks, unauthorized access or entry, fire, natural disaster (including, without limitation, seismic and severe weather-related events such as ice, snow and wind storms, flooding, hurricanes, tornadoes and tsunamis), power loss, building cooling loss, acts of war or terrorism, sabotage, vandalism, actions of neighbours and other events. The protection and effective organization of our systems, applications and information repositories are central to the secure and continuous operation of our networks and business, as electronic and physical records of proprietary business and personal data, such as confidential customer and employee information, are all sensitive from a market and privacy perspective.

Information security breaches can result from unintentional events or deliberate actions by hackers, organized criminals, state-sponsored organizations or other parties. Information security attacks have grown in complexity, magnitude and frequency in recent years and the potential for damage is increasing. Information security attacks may be perpetrated using a complex array of means including, without limitation, the use of stolen credentials, computer viruses and malicious software, phishing and other attacks on network and information systems. Information security attacks aim to achieve various malicious objectives including unauthorized access to, and theft of, confidential, proprietary or sensitive information, extortion and business disruptions. Information security policies and procedures must continuously adapt and evolve in order to seek to mitigate risk and, consequently, require constant monitoring to ensure effectiveness.

We are also exposed to information security threats as a result of actions that may be taken by our customers, suppliers, outsourcers, business partners, employees or independent third parties, whether malicious or not, including as a result of the use of social media, cloud-based solutions and IT consumerization. Our use of third-party suppliers and outsourcers and reliance on business partners, which may also be subject to information security threats, also exposes us to risks as we have less immediate oversight over their IT domains. Furthermore, the proliferation of data services, including mobile TV, mobile commerce, mobile banking and IoT applications, as well as emerging technologies such as artificial intelligence and robotics, have significantly increased the number of access points to our network and systems, resulting in higher complexity that needs to be carefully monitored and managed to minimize security threats. Failure to implement an information security program that efficiently considers relationships and interactions with business partners, suppliers, customers, employees and other third parties across all methods of communication including social media and cloud-based solutions, as well as emerging technologies like robotics, artificial intelligence and machine-to-machine communication, could adversely affect our ability to successfully defend against information security attacks.

If information security threats were to become successful attacks resulting in information security breaches, they could harm our brand, reputation and competitiveness, decrease customer and investor confidence and adversely affect our business, financial results, stock price and long-term shareholder value, given that they could lead to:

• Network operating failures and business disruptions, which could negatively impact our ability to sell products and services to our customers and adversely affect their ability to maintain normal business operations and deliver critical services, and/or the ability of third-party suppliers to deliver critical services to us
• Unauthorized access to proprietary or sensitive information about our business, which could result in diminished competitive advantages and loss of future business opportunities
• Theft, loss, unauthorized disclosure, destruction or corruption of data and confidential information, including personal information about our customers or employees, that could result in financial loss, exposure to claims for damages by customers, employees and others, and difficulty in accessing materials to defend legal actions
• Physical damage to network assets impacting service continuity
• Litigation, fines and liability for failure to comply with privacy and information security laws
• Fines and sanctions from credit card providers for failing to comply with payment card industry data security standards for protection of cardholder data
• Regulatory investigations and increased audit and regulatory scrutiny that could divert resources from project delivery
• Increased fraud as criminals leverage stolen information against us, our employees or our customers
• Lost revenue resulting from the unauthorized use of proprietary information or the failure to retain or attract customers after an incident
• Remediation costs such as liability for stolen information, equipment repairs and incentives to customers or business partners in an effort to maintain relationships after an incident
• Increased information security protection costs, including the costs of deploying additional personnel and protection technologies, training employees and engaging third-party security experts
• Higher insurance premiums

We evaluate and seek to adapt our security policies and procedures designed to protect our information and assets in light of the continuously evolving nature and sophistication of information security threats. However, given in particular the complexity and scale of our business, network infrastructure, technology and IT supporting systems, there can be no assurance that the security policies and procedures that we implement will prevent the occurrence of all potential information security breaches. In addition, there can be no assurance that any insurance we may have will cover all or part of the costs, damages, liabilities or losses that could result from the occurrence of any information security breach.

This section provides detailed information and analysis about BCE’s performance in 2018 compared with 2017. It focuses on BCE’s consolidated operating results and provides financial information for our Bell Wireless, Bell Wireline and Bell Media business segments. For further discussion and analysis of our business segments, refer to section 5, Business segment analysis.

n.m.: not meaningful

BCE delivered revenue growth of 3.1% in 2018, compared to last year, reflecting higher service and product revenues of 1.7% and 13.7%, respectively, driven by growth across all three of our segments. The year-over-year increase in service revenues continued to be led by strong growth in our wireless, Internet, and IPTV subscribers, higher residential household ARPU, increased media advertising and subscriber revenues, improved business markets performance attributable to higher IP connectivity and business solutions services revenue, along with the contribution from the acquisition of MTS. This more than offset the continued erosion in our voice, satellite TV and legacy data revenues.

The year-over-year increase in product revenues was driven by greater sales of premium wireless devices and higher equipment sales to large business customers.

Net earnings in 2018 decreased 2.5% compared to 2017, mainly due to higher other expense which included impairment charges of $200 million mainly relating to our Bell Media segment, higher depreciation and amortization expense, and higher finance costs. This was partly offset by higher adjusted EBITDA, as growing revenues more than offset an increase in operating costs, lower income taxes and lower severance, acquisition and other costs.

