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**EXHIBIT
  99.1**

















**BELL
  CANADA**

**2004
  FINANCIAL INFORMATION**





















BELL CANADA
          
          
          
          
          
          2004 
            Financial
            Information
   This document contains the Bell
            Canada 
            managements discussion and analysis of 
            financial condition and results of operations, 
            its financial statements and the statement 
            of corporate governance practices.
          Bell Canada is indirectly wholly-owned
            by BCE Inc.
          To obtain a copy of BCE Inc.s
            annual report, 
            please visit BCE Inc.s website at www.bce.ca, 
            call 1-888-932-6666 or write to us at:
          Corporate Communications 
            1000, rue de La Gauchetière Ouest 
            Bureau 3700 
            Montréal, Québec 
            Canada H3B 4Y7
   MD&A
        at a Glance
      
      Managements
        Discussion and Analysis This
          managements discussion and analysis of financial condition and
          results of operations (MD&A) comments on Bell Canadas operations,
          performance and financial condition for the years ended December 31,
          2004 and 2003.
        About Forward-Looking Statements
        Securities laws encourage companies
          to disclose forward-looking information so that investors can get a
          better understanding of the companys future prospects and make
          informed investment decisions.
               Bell Canadas 2004 financial information,
          including this MD&A, contains forward-looking statements about Bell
          Canadas objectives, strategies, financial condition, results of
          operations, cash flows and businesses. These statements are forward-looking
          because they are based on our current expectations, estimates and assumptions
          about the markets we operate in, the Canadian economic environment and
          our ability to attract and retain customers and to manage network assets
          and operating costs. It is important to know that:
        forward-looking statements
            in Bell Canadas 2004 financial information, including this MD&A,
            describe our expectations at March 2, 2005
          our actual results could be
            materially different from what we expect if known or unknown risks
            affect our business, or if our estimates or assumptions turn out to
            be inaccurate. As a result, we cannot guarantee that any forward-looking
            statement will materialize and, accordingly, you are cautioned not
            to place undue reliance on these forward-looking statements.
          forward-looking statements do
            not take into account the effect that transactions or non-recurring
            or other special items announced or occurring after the statements
            are made may have on our business. For example, they do not include
            the effect of dispositions, sales of assets, monetizations, mergers,
            acquisitions, other business combinations or transactions, asset write-downs
            or other charges announced or occurring after forward-looking statements
            are made. The financial impact of such transactions and non-recurring
            and other special items can be complex and necessarily depends on
            the facts particular to each of them. Accordingly, the expected impact
            cannot be meaningfully described in the abstract or presented in the
            same manner as known risks affecting our business.
          we disclaim any intention and
            assume no obligation to update any forward-looking statement even
            if new information becomes available as a result of future events
            or for any other reason.Risks that could cause our actual
          results to materially differ from our current expectations are discussed
          throughout this MD&A and, in particular, in Risks that Could
          Affect Our Business.
        Non-GAAP Financial Measures
        EBITDAThe term EBITDA does not have
          any standardized meaning prescribed by Canadian generally accepted accounting
          principles (GAAP). It is therefore unlikely to be comparable to similar
          measures presented by other companies. EBITDA is presented on a consistent
          basis from period to period.
               We use EBITDA, among other measures, to
          assess the operating performance of our ongoing businesses without the
          effects of amortization expense, net benefit plans cost, and restructuring
          and other items. We exclude amortization expense and net benefit plans
          cost because they largely depend on the accounting methods and assumptions
          a company uses, as well as non-operating factors, such as the historical
          cost of capital assets and the fund performance of a companys
          pension plans. We exclude restructuring and other items because they
          are transitional in nature.
               EBITDA allows us to compare our operating
          performance on a consistent basis. We believe that certain investors
          and analysts use EBITDA to measure a companys ability to service
          debt and to meet other payment obligations, or as a common valuation
          measurement in the telecommunications industry.
               The most comparable Canadian GAAP financial
          measure is operating income. The table below is a reconciliation of
          EBITDA to operating income on a consolidated basis.Non-GAAP
          FinancialMeasures
      
      2About Our Business
      
      4The Year at a Glance
      
      8Selected Annual and Quarterly Information
      
      11Financial Results Analysis
      
      12Financial and Capital Management
      
      20Risks that Could Affect Our Business
      
      25Our Accounting Policies
      
      32Please refer to the audited consolidated
          financial statements when reading this MD&A. You will find more
          information about us, including Bell Canadas annual information
          form for the year ended December 31, 2004 (Bell Canada 2004 AIF) and
          recent financial reports, on BCE Inc.s (BCE) website atwww.bce.ca,
          on SEDAR atwww.sedar.comand on EDGAR atwww.sec.gov.
        In this MD&A,we,
          usandourmean Bell Canada, its
          subsidiaries and joint ventures. BCE is our ultimate parent company.
          BCE owns indirectly 100% of Bell Canada. Bell Canada Holdings Inc. (BCH)
          is our parent company. BCH owns 100% of Bell Canada.
        All amounts in this MD&A are
          in millions of Canadian dollars, except where otherwise noted. A
        statement we make is forward-looking when it uses what we know and expect
        today to make a statement about the future. Forward-looking statements
        may include words such asanticipate,
        believe, could, expect, goal, guidance, intend, may, objective, outlook,
        plan, seek, should, strive, targetandwill.
      
      
      2004
      
      2003EBITDA
      7,111
      
      7,001Amortization
        expense
      (2,962
      )
      (2,970
      )Net benefit
        plans cost
      (235
      )
      (181
      )Restructuring
        and other items
      (1,219
      )
      (14
      )OPERATING
        INCOME
      2,695
      
      3,836 OPERATING INCOME BEFORE RESTRUCTURING AND OTHER ITEMSThe term operating income before
          restructuring and other items does not have any standardized meaning
          prescribed by Canadian GAAP. It is therefore unlikely to be comparable
          to similar measures presented by other companies.      We
          use operating income before restructuring and other items, among other
          measures, to assess the operating performance of our ongoing businesses
          without the effects of restructuring and other items. We exclude these
          items because they affect the comparability of our financial results
          and could potentially distort the analysis of trends in business performance.
          The exclusion of these items does not imply they are necessarily non-recurring. 2    Bell Canada 2004
    Financial information   Non-GAAP
          Financial Measures This section describes
          the non-GAAP financial measures we used in the MD&A to explain our
          financial results. It also provides reconciliations of the non-GAAP
          financial measures to the most comparable Canadian GAAP financial measures. EBITDA We define EBITDA (earnings
          before interest, taxes, depreciation and amortization) as operating
          revenues less operating expenses, which means it represents operating
          income before amortization expense, net benefit plans cost, and restructuring
          and other items.
      
