DBRS Confirms Bell Canada and BCE Inc. Long-Term and Preferred Ratings, Removes From Under Review

Dominion Bond Rating Service (DBRS) is confirming the “A”/A (low) long-term and Pfd-2/Pfd-2 (low) preferred share ratings of Bell Canada, Bell Mobility Cellular Inc. and BCE Inc. (collectively Bell Canada/BCE or the Company) with all trends now Stable. In addition, the Deferred Interest Subordinated Debt of Bell Canada, rated BBB (high), and the Commercial Paper and Extendible Commercial Notes ratings of both Bell Canada (R-1 (low)/R-1 (low)) and BCE Inc. (R-1 (low)/R-2 (high)) have been confirmed with all trends Stable. This concludes the Under Review with Developing Implications status that the Company’s long-term and preferred ratings have been under since October 11, 2006.

The confirmation of the Company’s long-term and preferred share ratings reflect the Company’s announcement this morning that it will not convert to an income trust, that it will substantially simplify its corporate operations and that it will initiate an exchange of its current Bell Canada (soon to be renamed Bell Inc.) preferred shares for preferred shares at BCE Inc. (soon to be renamed Bell Canada Inc.) In general, DBRS expects that the financial profile of both Bell Canada and BCE Inc. should improve during 2007 with the Company targeting a consolidated net debt-to-EBITDA target of approximately 1.5 times within the next couple of years. The confirmation also reflects the Company’s demonstrated ability to resize its cost base in response to increasing competitive pressures on its consumer local and long distance voice business. However, if competitive pressures were to accelerate further in 2007, hence causing the Company’s cash flow from operations to decline from its current levels, DBRS could potentially take negative rating action.

DBRS notes that the Company’s announcement to simplify its corporate structure will not result in DBRS consolidating the Bell Canada and BCE Inc. ratings, as the holding company and operating company structure will still exist from a legal perspective. Thus, DBRS will maintain a one notch rating differential reflecting structural subordination. Although DBRS does acknowledge that debt levels at BCE Inc. have decreased substantially, BCE Inc. will continue to be dependent on Bell Canada for the financing of its interest, preferred and common dividends on a go forward basis. Although the level of dividends from Bell Canada that will need to be up streamed to BCE Inc. are expected to decrease, DBRS believes that this will be somewhat offset by Bell Canada absorbing the BCE Inc. corporate expenses.

DBRS views the announcement of a new share repurchase program and dividend increase as credit neutral. This is attributable to DBRS’s expectation that the 2007 share repurchase program will be financed with free cash flow and the proceeds of the Telesat Canada monetization expected to be finalized sometime in 2007. In addition, DBRS expects that the total amount of common dividends paid by BCE Inc. in 2007 will likely remain flat, reflecting the reduction in share count through the above-mentioned share repurchase program. However, DBRS also expects further debt reduction to occur at either BCE Inc. or Bell Canada over the next couple of years, with no financing requirements in 2007. Therefore, DBRS believes there is the potential for the reduction of the remaining corporate debt at BCE Inc. prior to or at maturity in 2009.

Finally, DBRS notes that the Company has indicated that under a plan of arrangement, holders of Bell Canada preferred shares will be asked to exchange their shares for BCE Inc. preferred shares with the same series rights. The arrangement must be approved by the holders of common and preferred shares of Bell Canada, each voting as a separate class, at a special meeting to be held on January 23, 2007. As previously stated, BCE Inc.’s preferred shares are rated one notch lower, reflecting structural subordination.