Adjusted EBITDA grew by 2.7% in 2018, compared to last year, as a result of increases in our Bell Wireless and Bell Wireline segments, offset by a decline in our Bell Media segment. The year-over-year increase in adjusted EBITDA was driven by the flow-through of our revenue growth, ongoing disciplined cost containment and the contribution from our acquisition of MTS, offset in part by higher cost of goods sold relating to greater wireless handset sales and higher product sales to enterprise customers, along with escalating content and programming costs at Bell Media.

In 2018, BCE’s cash flows from operating activities increased $26 million, compared to 2017, due mainly to higher adjusted EBITDA, partly offset by a higher voluntary DB pension plan contribution made in 2018.

Free cash flow increased $149 million in 2018, compared to 2017, due mainly to higher cash flows from operating activities, excluding voluntary DB pension plan contributions, and acquisition and other costs paid, and lower capital expenditures.

TOTAL BCE CONNECTIONS

BCE NET ACTIVATIONS

BCE added 593,832 net new customer connections to its growth services in 2018, representing a 48.4% increase over 2017. This consisted of:

• 447,682 postpaid wireless customers, and 32,129 prepaid wireless customers
• 107,839 high-speed Internet customers
• 110,790 IPTV customers and 104,608 satellite TV net customer losses

Residential NAS net losses were 264,561 in 2018, an increase of 9.3% over 2017.

Total BCE customer connections across all services increased by 1.9% in 2018 compared to last year, driven by increases in our growth services customer base, offset in part by the ongoing erosion in traditional residential NAS lines.

At the end of 2018, BCE customer connections totaled 19,387,682 and were comprised of the following:

• 9,610,482 wireless subscribers, up 4.8% compared to 2017, including 8,830,216 postpaid subscribers, an increase of 4.9% over last year, and 780,266 prepaid subscribers, up 4.3% year over year
• 3,933,931 high-speed Internet subscribers, 3.8% higher year over year
• 2,853,081 total TV subscribers, up 0.7% compared to 2017, including 1,675,706 IPTV customers, up 8.1% year over year and 1,177,375 satellite subscribers, down 8.2% compared to last year
• 2,990,188 residential NAS lines, a decline of 7.5% compared to 2017

BCE

Total operating revenues at BCE increased by 3.1% in 2018, compared to 2017, reflecting growth across all three of our segments, including the favourable impact from the acquisition of MTS. Total operating revenues were comprised of service revenues of $20,441 million and product revenues of $3,027 million in 2018, which grew by 1.7% and 13.7%, respectively, year over year. Wireless operating revenues increased by 6.3% in 2018, driven by service revenue growth of 3.5% and product revenue growth of 15.3%. Wireline operating revenues increased by 2.1% due to service revenue growth of 1.5%, from higher data and other service revenue, offset in part by a decline in voice revenue, and also reflected product revenue growth of 10.2%. Bell Media operating revenues increased by 0.5% in 2018 due to both higher subscriber and advertising revenues.

BCE

Total BCE operating costs increased by 3.4% in 2018, compared to 2017, resulting from higher costs in wireless of 6.7%, wireline of 2.4%, and Bell Media of 1.7%.

In 2018, net earnings decreased by 2.5%, compared to 2017, mainly due to higher other expense which included impairment charges of $200 million mainly relating to our Bell Media segment, higher depreciation and amortization expense, and higher finance costs. This was partly offset by higher adjusted EBITDA, as growing revenues more than offset an increase in operating costs, lower income taxes and lower severance, acquisition and other costs.

BCE

BCE’s adjusted EBITDA increased by 2.7% in 2018, compared to 2017, driven by growth in our Bell Wireless segment of 5.6% and our Bell Wireline segment of 1.7%, offset in part by a decline in our Bell Media segment of 3.2%. The increase in adjusted EBITDA was due to revenue growth, partly offset by higher operating expenses, and includes the benefit from the acquisition of MTS. This resulted in an adjusted EBITDA margin of 40.6% in 2018, compared to 40.8% experienced last year, attributable to greater low-margin product sales in our total revenue base.

This category includes various income and expenses that are not related directly to the operating revenues generated during the year.

2018

Severance, acquisition and other costs included:

• Severance costs of $92 million for workforce reduction initiatives, which included a 4% reduction in management workforce across BCE
• Acquisition and other costs of $44 million, which included transaction costs, such as legal and financial advisory fees, related to completed or potential acquisitions

2017

Severance, acquisition and other costs included:

• Severance costs related to workforce reduction initiatives of $79 million
• Acquisition and other costs of $111 million, which included transaction costs, such as legal and financial advisory fees, related to completed or potential acquisitions, severance and integration costs as well as a loss on transfer of spectrum licences to Xplornet related to the MTS acquisition

The amount of our depreciation and amortization in any year is affected by:

• How much we invested in new property, plant and equipment and intangible assets in previous years
• How many assets we retired during the year
• Estimates of the useful lives of assets

DEPRECIATION

Depreciation in 2018 increased by $111 million, compared to 2017, mainly due to a higher asset base as we continued to invest in our broadband wireless networks as well as our IPTV service, and the acquisition of MTS.

AMORTIZATION

Amortization in 2018 increased by $59 million, compared to 2017, due mainly to a higher asset base and the acquisition of MTS.

INTEREST EXPENSE

Interest expense in 2018 increased by $45 million, compared to 2017, mainly as a result of higher average debt levels, including the acquisition of MTS, and higher average interest rates on notes payable under commercial paper programs and loans securitized by trade receivables.