      The
        most comparable Canadian GAAP financial measure is operating income. The
        table below is a reconciliation of operating income to operating income
        before restructuring and other items on a consolidated basis.2004
      
      2003Operating
        income
      2,695
      
      3,836Restructuring
        and other items
      1,219
      
      14OPERATING INCOME BEFORE RESTRUCTURING
          AND OTHER ITEMS
      3,914
      
      3,850NET EARNINGS BEFORE RESTRUCTURING AND OTHER ITEMS AND NET GAINS ON INVESTMENTSThe term net earnings before
        restructuring and other items and net gains on investments does not have
        any standardized meaning prescribed by Canadian GAAP. It is therefore
        unlikely to be comparable to similar measures presented by other companies.      We
        use net earnings before restructuring and other items and net gains on
        investments, among other measures, to assess the operating performance
        of our ongoing business without the effects of after-tax restructuring
        and other items and net gains on investments. We exclude these items because
        they affect the comparability of our financial results and could potentially
        distort the analysis of trends in business performance. The exclusion
        of these items does not imply they are necessarily non-recurring.      The
        most comparable Canadian GAAP financial measure is net earnings applicable
        to common shares. The table below is a reconciliation of net earnings
        applicable to common shares to net earnings before restructuring and other
        items and net gains on investments on a consolidated basis. Free
          Cash Flow
        We define free cash flow as cash
          from operating activities after capital expenditures, total dividends
          and other investing activities.
      
      
      2004
      
      2003Net earnings applicable to
          common shares
      1,527
      
      2,244Restructuring and other items
      770
      
      3Net gains on investments
      (179
      )
      (148
      )NET EARNINGS BEFORE RESTRUCTURING
          AND OTHER ITEMS AND
          NET GAINS ON INVESTMENTS
      2,118
      
      2,099FREE CASH FLOWThe term free cash flow does
          not have any standardized meaning prescribed by Canadian GAAP. It is
          therefore unlikely to be comparable to similar measures presented by
          other companies. Free cash flow is presented on a consistent basis from
          period to period.      We
          consider free cash flow to be an important indicator of the financial
          strength and performance of our business because it shows how much cash
          is available to repay debt and to reinvest in our company. We believe
          that certain investors and analysts use free cash flow when valuing
          a business and its underlying assets.      The
          most comparable Canadian GAAP financial measure is cash from operating
          activities. The table below is a reconciliation of free cash flow to
          cash from operating activities on a consolidated basis. 2004
      
      2003Cash from operating activities
      5,333
      
      5,366Capital expenditures
      (3,026
      )
      (2,892
      )Total dividends paid
      (1,736
      )
      (2,081
      )Interest on equity-settled notes
      
      
      (47
      )Other investing activities
      (15
      )
      47FREE CASH FLOW
      556
      
      393Restructuring and other items
      194
      
      FREE CASH FLOW BEFORE RESTRUCTURING
          AND OTHER ITEMS
      750
      
      393  3    Bell Canada 2004
    Financial information   Managements
          Discussion and Analysis
        About Our Business
        Bell Canada is Canadas
          leading provider of wireline and wireless communications services, Internet
          access, data services and video services to residential and business
          customers. We report our results of operations in four segments. Each
          reflects a distinct customer group: Consumer, Business, Aliantand
          Other Bell Canada. Our reporting structure reflects how we manage
          our business and how we classify our operations for planning and measuring
          performance. We discuss our consolidated operating results in this MD&A,
          as well as the operating results of each segment. See Note 2 to the
          consolidated financial statements for information about our segments.
          We also discuss our results by product line to give further insight
          into these results.The
          chart below shows the operating revenues that each segment contributed
          to total operating revenues for the year ended December 31, 2004. Some
          of these revenues vary slightly by season. For example, Business segment
          revenues tend to be higher in the fourth quarter because of higher levels
          of voice and data equipment sales. Our operating income can also vary
          slightly by season. For example, Consumer segment operating income tends
          to be lower in the fourth quarter due to the higher acquisition costs
          related to higher subscriber gains in the holiday season.
        CONSUMER SEGMENTThe Consumer segment provides
          local telephone, long distance, wireless, Internet access, video and
          other services to Bell Canadas residential customers, mainly in
          Ontario and Québec. Wireless services are also offered in Western
          Canada and video services are provided nationwide.      Local
          telephone and long distance services are sold under the Bell brand,
          wireless services through Bell Mobility, Internet access under the Sympatico
          brand and video services through Bell ExpressVu.
        BUSINESS SEGMENTThe Business segment provides
          local telephone, long distance, wireless, data (including Internet access)
          and other services to Bell Canadas small and medium-sized businesses
          (SMB) and large enterprise (Enterprise) customers in Ontario and Québec,
          as well as business customers in Western Canada.      In
          2004, Bell Canada acquired several small specialized service companies
          allowing us to quickly enhance our value-added services (VAS) product
          suite for both SMB and Enterprise customers.      In
          the third quarter, we enhanced our competitive position in Western Canada
          by acquiring 100% ownership of Bell West Inc. (Bell West), our competitive
          local exchange carrier (CLEC) in Alberta and British Columbia, by completing
          the purchase of Manitoba Telecom Services Inc.s (MTS) interest
          in Bell West.      In
          the fourth quarter of 2004, we further enhanced our competitive position
          in Western Canada by completing the acquisition of the Canadian operations
          of 360networks Corporation (360networks), as well as certain U.S. network
          assets. This acquisition increases our customer base and gives us an
          extensive fibre network across major cities in Western Canada.
        ALIANT SEGMENTThe Aliant segment provides
          local telephone, long distance, wireless, data (including Internet access)
          and other services to residential and business customers in Atlantic
          Canada, and represents the operations of our subsidiary, Aliant Inc.
          (Aliant).      At
          December 31, 2004, Bell Canada owned 53% of Aliant. The remaining 47%
          was publicly held.
        OTHER BELL CANADA SEGMENT
          The Other Bell Canada segment includes Bell Canadas Wholesale
          business and the financial results of Télébec
          Limited Partnership (Télébec),
          NorthernTel Limited Partnership (NorthernTel) and Northwestel Inc. (Northwestel).
          Our Wholesale business provides local telephone, long distance, wireless,
          data and other services to competitors who resell these services. Télébec,
          NorthernTel and Northwestel provide telecommunications services to less
          populated areas of Québec, Ontario and Canadas northern
          territories.      Following
          the purchase of 360networks, Bell Canada sold 360networks retail
          customer operations in Central and Eastern Canada to Call-Net Enterprises
          Inc. (Call-Net). As part of the sale, Bell Canada will provide to Call-Net,
          for a share of the revenues, network facilities and other operations
          and support services.      At
          December 31, 2004, Bell Canada owned 100% of Northwestel and 63% of
          Télébec and NorthernTel. The Bell Nordiq Income Fund owned
          the remaining 37%.
        OUR PRODUCTS AND SERVICES
          We have six major lines of business:
        local and access services
          long distance services
          wireless services
          data services
          video services
          terminal sales and other. 4    Bell Canada 2004
    Financial information   LOCAL AND ACCESS
          SERVICESBell Canada operates an
          extensive local access network that provides local telephone services
          to business and residential customers. The 12.9 million local telephone
          lines, or network access services (NAS), we provide for our customers
          are key in establishing customer relationships and are the foundation
          for the other products and services we offer.
               Local telephone service is the main source
          of local and access revenues. Other sources of local and access revenues
          include:
        value-added services, such
            as call display, call waiting and voicemail
          services provided to competitors
            accessing our local network
          connections to and from our
            local telephone service customers for competing long distance companies
          subsidies from the National
            Contribution Fund to support local service in high-cost areas.Rates for local telephone and
          value-added services in our incumbent territories are regulated by the
          Canadian Radio-television and Telecommunications Commission (CRTC).
               The local telephone services market became
          more competitive in 2004 when several companies launched voice over
          Internet protocol (VoIP) services. In 2004, we launched our own VoIP
          service for Enterprise customers and are currently conducting trials
          of a version for residential customers. Several major cable companies
          recently entered, or announced their intention to enter, the local telephone
          services market in 2005 with VoIP offerings of their own.
        LONG DISTANCE SERVICESWe supply long distance voice
          services to business and residential customers. We also receive settlement
          payments from other carriers for completing their customers long
          distance calls in our territory.
               Prices for long distance services have
          been declining since this market was opened to competition. In 2004,
          the long distance services market became more competitive with the emergence
          of non-traditional suppliers (i.e., prepaid card, dial-around and VoIP
          providers).
        WIRELESS SERVICESWe offer a full range of
          wireless communications services to business and residential customers,
          including cellular, personal communications services (PCS) and paging.
          PCS customers can get wireless access to the Internet through our Mobile
          Browser service or send text messages. We also provide value-added services,
          such as call display and voicemail, and roaming services with other
          wireless service providers. Customers can choose to pay for their cellular
          and PCS services through a monthly rate plan (postpaid) or in advance
          (prepaid). At the end of 2004, we had more than 5.3 million cellular,
          PCS and paging customers.
               The wireless division of each of our incumbent
          telephone companies provides wireless communications in its home territory,
          except for Bell Mobility Inc. (Bell Mobility), which provides these
          services in its home territory, as well as Alberta and British Columbia.
               Our wireless network provides voice services
          and data services at typical transmission speeds of approximately 120
          Kbps.
               At the end of 2004, our wireless network
          covered:
        95% of the population in Ontario
            and Québec, which is equivalent to our analogue coverage in
            this region
          88% of the population in Atlantic
            Canada
          Calgary, Edmonton and Vancouver
            in Western Canada.In December 2004, we announced
          we were in trials for Canadas first Evolution, Data Optimized
          (EVDO) network, which will provide wireless broadband speeds up to six
          times faster than data speeds available today. We expect to deploy EVDO
          in major urban centres across Canada in 2005 and 2006.
               We also announced a joint venture with
          the Virgin Group to offer wireless services to the key youth market
          under the dynamic Virgin brand.
        DATA SERVICESHigh-speed Internet access
          service provided through digital subscriber line (DSL) technology for
          residential and SMB customers is a growth area for Bell Canada. At the
          end of 2004, we had over 1.8 million high-speed Internet customers.
               We expanded our DSL footprint in Ontario
          and Québec to 83% of homes and business lines passed at the end
          of 2004, compared to 80% at the end of 2003. This was partly due to
          the deployment of new high-speed remotes that began in April 2004. In
          Atlantic Canada, DSL was available to 72% of homes and 79% of businesses
          at the end of 2004, compared to 65% and 75%, respectively, at the end
          of 2003.
               During 2004, we upgraded our Sympatico
          DSL services by increasing our High Speed Edition to up to 3 Mbps from
          1.5 Mbps and our Ultra service from 3 Mbps to up to 4 Mbps. 
               We offer a full range of data services
          to business customers, including Internet access, Internet protocol
          (IP) based services, VAS and equipment sales. While we still offer legacy
          data services such as frame relay and asynchronous transfer mode (ATM),
          we began the process of discontinuing legacy data services by announcing
          in 2004 that we would not sell several of these services to customers
          who do not use them currently.  5    Bell Canada 2004
    Financial information    Transactions
          with related parties
        Emergis was a subsidiary of BCE
          before BCE sold it in June 2004. BCE owned 63.9% of the company.
        Entourage is an equity investment
          of Bell Canada. Bell Canada owns 33% of the company.
        CGI is a joint venture of BCE.
          BCE owns 29% of the company.
        Bell Globemedia is a subsidiary
          of BCE. BCE owns 68.5% of the company.
        Telesat is a wholly-owned subsidiary
          of BCE.
        BCECS is a wholly-owned subsidiary
          of BCE.
      