INTEREST ON POST-EMPLOYMENT BENEFIT OBLIGATIONS

Interest on our post-employment benefit obligations is based on market conditions that existed at the beginning of the year. On January 1, 2018, the discount rate was 3.6% compared to 4.0% on January 1, 2017.

In 2018, interest expense decreased by $3 million, compared to last year, due to a lower discount rate, partly offset by a higher post-employment benefit obligation at the beginning of the year.

The impacts of changes in market conditions during the year are recognized in other comprehensive income (loss) (OCI).

Other expense includes income and expense items, such as:

• Impairment of assets
• Net mark-to-market gains or losses on derivatives used to economically hedge equity settled share-based compensation plans
• Equity income or losses from investments in associates and joint ventures
• Net gains or losses on investments, including gains or losses when we dispose of, write down or reduce our ownership in investments
• Early debt redemption costs
• Gains or losses on disposal and retirement of software, plant and equipment

2018

Other expense of $348  million included impairment charges of $200 million mainly related to our French TV channels and a brand within our Bell Media segment, and net mark-to-market losses on derivatives used to economically hedge equity settled share-based compensation plans of $80 million. Other expense also included losses from our equity investments of $35 million and losses on investments of $34 million, which included BCE’s obligations to repurchase at fair value the minority interest in one of BCE’s joint ventures and the minority interest in one of our subsidiaries, respectively.

2017

Other expense of $102 million included impairment charges of $82 million related to our music TV channels and two small market radio station cash-generating units (CGUs) within our Bell Media segment, losses on retirements and disposals of property, plant and equipment and intangible assets of $47 million, losses from our equity investments of $31 million which included BCE’s share of an obligation to repurchase at fair value the minority interest in one of BCE’s joint ventures, early debt redemption costs of $20 million, partly offset by net mark-to-market gains on derivatives used to economically hedge equity settled share-based compensation plans of $76 million.

The following table reconciles the amount of reported income taxes in the income statements with income taxes calculated at a statutory income tax rate of 27.0% and 27.1% for 2018 and 2017, respectively.

Income taxes in 2018 decreased by $74 million compared to 2017 due mainly to lower taxable income and a higher value of uncertain tax positions favourably resolved in 2018 compared to 2017.

Net earnings attributable to common shareholders in 2018 decreased by $81 million, or $0.10 per common share, compared to 2017, due to higher other expense which included impairment charges of $200 million mainly relating to our Bell Media segment, higher depreciation and amortization expense, and higher finance costs. This was partly offset by higher adjusted EBITDA, as growing revenues more than offset an increase in operating costs, lower income taxes and lower severance, acquisition and other costs.

Excluding the impact of severance, acquisition and other costs, net mark-to-market (losses) gains on derivatives used to economically hedge equity settled share-based compensation plans, net losses on investments, early debt redemption costs and impairment charges, adjusted net earnings in 2018 was $3,151 million, or $3.51 per common share, compared to $3,058 million, or $3.42 per common share, in 2017.

BCE capital expenditures of $3,971 million in 2018 declined $63 million, or 1.6%, compared to last year due to lower spending at Bell Wireless and Bell Media, partly offset by greater spending at Bell Wireline. Capital expenditures as a percentage of revenue also declined to 16.9% in 2018 compared to 17.7% in 2017. We continued to focus our strategic investments on the expansion of our FTTP footprint to more homes and businesses, the ongoing deployment of our LTE-A mobile network, spectrum carrier aggregation, the deployment of wireless small-cells to optimize mobile coverage, signal quality and data backhaul, along with the expansion of network capacity to support the growth in subscribers and data consumption and the initial rollout of fixed wireless broadband to rural locations in Ontario and Québec. Our capital expenditures also reflected the acquisition and integration of MTS.

In 2018, BCE’s cash flows from operating activities increased $26 million, compared to 2017, due mainly to higher adjusted EBITDA, partly offset by a higher voluntary DB pension plan contribution made in 2018.

Free cash flow increased $149 million in 2018, compared to 2017, due mainly to higher cash flows from operating activities, excluding voluntary DB pension plan contributions, and acquisition and other costs paid, and lower capital expenditures.

A consistent focus on operating profitability and cash flow, together with disciplined postpaid subscriber growth and customer retention spending, drove strong overall financial performance in 2018.

2018 PERFORMANCE HIGHLIGHTS

BELL WIRELESS RESULTS

REVENUES

• Service revenues increased by 3.5% in 2018, compared to last year, due to:
  • The continued growth in our postpaid subscriber base
  • The contribution from the acquisition of MTS

These factors were partially offset by:

• Lower blended ARPU
• The unfavourable retroactive impact of the CRTC decision on wholesale wireless domestic roaming rates of $14 million

• Product revenues grew by 15.3% in 2018, compared to the prior year, due to increased sales of premium handsets with higher retail prices along with greater gross activations and upgrade volumes.

OPERATING COSTS AND ADJUSTED EBITDA

Bell Wireless operating costs increased by 6.7% in 2018, compared to 2017, as a result of:

• Increased product cost of goods sold driven by higher sales volumes and increased handset costs
• Higher network operating costs driven by the expansion of network capacity to support subscriber growth and increased data consumption
• Greater labour costs to support key initiatives and growth of the business
• Higher cost related to the acquisition of MTS

Bell Wireless adjusted EBITDA increased by 5.6% in 2018, compared to the last year, due to the flow-through of revenue growth, partly offset by higher operating expenses. Adjusted EBITDA margin, based on wireless operating revenues, declined by 0.3 pts to 42.3% in 2018, compared to 42.6% in 2017, driven by a greater proportion of low-margin product sales in our total revenue base.

BELL WIRELESS OPERATING METRICS

Blended ARPU of $55.22 decreased by 1.2% in 2018, compared to the last year, driven by:

• Decreased voice and data overages due to increased customer adoption of plans with greater usage thresholds
• Lower ARPU generated from the contract with Shared Services Canada (SSC)
• Dilutive impact from the continued ramp-up in prepaid customers from Lucky Mobile, our low-cost prepaid mobile service launched in December 2017
• Greater allocation of revenues to product revenues due to a larger proportion of premium smartphones in our sales mix combined with higher retail handset prices

These factors were partly offset by:

• Greater proportion of customers choosing higher-value monthly plans with greater data allotments
• Flow-through of 2017 and 2018 pricing changes

Total gross wireless activations increased by 9.8% in 2018, compared to 2017, due to both higher postpaid and prepaid gross activations.

• Postpaid gross activations increased by 5.4% in 2018, compared to the prior year, driven by the continued on-boarding of customers from the contract with SSC, as well as reflecting our mobile network speed and technology leadership and effective sales execution across our retail channels
• Prepaid gross activations increased by 36.7% in 2018, compared to the last year, driven by the ramp-up of Lucky Mobile

Blended wireless churn of 1.32% improved by 0.04 pts in 2018, compared to 2017, primarily reflecting an improvement in postpaid churn.

• Postpaid churn of 1.16% improved by 0.03 pts in 2018, compared to 2017, due to the favourable impact of our ongoing investments in network speeds, customer retention and improved client experience
• Prepaid churn of 3.17% remained stable year over year

Postpaid net activations increased by 7.4% in 2018, compared to the last year, driven by an increase in gross activations, offset in part by higher customer deactivations.

Prepaid net activations increased by 115,824 or 138.4% in 2018, compared to 2017, driven by higher gross activations and lower customer deactivations.

Wireless subscribers at December 31, 2018 totaled 9,610,482, an increase of 4.8% from 9,166,787 subscribers reported at the end of 2017. At the beginning of Q1 2018, we adjusted our postpaid wireless subscriber base to remove 16,116 subscribers with a corresponding increase to our high-speed Internet subscribers to reflect the transfer of fixed wireless Internet subscribers. Additionally, at the beginning of Q4 2018, we adjusted our postpaid wireless subscriber base to remove 20,000 subscribers as a result of the divestiture to Xplornet related to the acquisition of MTS. The proportion of Bell Wireless customers subscribing to our postpaid service remained stable year over year at 92%.

COMPETITIVE LANDSCAPE

The wireless market is the largest sector of the Canadian telecommunications industry, representing over 50% of total revenues, and is currently growing at a mid-single digit rate annually.

The Canadian wireless industry has experienced strong subscriber growth in recent years, supported by immigration and population growth; the trend toward multiple devices, including tablets; the expanding functionality of data and related applications; and mobile adoption by both younger and older generations. The wireless penetration rate increased to approximately 89% in Canada at the end of 2018, with further increases in penetration expected to continue in 2019. By comparison, the wireless penetration rate in the U.S. is well over 100%, and even higher in Europe and Asia.

In 2018, the wireless market was characterized by heightened retention and acquisition activity and the associated high costs of device subsidies on two-year contracts, a heightened level of competitive intensity, and the continued adoption of higher-value, data-centric smartphones. While higher handset costs, increased subsidies and the frequency of customer device upgrades put pressure on industry margins, adoption of the latest smartphones generally has a positive impact on ABPU and churn rates.

The market continues to be highly competitive among three well-established national competitors as well as a number of regional competitors. Rogers Communications Inc. (Rogers) holds the largest share by virtue of its legacy global system for mobile communications (GSM) network. However, Bell has had significant success winning subscribers over the past decade, supported by the launch of our HSPA+, 4G LTE and LTE-A networks, industry-leading mobile network speeds, expanded retail distribution, the purchase of Virgin Mobile, a strong brand and improved customer service.

Shaw Communications Inc.’s (Shaw) Freedom Mobile has focused on the build-out of an urban LTE network in major cities in Alberta, British Columbia and Ontario. Shaw’s re-farming of advanced wireless services-1 (AWS-1) spectrum and deployment of 2,500 MHz spectrum was completed in 2018, making older smartphone versions (iPhones and Galaxy) compatible with Freedom’s LTE network. Québecor Media’s Vidéotron Ltée (Vidéotron) continues to operate as a regional facilities-based wireless service provider in Québec, and Eastlink in Atlantic Canada. These cable TV-based wireless providers, in addition to the provincial carrier in Saskatchewan, represent the fourth carrier in their respective markets.

Competitors

• Large facilities-based national wireless service providers Rogers and the Telus Corporation group of companies (Telus)
• Smaller facilities-based wireless service provider Freedom Mobile, which currently provides service in Toronto, Calgary, Vancouver, Edmonton and Ottawa, as well as in several communities in southwestern Ontario
• Regional facilities-based wireless service providers Vidéotron, which provides service in Montréal and other parts of Québec; Saskatchewan Telecommunications Holding Corporation (SaskTel), which provides service in Saskatchewan; Eastlink, which provides service in Nova Scotia and Prince Edward Island; and Xplornet, which launched service in Manitoba in November 2018
• Mobile virtual network operators (MVNOs), who resell competitors’ wireless networks, such as PC Mobile

INDUSTRY TRENDS

ACCELERATING DATA CONSUMPTION

Wireless data growth continues to be driven by the ongoing adoption of higher-value smartphones and tablets, and associated data plans. The demand for wireless data services is expected to continue to grow, due to ongoing investment in faster network technologies, such as LTE, LTE-A and 5G, that provide a richer user experience and lower network latency, a larger appetite for mobile connectivity, social networking and other applications, as well as increasing adoption of shared plans with multiple devices by families. Greater customer adoption of data services, including mobile TV, data roaming for travel, mobile commerce, mobile banking, and other IoT applications in the areas of retail and transportation (connected car, asset tracking, and remote monitoring) should also contribute to growth. In the consumer market, IoT represents a growth area for the industry as wireless connectivity on everyday devices, from home automation to cameras, becomes ubiquitous.