      Managements
        Discussion and Analysis VIDEO
          SERVICESWe are Canadas largest digital television provider, broadcasting
          nationally more than 400 video and CD-quality audio channels, including
          up to 25 high definition channels and unique interactive television
          services. At the end of 2004, we provided video services to more than
          1.5 million customers. We currently distribute our video services to
          customers in one of two ways:
        direct-to-home (DTH) satellite:
            we have been offering DTH video services nationally since 1997. We
            use three satellites, Nimiq 1, Nimiq 2, and Nimiq 3. We added Nimiq
            3 in 2004 to improve signal strength and reliability while increasing
            capacity.
          very high bit rate DSL (VDSL):
            in 2003, we began expanding our reach to the Toronto multiple-dwelling
            unit (MDU) market through the use of VDSL. The MDU market represents
            approximately 40% of all households in Toronto. In 2004, we increased
            our penetration of the Toronto MDU market and also began deploying
            VDSL in the MDU markets in Montréal and Ottawa.In the future, we plan to provide
          an IPTV service (video over Internet protocol) terrestrially to urban
          households in the Québec City to Windsor corridor. In 2004, we
          received CRTC approval of our broadcast licence application to deliver
          video services terrestrially to single family units (SFUs). We plan
          to conduct trials of our IPTV service in 2005.      Signal
          piracy is a major issue facing the Canadian broadcasting industry. In
          order to combat DTH signal piracy, in 2004 we began the deployment of
          a new conditional access system. All new customers are now supplied
          with the new system, and the replacement of old smart cards is expected
          to be completed in the second half of 2005. During the transition to
          the new system, we are continuing our electronic countermeasure program,
          which transmits electronic signals that disable set top boxes that use
          illegal cards to steal programming.
        TERMINAL SALES AND OTHERThis category includes revenues from a number of other sources, including:
        renting, selling and maintaining
            business terminal equipment
          wireless handset and video
            set top box sales
          network installation for third
            parties
          IT services provided by Aliant.DISCONTINUED OPERATIONSIn the past two years, we
          have disposed of or approved formal plans for disposing of a number
          of our businesses. These include:
        Aliants emerging business
            segment. Its assets were sold in 2003.
          Aliants remote communications
            segment, which consisted mainly of Aliants investment
            in Stratos Global Corporation (Stratos). Stratos was sold in December
            2003.All of these business dispositions
          were treated as discontinued operations.
               In
          treating business dispositions as discontinued operations, we restated
          the financial results of all previous years to exclude the results of
          these businesses. They are presented separately in the consolidated
          financial statements and are discussed separately in this MD&A.
        TRANSACTIONS WITH RELATED PARTIESAs a part of our business,
          we have transactions with related parties. All of the transactions are
          negotiated at arms length between the related parties and us for
          amounts that are agreed to.
        In 2004, we generated revenue
          from the sale of equipment and services to:
        Emergis Inc. (Emergis) for
            $40 million
          Entourage Technology Solutions
            Inc. (Entourage) for $32 million
          CGI Group Inc. (CGI) for $30
            million
          Bell Globemedia Inc. (Bell
            Globemedia) for $20 million.In 2004, we also bought equipment,
          supplies and services from:
        CGI for $345 million
          Entourage for $152 million
          Telesat Canada (Telesat) for
            $64 million
          Bell Globemedia for $37 million
          BCE Corporate Service Inc.
            (BCECS) for $29 million
          Emergis for $23 million.All other significant transactions
          between the related parties and us are discussed throughout this MD&A.
        OUR STRATEGIC PRIORITIESThe telecommunications industry
          continues to evolve rapidly as the industry moves from multiple service-specific
          networks to IP-based integrated communications networks where text,
          video, sound and voice all travel on a single network. While IP-based
          communications is creating a new competitive landscape with reduced
          barriers to entry, it also unleashes new growth opportunities and the
          ability to achieve significant cost savings. 
               In 2004, we embarked on our strategy to deliver
          unrivalled integrated communications to customers across Canada with
          the overall objective of taking a leadership position in setting the
          standard in IP for the industry and for our customers. Leveraging the
          opportunities created by IP-based communications should allow us to
          deliver on the guiding principles of our strategy of customer simplification,
          innovation and efficiency. This strategy is founded on three priorities:  6    Bell Canada 2004
    Financial information   1. DELIVER
          AN ENHANCED CUSTOMER EXPERIENCE WITH THE
          OBJECTIVE OF ENABLING A SIGNIFICANTLY LOWER COST STRUCTURE AT BELL CANADA.A
          year ago we announced a far reaching, company-wide program called Galileo
          (Galileo) designed to simplify and enhance the customer experience.
          In the Consumer segment, Galileo aims to unify the customer experience
          across all product lines, and eliminate the costs of complexity associated
          with multiple systems and processes. In the Business segment, Galileo
          aims to deliver to customers a streamlined service offer based on IP,
          thereby eliminating the costs of multiple data networks and related
          processes.
               In 2004, we made significant progress
          on our Galileo initiatives in both our Consumer and Business segments.
        In our Consumer segment:
        we gained 369,000 subscriptions
            to the Bell bundle (a combination of wireless, Internet and video
            services in one offer), bringing our total sales to 431,000 since
            it was launched in September of 2003. Over the year, 48% of new bundle
            activations, 49% of fourth quarter activations and 51% of December
            activations included the sale of at least one new service.
          the $5 Long Distance Bundle
            that we introduced in June 2004 was extremely successful, gaining
            approximately 229,000 customers by year end
          we completed a major overhaul
            of Bell ExpressVus service offerings to stimulate growth and
            invigorate the business. This included repackaging programs and simpler
            pricing.
          we completed the migration
            of all Bell Mobility postpaid customer accounts to a new billing platform
            that will enable us to consolidate all of a customers services
            onto a single bill
          we also made significant advancements
            in improving the customer experience in our corporate stores.In our Business segment:
        we made significant progress
            on our key objective of having 100% of our core traffic moved to a
            pervasive national IP multi-protocol label switching (IP MPLS) network
            by the end of 2006. At the end of 2004, 61% of the traffic on our
            core network was IP-based.
          we also began the process
            to discontinue several legacy data services by announcing in 2004
            that we would not sell these services to customers who do not use
            them currently. This list of legacy services includes Frame Relay,
            ATM, Megastream, Bell Electronic Business Network, some business long
            distance services from the VNet portfolio (virtual corporate network
            services for large companies) and some packet services from the Datapac
            portfolio.In 2005,
          we will continue to work on both of these areas.
        In Consumer, we will continue to
          deliver on our strategy to win the broadband home. In particular we:
        aim to significantly increase
            the number of customers on the Bell bundle
          will launch a redesigned Bell.ca
            site with the objective of increasing online sales
          will rollout a new, simpler
            bill for our customers.In Business we will: continue the process of discontinuing
            legacy data services by expanding the list of services that will no
            longer be sold to customers who do not currently use them and by beginning
            to stop selling these services to existing customers
          continue to actively encourage
            customers to adopt new IP-based services as well as to migrate from
            legacy services to new IP-based services
          increase the adoption of self-serve
            and web-based interfaces by Enterprise customers
          eliminate network elements
            and standardize core operating processes.By the end of 2006, through our
          Galileo initiatives, we are targeting to remove between $1 billion and
          $1.5 billion in annual costs from our current cost structure.
        2. DELIVER ABUNDANT BANDWIDTH
          TO ENABLE ALL THE SERVICES
          OF THE FUTURE WITH THE RELIABILITY AND SECURITY THAT CUSTOMERS REQUIRE.Over
          the next four years, we plan to make a significant investment to expand
          the reach and amount of bandwidth available to customers. We are aiming
          to be able to deliver by 2008 up to 26 Mbps to 85% of urban households
          in the Québec City to Windsor corridor, or approximately 4.3
          million households. Four million of these households will be SFUs that
          will be served using a fibre-to-the-node (FTTN) architecture capable
          of delivering IPTV service. The remaining 300,000 households will be
          MDUs served using VDSL.
               In 2004, we began our FTTN rollout by
          deploying new high-density remotes in 376 neighbourhoods. Although not
          yet capable of providing video services, these remotes did enable the
          expansion of our high-speed Internet access footprint in Ontario and
          Québec to 83% of homes and business lines passed, compared to
          80% at the end of 2003. We also made solid progress in the deployment
          of VDSL to MDUs. By the end of the year, we had signed access agreements
          with 335 buildings. 7    Bell Canada 2004
    Financial information   The
          Year at a Glance
        This section reviews the key measures
          we use to assess our performance and how our results in 2004 compare
          to our results in 2003.
      
      Managements Discussion
        and Analysis In
          2005, we plan to continue our FTTN rollout and conduct trials of our
          IPTV service. By year end, we expect to have deployed new high-density
          remotes to 2,500 neighbourhoods, representing a footprint of approximately
          1.1 million households. We plan to continue our VDSL expansion into
          the MDU markets of Toronto, Montréal and Ottawa.
               We were also the first in Canada to announce
          plans to deploy the third generation (3G) of wireless mobile communications.
          Through our investment in EVDO, we will offer wireless broadband speeds
          of up to 2.4 Mbps, six times faster than the speeds that exist today.
          We intend to deploy EVDO in major urban centres across Canada in 2005
          and 2006.
        3. CREATE THE NEXT-GENERATION
          SERVICES TO DRIVE FUTURE GROWTH.     We continue to leverage our network
          capabilities, customer base and market knowledge to deliver innovative
          next-generation services. We plan to develop applications together with
          our wide array of partners, integrate them into useful services and
          bring these services to market using our strong brand, customer reach
          and channels.
               In 2004, our Consumer segment provided
          next-generation services with:
        the launch of Sympatico-MSN.ca,
            a single portal combining the best features and Internet tools of
            MSN Canada Co. with the broadband content and innovative services
            of Sympatico.ca
          the introduction of MSN Premium
          the launch of Sympatico Home
            Networking (an integrated wireless high-speed modem and router solution)
          the launch of leading-edge
            wireless location-based services
          the launch of wireless phone-to-phone
            video messaging service.For Enterprise customers, we launched
          our Managed IP Telephony service. By year end, Bell Canada had sold
          more than 145,000 IP-enabled lines on customer premises equipment (CPE).
          We also enhanced our portfolio of value-added services through the acquisitions
          of:
        Infostream Technologies
            Inc. (Infostream), a systems and storage technology firm, addressing
            customer needs for secure and reliable information storage and redundant
            back-up capabilities
          approximately 76% of Elix Inc.
            (Elix), a provider of call routing and management systems, IT applications
            integration, and design and implementation of electronic voice-driven
            response systems
          the security business of Emergis.As part of our strategy to become
          the technology advisor of choice to SMB customers, we:
        launched Productivity Pak (a
            self-serve bundle of tools that enables SMB customers to more easily
            access and share information) and ProConnect (a fully-managed service
            enabling the sharing of information easily, securely and affordably
            across the most extensive private IP-based net-work in Canada)
          acquired IT solutions provider
            Charon Systems Inc. (Charon) and, by February 21, 2005, an 89% interest
            in IT solutions provider Nexxlink Technologies Inc. (Nexxlink)
          on December 14, 2004, announced
            an initiative with Microsoft Canada Co. whereby Bell Canada will combine
            telecommunications services and Microsoft software-based solutions
            to bring SMB customers reliable, secure, productivity-enhancing services
            at affordable prices.In 2005, we plan to introduce
          Internet telephony service for consumers. In the Enterprise unit, we
          are targeting to increase the proportion of our customers in the Enterprise
          market purchasing value-added solutions. In the SMB market, we intend
          to reinvent the way information technology and telecom are integrated
          with the objective of increasing the number of SMB customers that view
          Bell Canada as their virtual Chief Information Officer (VCIO).We
          will exploit the IP capability to achieve inter-operability between
          wireless and wireline platforms. For instance, in 2005 we are targeting
          to bring to market an integrated single-voice mailbox for both cellular
          and land lines to allow customer access to voicemail messages through
          a single voicemail system.
        The Year at a Glance The
          results for 2004 demonstrate steady progress on our strategic objectives.
          We set a solid foundation for future growth, simplification of our customers
          experience and the transformation of our cost structure. The decrease
          in operating income was driven mainly by the restructuring and other
          items mainly related to the employee departure programs announced by
          Bell Canada and Aliant. Before restructuring and other items, operating
          income grew compared to last year, despite the negative impact of Aliants
          labour disruption. This growth reflected better operating performance
          at Bell Canada.In
          the Consumer segment, we achieved solid revenue and operating income
          growth, while maintaining strong levels of customer acquisitions and
          loyalty. Bundle subscriptions, a key part of our strategy to win the
          broadband home, significantly exceeded our expectations for the year.
               In the Business segment, we grew our base
          of IP-based services and VAS within our SMB and Enterprise markets and
          expanded our presence in Western Canada. Overall, Business revenues
          grew modestly, despite increased competitive pressures, significant
          impacts from our exit from the low-margin cabling business, the completion
          of the Hydro-Québec outsourcing contract and lower revenues from
          Bell Wests contract with the Government of Alberta for the construction
          of the SuperNet. The improved momentum in our IP-connectivity and VAS
          business, combined with strong cost containment, led to operating income
          growth.
               In the Aliant segment, a new collective
          labour agreement was signed on September 16, 2004. The labour disruption,
          which started on April 23, 2004 and ended on September 20, 2004, negatively
          impacted revenues and operating income.  8    Bell Canada 2004
    Financial information   Operating
          income / EBITDA
        EBITDA marginis
          EBITDA divided by operating revenues.
      