SIGNIFICANT INVESTMENTS IN WIRELESS NETWORKS

Fast growth in mobile data traffic is increasingly putting a strain on wireless carriers’ networks and their ability to manage and service this traffic. Industry Canada’s 700 MHz, advanced wireless services-3 (AWS-3), and 2500 MHz spectrum auctions that concluded in 2014 and 2015 provided wireless carriers with prime spectrum to roll out faster next-generation wireless networks and build greater capacity. Carrier aggregation is a technology currently being employed by Canadian wireless carriers that allows for multiple channels of spectrum to be used together, thereby significantly increasing network capacity and data transfer rates. Investments in fibre backhaul to cell sites and the deployment of small-cell technology further increase the efficient utilization of carriers’ spectrum holdings.

CUSTOMERS BRINGING THEIR OWN DEVICES

With the CRTC’s Wireless Code limiting wireless contract terms to two years from three years, the number of customers on expired contracts has increased. Subscribers are increasingly bringing their own devices or keeping their existing devices for longer periods of time and therefore may not enter into new contracts for wireless services. This may negatively impact carriers’ subscriber churn, but may also create gross addition opportunities as a result of increased churn from other carriers. Additionally, this trend may negatively impact the monthly service fees charged to subscribers; however, the service revenue generated by these customers helps improve margins due to lower spending on device subsidies.

2019 OUTLOOK

We expect revenue growth to be driven primarily by postpaid and prepaid subscriber base expansion. We expect ABPU to continue to be impacted negatively by reductions in data and voice overage revenue resulting from larger data allotments and talk minutes in monthly rate plans, as well as the onboarding of customer activations from the federal SSC contract and Lucky Mobile prepaid customer growth. We will seek to achieve higher revenues from the flow-through of pricing changes, data growth through increased customer usage of our 4G LTE and LTE-A networks, higher demand for services such as social media, music and streaming of content, as well as nascent services including mobile commerce and other IoT applications. Our intention is to introduce new services to the market in a way that balances innovation with profitability.

We also remain focused on sustaining our market share of incumbent postpaid net additions in a disciplined and cost-conscious manner, while also growing our share of new industry prepaid net additions.

We plan to deliver adjusted EBITDA growth in 2019 from flow through of higher revenue, which should be partly offset by increased operating costs reflecting higher handset costs and increased customer support costs due to growth in the subscriber base and increased network operating expenses.

ASSUMPTIONS

• Maintain our market share of incumbent wireless postpaid net additions
• Higher prepaid customer net additions
• Continued adoption of smartphone devices, tablets and data applications, as well as the introduction of more 4G LTE and LTE-A devices and new data services
• Higher subscriber acquisition and retention spending, driven by higher handset costs and more customer device upgrades
• Improving blended ABPU, driven by a higher postpaid smartphone mix, increased data consumption on 4G LTE and LTE-A networks, and higher access rates partly offset by the impact of a higher prepaid mix in our overall subscriber base and more customer migrations from Bell Mobility’s SSC contract
• Expansion of the LTE-A network coverage to approximately 94% of the Canadian population, and continued 5G preparations with network technology trials, as well as the deployment of small cells and equipping all new sites with fibre
• Ability to monetize increasing data usage and customer subscriptions to new data services
• No material financial, operational or competitive consequences of changes in regulations affecting our wireless business

• Increasing Canadian wireless industry penetration
• Greater number of customers on our 4G LTE and LTE-A networks
• Increasing customer adoption of smartphones, tablets and other 4G LTE and LTE-A devices to increase mobile data usage
• Customer usage of new data applications and services

This section discusses certain principal business risks specifically related to the Bell Wireless segment. For a detailed description of the principal risks that could have a material adverse effect on our business, refer to section 9, Business risks.

Bell Wireline achieved stronger organic revenue and adjusted EBITDA growth in 2018, reflecting robust Internet and IPTV subscriber base expansion, higher household ARPU, improved business markets results and operating cost savings that maintained a North American industry-leading margin of 41.7%.

2018 PERFORMANCE HIGHLIGHTS

REVENUES

Bell Wireline operating revenues grew by 2.1% in 2018, compared to last year, driven by increases in data services, other services, and product revenues, partly offset by the ongoing decline in voice revenues.

Bell Wireline operating service revenues increased by 1.5% in 2018, compared to 2017.