      In
          the Other Bell Canada segment, market challenges persisted throughout
          the year for our Wholesale business. While full year revenues declined,
          this was in part due to our decision in the fourth quarter of 2003 to
          exit certain low-margin contracts and promotional offers for international
          switched minutes. In the last three quarters of the year, the rate of
          decline stabilizedCUSTOMER CONNECTIONS2004
      
      CONNECTIONS
        AT(IN THOUSANDS)
      NET
        ADDS
      
      DECEMBER
        31, 2004NAS
      (146
      )
      12,905Digital equivalent access lines
      468
      
      4,335High-speed Internet
      350
      
      1,808Dial-up Internet
      (126
      )
      743Cellular and PCS
      513
      
      4,925Paging
      (97
      )
      427Video
      116
      
      1,503TOTAL
      1,078
      
      26,646 The total number
          of customer connections increased 4.2% or 1.1 million to 26.6 million
          at December 31, 2004, compared to December 31, 2003.
        WIRELESSOur total cellular and PCS
          subscriber base grew 11.6% or 513,000 in 2004 to reach 4,925,000 at
          December 31, 2004. This reflects a similar level of net additions as
          in 2003. We also improved blended and postpaid churn by 0.1 and 0.2
          percentage points, respectively, over 2003.
        HIGH-SPEED INTERNETOur DSL high-speed Internet
          business added 350,000 customers in 2004, increasing our DSL customer
          base by 24% to reach 1,808,000 at December 31, 2004. The additions achieved
          in 2004 were slightly lower than the 358,000 subscribers added in 2003.
          We also more than doubled our subscriptions to Sympatico value-added
          solutions over December 31, 2003, to reach an end of period count of
          624,000.
        VIDEOWe gained momentum in our
          video business in 2004, ending the year with over 1.5 million subscribers,
          growing by 8.4% over 2003. During the year, we had 116,000 net activations,
          an increase of 40% over 2003. Bell ExpressVu achieved its target in
          the deployment of VDSL to MDUs, signing access agreements for 335 buildings
          by year end.
        NASOur NAS levels declined 1.1%
          or 146,000 in 2004, similar to the rate of decline in 2003, reflecting
          the substitution of wireline with wireless services and a reduction
          in the number of second lines as a result of growth in high-speed Internet
          access.
        OPERATING REVENUES
        Operating revenues increased 1.0%
          or $173 million to $16,787 million in 2004, compared to 2003. Bell Canada
          contributed most of the increase despite the trailing effects of the
          implementation of a new wireless billing system and a prolonged labour
          disruption at Aliant.      Bell
          Canadas revenue growth reflects improved performance in the Consumer
          segment stemming from stronger wireless, Internet access and video services,
          along with higher IP-connectivity and VAS revenues in the Business segment.
        OPERATING INCOME/EBITDA
        Operating income for the year declined
          $1,141 million to $2,695 million in 2004, compared to 2003. This was
          mainly a result of restructuring and other items of $1,219 million recorded
          in 2004. The cost of the employee departure programs announced at Bell
          Canada in June of this year, encompassing a total of 5,052 employees,
          and at Aliant, announced in the fourth quarter this year encompassing
          a total of 693 employees, amounted to $1,063 million. In addition, the
          labour disruption at Aliant had an estimated negative impact of $68
          million on operating income.      Operating
          income before restructuring and other items increased 1.7% or $64 million
          to $3,914 million in 2004, compared to 2003, despite the estimated negative
          impact of $68 million of the Aliant labour disruption. This increase
          reflects the EBITDA growth, partially offset by higher net benefit plans
          cost.      EBITDA
          grew 1.6% or $110 million to $7,111 million in 2004, compared to 2003
          driven mainly by improvements at Bell Canada. Growth was 2.6% excluding
          the estimated negative impact of $71 million from the Aliant labour
          disruption. EBITDA growth at Bell Canada was driven by continued improvement
          in wireless, Internet access and video services.      EBITDA
          erosion in our legacy services was offset by a continued focus on productivity,
          as well as EBITDA contributions from IP connectivity, VAS and VCIO revenue
          gains in our Business segment. 9    Bell Canada 2004
    Financial information   Capital
          Expenditures
        Capital intensityis
          capital expenditures divided by operating revenues. It is a key financial
          measure that we use to assess our performance and that of our business
          units.
        Cash FlowsNet debt to capitalization ratiois
        a key measure we use to assess our financial condition. It shows how much
        net debt (debt due within one year and long-term debt, net of cash) we
        have in relation to our capitalization (total net debt, non-controlling
        interest and shareholders equity).
      
      Managements
          Discussion and Analysis
        Our
          EBITDA margin of 42.4% reflected a 0.3 percentage point improvement
          over last year. Wireless EBITDA grew significantly, driving a 5.2 percentage
          point margin improvement despite the adverse impacts of the implementation
          of a new billing system. We achieved EBITDA margin improvement by better
          managing acquisition costs per gross activation, particularly in the
          wireless business, and by placing a greater emphasis on more profitable
          contracts within the Enterprise and Wholesale markets. The negative
          impact of the Aliant employee strike and the cost of the billing system
          implementation partly offset the improvement at Bell Canada.
        NET EARNINGSNet earnings applicable to
          common shares for 2004 were $1,527 million. This compared to net earnings
          of $2,244 million in 2003. Included in 2004 net earnings were net losses
          of $591 million after taxes and non-controlling interest consisting
          primarily of:
        restructuring and other items
            of $770 million, mainly relating to the employee departure programs
            announced at Bell Canada ($647 million) and Aliant ($24 million),
            partly offset by:
          net gains of $179 million from
            the sale of our remaining interest in YPG General Partner Inc. (YPG)
            and the gain on the purchase of 360networks, which reflected the excess
            of the fair value of the net assets acquired over the purchase price.This compared to net gains of
          $145 million included in 2003 net earnings due mainly to a gain on sale
          of an interest in YPG and net gains on our share of Aliants sales
          of its emerging business and remote communication segments.
               Excluding the impact of these items, net
          earnings grew 0.9% to $2,118 million, in 2004, an increase of $19 million.
          This increase reflected the improvement in operating income and lower
          interest expense.
        CAPITAL EXPENDITURES
        Capital expenditures increased 4.6%
          or $134 million to $3,026 million in 2004, compared to 2003. Capital
          intensity increased from 17.4% to 18.0% in 2004. Capital spending in
          2004 reflected a mix
          of higher investment in the growth areas of the business and reduced
          expenditures in legacy areas.      Our
          key strategic investments this year included the migration to one national
          IP-MPLS network, our VDSL deployment strategy, our DSL footprint expansion
          facilitated through the deployment of new high-density remotes, and
          productivity enhancement initiatives.
        CASH FLOWS
        Cash from operating activities decreased
          0.6% or $33 million to $5,333 million in 2004, compared to 2003. The
          decline resulted mainly from cash savings of $363 million in 2003 generated
          by using cash tax strategies to consolidate tax losses that did not
          recur this year, higher cash payments related to the employee departure
          programs and higher working capital requirements, partly offset by the
          receipt of $75 million from the settlement of lawsuits against MTS and
          Allstream Inc. (Allstream).      We
          generated free cash flow for the year totalling $556 million or $750
          million before restructuring and other items. Compared to 2003, free
          cash flow was up $163 million, mainly reflecting the $349 million decline
          in common dividends paid partly offset by higher capital expenditures
          of $134 million.      Our
          net debt to total capitalization ratio improved to 49.0% at December
          31, 2004, from 49.2% at December 31, 2003. The improvement reflects
          a reduction in net debt of $305 million, which was driven by $556 million
          of free cash flow, net cash proceeds of $123 million on our sale of
          YPG, less $1.1 billion of business acquisitions, including Bell West
          and 360networks. This was complemented by an increase in shareholders
          equity, which reflects the excess of net earnings over dividends of
          $55 million.
        NEW LABOUR AGREEMENTSDuring the year, Bell Canada
          reached a new four-year agreement with approximately 7,100 technicians
          represented by the Communications, Energy and Paperworkers Union of
          Canada (CEP). This agreement will expire in November 2007.      Aliant
          reached an agreement with approximately 4,300 unionized employees represented
          by the Council of Atlantic Telecommunication Unions (CATU), ending a
          lengthy labour disruption. This agreement will expire in December 2007. 10    Bell Canada 2004
    Financial information   Selected
          Annual and Quarterly Information
        This section shows selected financial
          and operational data.
      
      Selected
          Annual and Quarterly Information
        ANNUAL FINANCIAL INFORMATIONThe tables below show selected
          consolidated financial data for each year from 2000 to 2004. We discuss
          the factors that have caused our results to vary over the past two years
          throughout this MD&A.2004
      
      2003
      
      2002
      
      2001
      
      2000OPERATIONAL DATAOperating revenues
      16,787
      
      16,614
      
      14,638
      
      14,488
      
      13,475Earnings from continuing operations
      1,518
      
      2,268
      
      1,468
      
      1,559
      
      1,512Discontinued operations
      
      
      59
      
      
      
      
      
      (99
      )Net earnings
      1,587
      
      2,327
      
      1,468
      
      1,489
      
      1,413Net earnings applicable to common
          shares
      1,527
      
      2,244
      
      1,352
      
      1,354
      
      1,274Included in
        net earnings:Net gains
        on investmentsContinuing
          operations
      179
      
      92
      
      984
      
      399
      
      Discontinued
          operations
      
      
      56
      
      
      
      
      
      (75
      )Restructuring and other items
      (770
      )
      (3
      )
      (425
      )
      (542
      )
      Goodwill amortization
      
      
      
      
      
      
      (39
      )
      (43
      )Other
      
      
      
      
      (18
      )
      (55
      )
      BALANCE SHEET DATATotal assets
      27,666
      
      28,242
      
      29,061
      
      24,434
      
      22,678Long-term debt (including current
          portion)
      10,317
      
      11,157
      
      11,839
      
      10,237
      
      8,955Preferred shares
      1,100
      
      1,100
      
      1,100
      
      1,100
      
      735Common shareholders
          equity
      8,578
      
      8,420
      
      5,195
      
      5,577
      
      5,378Capital expenditures
      (3,026
      )
      (2,892
      )
      (2,927
      )
      (4,099
      )
      (2,852
      )OTHER DATADividends declared on common shares
      1,472
      
      2,022
      
      1,769
      
      1,157
      
      1,085Dividends declared on preferred
          shares
      60
      
      58
      
      63
      
      55
      
      40Number of employees (thousands)unaudited
      50
      
      51
      
      54
      
      44
      
      45QUARTERLY FINANCIAL INFORMATIONThe table below shows selected
        consolidated financial data by quarter for 2004 and 2003. This quarterly
        information is unaudited but has been prepared on the same basis as the
        annual consolidated financial statements. The factors that have caused
        our results to vary over
        the past eight quarters are discussed throughout this MD&A.  2004
      
      
      
      
      
      
      
      
      