• Data revenues increased by 3.8% in 2018, compared to 2017, due to:
  • The flow-through of 2017 and 2018 pricing changes
  • Internet and IPTV subscriber growth
  • The contribution from the acquisition of MTS
  • Increased IP connectivity and business solutions services sales to enterprise customers, including the contribution from the acquisition of Axia in late August 2018

These factors were partially offset by:

• Greater acquisition, retention and bundle discounts on residential services due to aggressive offers from cable competitors
• The continued decline in our satellite TV subscriber base
• Ongoing legacy data erosion due in part to migrations to IP-based services
• Competitive pricing pressures within our business markets

• • Voice revenues declined by 4.4% in 2018, compared to 2017, driven by:
  • Continued NAS line erosion from technological substitution to wireless and Internet-based services
  • Large business customer conversions to IP-based data services
  • Competitive pricing pressures
  • Long distance rate pressure in our residential market from customer adoption of premium rate plans
  • Reduced usage of traditional long distance services by residential and business customers

These factors were partially offset by:

• The contribution from the acquisition of MTS
• The flow-through of 2017 and 2018 pricing changes
• Higher sales of international long distance minutes in our wholesale market

• Other services revenues increased by 17.1% in 2018, primarily due to the contribution from the acquisition of AlarmForce.

Bell Wireline operating product revenues grew by 10.2% in 2018, compared to prior year, resulting from increased demand for equipment by large business customers, higher sales of consumer electronics at The Source and the contribution from the acquisition of MTS.

OPERATING COSTS AND ADJUSTED EBITDA

Bell Wireline operating costs increased by 2.4% in 2018, compared to 2017, attributable to:

• Acquisitions, including MTS
• Greater cost of goods sold attributable to increased product sales
• Increased business solutions services costs associated with the revenue growth
• Higher pension expense due to a gain in Q1 2017 on post-employment benefit expense related to an alignment of certain Bell Aliant DB pension plans with those of Bell Canada
• Increased fleet and real estate costs due in part to rate increases

These factors were partially offset by:

• Lower labour costs resulting from workforce reductions, fewer call volumes to our customer service centres and vendor contract savings

Bell Wireline adjusted EBITDA increased by 1.7% in 2018, compared to 2017, as a result of the flow-through of the revenue growth, offset in part by higher operating expenses. Adjusted EBITDA margin decreased to 41.7% in 2018, compared to the 41.9% achieved last year, due mainly to more low-margin product sales in the total revenue base.

DATA

High-speed Internet

High-speed Internet subscriber net activations increased by 22.7% in 2018, compared to 2017, driven by increased retail activations in our expanded FTTP footprint, richer retail offers, greater IPTV pull-through and higher activations in our business markets. This was partly offset by higher deactivations resulting from aggressive offers from cable competitors in both our retail and wholesale markets, combined with a larger number of residential customers coming off promotional offers.

High-speed Internet subscribers at December 31, 2018 totaled 3,933,931, up 3.8% from the end of last year. At the beginning of Q1 2018, our high-speed Internet subscriber base was increased by 19,835, mainly as a result of a small acquisition. We further adjusted our subscriber base in Q1 2018 to add 16,116 subscribers with a corresponding decrease to our postpaid wireless subscribers to reflect the transfer of fixed wireless Internet subscribers.

TV

IPTV net subscriber activations increased by 2.9% in 2018, compared to last year, driven by ongoing growth in activations from our application-based live TV service Alt TV, combined with greater activations in our expanded FTTP footprint. This was moderated by increased deactivations due to aggressive residential offers for service bundles from cable competitors, a higher number of retail customers coming off promotional offers, increased substitution of traditional TV services with OTT services, the impact of maturing Fibe TV markets, along with fewer customer migrations from satellite TV.

Satellite TV net customer losses improved by 18.5% in 2018, compared to 2017, driven by lower retail deactivations and reduced migrations to IPTV, attributable to a more mature subscriber base geographically better-suited for satellite TV service, combined with a reduced number of retail customers coming off promotional offers and fewer promotional offers from cable competitors in rural markets.

Total TV net subscriber activations (IPTV and satellite TV combined) increased by 26,898 in 2018, compared to 2017, due to lower satellite TV net losses and higher IPTV net activations.

IPTV subscribers at December 31, 2018 totaled 1,675,706, up 8.1% from 1,550,317 subscribers reported at the end of 2017. At the beginning of Q1 2018, our IPTV subscriber base was increased by 14,599, as a result of a small acquisition.

Satellite TV subscribers at December 31, 2018 totaled 1,177,375, down 8.2% from 1,281,982 subscribers at the end of last year.

Total TV subscribers (IPTV and satellite TV combined) at December 31, 2018 were 2,853,081, representing a 0.7% increase since the end of 2017. At the beginning of Q1 2018, our total TV subscriber base was increased by 14,599, as a result of a small acquisition.

VOICE

Residential NAS net losses increased by 9.3% in 2018, compared to last year, driven by lower activations attributable to ongoing wireless and Internet-based technology substitution, lower acquisition of three-product households, reduced pull-through from our IPTV service bundle offers, as well as aggressive competitive offers from cable TV providers.

Residential NAS subscribers at December 31, 2018 totaled 2,990,188, representing a 7.5% decrease compared to the 3,231,308 subscribers reported at the end of 2017. This represents a significant decline over the 0.6% subscriber base erosion experienced in 2017, which benefited from the subscribers acquired from MTS. At the beginning of Q1 2018, our residential NAS subscriber base was increased by 23,441, as a result of a small acquisition.

COMPETITIVE LANDSCAPE

The financial performance of the overall Canadian wireline telecommunications market continues to be impacted by the ongoing declines in legacy voice service revenues resulting from technological substitution to wireless and OTT services, as well as by ongoing conversion to IP-based data services and networks by large business customers. Sustained competition from cable companies also continues to erode traditional telephone providers’ market share of residential local telephony. Canada’s four largest cable companies had approximately 3.8 million telephony subscribers at the end of 2018, representing a national residential market share of approximately 45%. Other non-facilities-based competitors also offer local and long distance VoIP services and resell high-speed Internet services.

Although the residential Internet market is maturing, with over 86% penetration across Canada, subscriber growth is expected to continue over the next several years. At the end of 2018, the four largest cable companies had more than 7 million Internet subscribers, representing 54% of the total Internet market based on publicly reported data ⁽¹⁾, while incumbent local exchange carriers (ILECs) held the remaining 46% or 6 million subscribers. Bell continues to make market share gains due to the expansion of our fibre optic network and the pull-through of subscribers from our IP-based Fibe TV and Alt TV services.

While Canadians still watch traditional TV, digital platforms are playing an increasingly important role in the broadcasting industry. Popular online video services are providing Canadians with more choice about where, when and how to access their video content. In 2018, ILECs offering IPTV service grew their subscriber bases by 8% to reach 2.9 million customers, driven by expanded network coverage, enhanced service offerings, and marketing and promotions focused on IPTV. This growth came at the expense of cable TV and satellite TV subscriber losses. At the end of the year, Canada’s four largest cable companies had approximately 5.5 million TV subscribers, or a 53% market share, compared to 55% at the end of 2017.

In 2018, our primary cable TV competitor in Ontario, Rogers, launched Ignite TV, based on Comcast’s XFINITY X1 video platform. Vidéotron, our primary cable TV competitor in Québec, has announced its intention to adopt the Comcast X1 platform in 2019.

• Cable TV providers offering cable TV, Internet and cable telephony services, including:
  • Rogers in Ontario, New Brunswick, Newfoundland and Labrador
  • Vidéotron in Québec
  • Cogeco Cable Inc. (a subsidiary of Cogeco Inc.) (Cogeco) in Ontario and Québec
  • Shaw in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario
  • Shaw Direct, providing satellite TV service nationwide
  • Eastlink in every province except Saskatchewan, where it does not provide cable TV and Internet service
• Telus provides residential voice, Internet and IPTV services in British Columbia, Alberta and Eastern Québec
• Telus and Allstream Inc. provide wholesale products and business services across Canada
• Various others (such as TekSavvy Solutions, Distributel, VMedia, and Vonage Canada (a division of Vonage Holdings Corp.) (Vonage) offer resale or VoIP-based local, long distance and Internet services
• OTT voice and video services such as Skype, Netflix, Amazon Prime Video and YouTube
• Digital media streaming devices such as Apple TV, Roku and Google Chromecast
• Other Canadian ILECs and cable TV operators
• Substitution to wireless services, including those offered by Bell
• Customized managed outsourcing solutions competitors, such as systems integrators CGI, EDS (a division of HP Enterprise Services) and IBM
• Wholesale competitors include cable operators, domestic CLECs, U.S. or other international carriers for certain services, and electrical utility-based telecommunications providers
• Competitors for home security range from local to national companies, such as ADT, Chubb Security, Stanley Security, Fluent and MONI Smart Security

INVESTMENT IN BROADBAND FIBRE DEPLOYMENT

The Canadian ILECs continue to make substantial investments in deploying broadband fibre within their territories, with a focus on direct FTTP access to maintain and enhance their ability to support enhanced IP-based services and higher broadband speeds. Cable TV companies continue to evolve their cable networks with the gradual rollout of the DOCSIS 3.1 platform. Although this platform increases speeds in the near term and is cost-efficient, it does not offer the same advanced capabilities as FTTP over the longer term. FTTP delivers broadband speeds of up to 1.5 Gbps currently, with faster speeds expected in the future as equipment evolves to support these higher speeds. Going forward, ILECs are expected to maintain high levels of capital spending for the ongoing expansion of their broadband fibre networks, with an increasing emphasis on upgrading current FTTN networks to FTTP.

ALTERNATIVE TV AND OTT SERVICES

The growing popularity of watching TV and on-demand content anywhere, particularly on handheld devices, is expected to continue as customers adopt services that enable them to view content on multiple screens. Streaming media providers, such as Netflix and Amazon Prime Video, continue to enhance OTT streaming services in order to compete for share of viewership in response to evolving viewing habits and consumer demand. TV providers are monitoring OTT developments and evolving their content and market strategy to compete with these non-traditional offerings. We view OTT as an opportunity to add increased capabilities to our linear and on-demand assets, provide customers with flexible options to choose the content they want and drive greater usage of Bell’s high-speed Internet and wireless networks. We continue to enhance our Fibe TV service with additional content and capabilities, including the ability to watch recorded content on the go and access Netflix and YouTube on STBs. We also launched Alt TV in 2017, Canada’s first widely available app-based live TV service, to address the growing cord-cutting and cord-shaving markets, providing users with the ability to consume live and on-demand content on laptops, smartphones, tablets and Apple TV without the need for a traditional TV STB.

TECHNOLOGY SUBSTITUTION

Technology substitution, enabled by the broad deployment of higher speed Internet; the pervasive use of e-mail, messaging and social media as alternatives to voice services; and the growth of wireless and VoIP services, continues to drive legacy voice revenue declines for telecommunications companies. Wireless-only households were estimated to represent approximately 46% of households in Ontario, Québec and Atlantic Canada at the end of 2018, compared to approximately 43% at the end of 2017, while the disconnection of and reduction in spending for traditional TV (cord-cutting and cord-shaving) continues to rise. Although Bell is a key provider of these substitution services, the decline in this legacy business continues as anticipated.

ADOPTION OF IP-BASED SERVICES

The convergence of IT and telecommunications, facilitated by the ubiquity of IP, continues to shape competitive investments for business customers. Telecommunications companies are providing professional and managed services, as well as other IT services and support, while IT service providers are bundling network connectivity with their software as service offerings. In addition, manufacturers continue to bring all-IP and converged (IP plus legacy) equipment to market, enabling ongoing migration to IP-based solutions. The development of IP-based platforms, which provide combined IP voice, data and video solutions, creates potential cost efficiencies that compensate, in part, for reduced margins resulting from the continuing shift from legacy to IP-based services. The evolution of IT has created significant opportunities for our business markets services, such as cloud services and data hosting, that can have a greater business impact than traditional telecommunications services.

2019 OUTLOOK

We expect to generate positive revenue and adjusted EBITDA growth in 2019. This is predicated on a continued strong broadband Internet and TV subscriber growth trajectory supported by a broadening direct FTTP service footprint; the deployment of full broadband Internet service into rural locations with fixed wireless WTTP technology, scaling of Alt TV and new innovative TV features enabled by the new MediaFirst IPTV platform; annual residential price increases; improving year-over-year business markets performance; as well as cost reductions to counter competitive repricing pressures and the ongoing decline in voice revenues.

TV subscriber growth within our wireline footprint is expected to be driven by increasing Fibe TV penetration of existing IPTV-enabled neighbourhoods and ongoing enhancements enabled by the MediaFirst platform. We also intend to seek greater penetration within the multiple-dwelling units (MDU) market and to combat the competitive impact of OTT video streaming services and a growing cord-cutter market with our Alt TV service. Although satellite TV net customer losses are expected to continue in 2019, as a result of aggressive residential promotional offers from cable competitors, they are expected to moderate, due to fewer residential deactivations and customer migrations to IPTV reflecting a more mature subscriber base geographically better-suited for satellite TV service.

Internet subscriber base growth in 2019 is expected to be driven by a growing direct fibre service footprint together with increased household penetration of FTTP; the rollout of higher-speed fixed wireless broadband Internet service in rural markets enabled by our WTTP deployment; the pull-through of IPTV customer activations, including from Bell’s app-based live TV streaming service Alt TV; and enhancing Bell’s leadership position in Smart Home automation with services such as Whole Home Wi-Fi and home security.

We also expect to experience sustained competitive intensity in our mass and mid-sized business markets as cable operators and other telecom competitors maintain their focus on these customer segments. We also intend to introduce service offerings that help drive innovative solutions and value for our mass and mid-sized customers by leveraging Bell’s network assets, broadband fibre expansion and service capabilities to expand our relationships with them. We will maintain a focus on overall profitability by seeking to increase revenue per customer and customer retention, as well as through improving our processes to achieve further operating efficiencies and productivity gains.

Operating cost reduction will continue to be a key focus for our Bell Wireline segment, helping to offset costs related to the growth and retention of IPTV, Internet, IP broadband and hosted IP voice subscribers, the ongoing erosion of high-margin wireline voice and other legacy revenues, as well as competitive repricing pressures in our residential, business and wholesale markets. This, combined with further operating efficiencies driven by an expanding FTTP footprint, changes in consumer behaviour with product and customer service innovation, and the realization of additional synergies from the next phases of integration of Bell MTS, is expected to support our objective of maintaining our adjusted EBITDA margin relatively stable year over year.

ASSUMPTIONS

• Positive full-year adjusted EBITDA growth
• Continued growth in residential IPTV and Internet subscribers
• Increasing wireless and Internet-based technological substitution
• Residential services household ARPU growth from increased penetration of multi-product households and price increases
• Continued aggressive residential service bundle offers from cable TV competitors in our local wireline areas
• Continued large business customer migration to IP-based systems
• Ongoing competitive repricing pressures in our business and wholesale markets
• Continued competitive intensity in our small and mid-sized business markets as cable operators and other telecommunications competitors continue to intensify their focus on business customers
• Traditional high-margin product categories challenged by large global cloud and OTT providers of business voice and data solutions expanding into Canada with on-demand services
• Accelerating customer adoption of OTT services resulting in downsizing of TV packages
• Further deployment of direct fibre to more homes and businesses within our wireline footprint and an acceleration in our fixed WTTP rural buildout
• Growing consumption of OTT TV services and on-demand streaming video, as well as the proliferation of devices, such as tablets, that consume large quantities of bandwidth, will require considerable ongoing capital investment
• Realization of cost savings related to management workforce reductions including attrition and retirements, lower contracted rates from our suppliers, operating efficiencies enabled by a growing direct fibre footprint, changes in consumer behaviour and product innovation, as well as the realization of additional synergies from the next phases of integration of MTS
• No material financial, operational or competitive consequences of changes in regulations affecting our wireline business

• Expansion of FTTP footprint
• Buildout of fixed wireless WTTP network in rural markets
• Increasing FTTP and WTTP penetration of households
• Higher market share of industry TV and Internet subscribers
• Increased business customer spending on connectivity services and managed and professional services solutions
• Expansion of our business customer relationships to drive higher revenue per customer
• Ongoing service innovation and product value enhancements

This section discusses certain principal business risks specifically related to the Bell Wireline segment. For a detailed description of the principal risks that could have a material adverse effect on our business, refer to section 9, Business risks.

Bell Media generated positive revenue growth in 2018, driven by stronger TV advertising performance, growth in direct-to-consumer video streaming services and higher OOH advertising revenue, as operating costs grew due to increased costs for sports broadcast rights and content investments that support TV and on-demand programming.

2018 PERFORMANCE HIGHLIGHTS

BELL MEDIA RESULTS

REVENUES