      2003YEAR
      
      Q4
      
      Q3
      
      Q2
      
      Q1
      
      YEAR
      
      Q4
      
      Q3
      
      Q2
      
      Q1Operating revenues
      16,787
      
      4,303
      
      4,206
      
      4,172
      
      4,106
      
      16,614
      
      4,246
      
      4,155
      
      4,130
      
      4,083EBITDA
      7,111
      
      1,679
      
      1,856
      
      1,821
      
      1,755
      
      7,001
      
      1,731
      
      1,817
      
      1,760
      
      1,693Amortization expense
      (2,962
      )
      (763
      )
      (734
      )
      (733
      )
      (732
      )
      (2,970
      )
      (742
      )
      (758
      )
      (747
      )
      (723
      )Net benefit
          plans cost
      (235
      )
      (62
      )
      (55
      )
      (58
      )
      (60
      )
      (181
      )
      (46
      )
      (46
      )
      (45
      )
      (44
      )Restructuring and other items
      (1,219
      )
      (123
      )
      (1,080
      )
      (13
      )
      (3
      )
      (14
      )
      (13
      )
      (1
      )
      
      
      Operating income
      2,695
      
      731
      
      (13
      )
      1,017
      
      960
      
      3,836
      
      930
      
      1,012
      
      968
      
      926Earnings from continuing operations
      1,518
      
      407
      
      (37
      )
      584
      
      564
      
      2,268
      
      626
      
      567
      
      550
      
      525Discontinued operations
      
      
      
      
      
      
      
      
      
      
      59
      
      53
      
      
      
      5
      
      1Extraordinary gain
      69
      
      69
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      Net earnings
      1,587
      
      476
      
      (37
      )
      584
      
      564
      
      2,327
      
      679
      
      567
      
      555
      
      526Net earnings applicable to common
          shares
      1,527
      
      465
      
      (53
      )
      567
      
      548
      
      2,244
      
      670
      
      550
      
      529
      
      495Included in
        net earnings:Net
          gains on investmentsContinuing operations
      179
      
      71
      
      108
      
      
      
      
      
      92
      
      92
      
      
      
      
      
      Discontinued operations
      
      
      
      
      
      
      
      
      
      
      56
      
      48
      
      8
      
      
      
      Restructuring and other items
      (770
      )
      (61
      )
      (724
      )
      16
      
      (1
      )
      (3
      )
      (9
      )
      6
      
      
      
        11    Bell Canada 2004
    Financial information   Financial
          Results Analysis
        This section provides detailed
          information and analysis about our performance over the past two years.
          It focuses on our consolidated operating results and provides financial
          information for each of our operating segments.
      
      Managements
          Discussion and Analysis
        Financial Results AnalysisCONSOLIDATED ANALYSIS2004
      
      2003
      
      %
          CHANGEOPERATING REVENUES
      16,787
      
      16,614
      
      1.0
      %Operating expenses
      (9,676
      )
      (9,613
      )
      (0.7
      )%EBITDA
      7,111
      
      7,001
      
      1.6
      %Amortization expense
      (2,962
      )
      (2,970
      )
      0.3
      %Net benefit plans cost
      (235
      )
      (181
      )
      (29.8
      )%Restructuring and other items
      (1,219
      )
      (14
      )
      n.m.OPERATING INCOME
      2,695
      
      3,836
      
      (29.7
      )%Other income
      183
      
      217
      
      (15.7
      )%Interest expense
      (863
      )
      (945
      )
      8.7
      %Pre-tax earnings from continuing
          operations
      2,015
      
      3,108
      
      (35.2
      )%Income taxes
      (506
      )
      (787
      )
      35.7
      %Non-controlling interest
      9
      
      (53
      )
      117.0
      %Earnings from continuing operations
      1,518
      
      2,268
      
      (33.1
      )%Discontinued operations
      
      
      59
      
      n.m.Net earnings before extraordinary
          gain
      1,518
      
      2,327
      
      (34.8
      )%Extraordinary gain
      69
      
      
      
      n.m.Net earnings
      1,587
      
      2,327
      
      (31.8
      )%Dividends on preferred shares
      (60
      )
      (58
      )
      (3.4
      )%Interest on equity-settled notes
      
      
      (25
      )
      n.m.NET EARNINGS APPLICABLE TO COMMON
          SHARES
      1,527
      
      2,244
      
      (32.0
      )%n.m. not
        meaningfulOPERATING
          REVENUESOperating revenues grew 1.0%
          or $173 million to $16,787 million in 2004, compared to 2003.      This
          increase was despite the trailing effects of the implementation of a
          new wireless billing system and a prolonged labour disruption at Aliant.
          Our revenue growth was a result of improved performance in the Consumer
          segment stemming from stronger wireless, Internet access and video services
          revenues, along with higher IP-connectivity and VAS revenues in the
          Business segment.      Looking
          ahead for 2005, we expect to achieve overall revenue growth as expected
          increases from our growth services including wireless, Internet and
          IP-based connectivity, video services, and value-added services are
          expected to more than offset anticipated continued declines in our legacy
          wireline business. Beyond 2005, we expect growth services will become
          a greater component of our future revenue base.      In
          2005, the anticipated revenue increases from our growth services are
          expected to be driven by solid increases in the number of subscribers
          and targeted increases in average revenue per subscriber across these
          services.      In
          local and access and long distance revenues, we expect the trends experienced
          over the past years to continue and the rate of decline of these services
          to increase somewhat as cable companies begin expected launches of VoIP
          offerings. We also expect continued legacy revenue declines from the
          Enterprise and Wholesale businesses due to continued competitive pricing
          pressures and the migration to IP.      SeeSegmented Analysisfor
          a discussion of operating revenues on a segmented basis, and *Product
          Line Analysis* for a discussion of operating revenues on a product
          line basis.
        OPERATING INCOMEOperating income declined
          30% or $1,141 million to $2,695 million in 2004, compared to 2003. This
          was mainly because of an increase in restructuring and other items and
          a higher net benefit plans cost. Excluding the impact of the restructuring
          and other items, operating income increased 1.7% or $64 million to $3,914
          million in 2004. This increase stemmed from operating income growth
          in our Consumer and Business segments, driven by the underlying growth
          in these sectors.      SeeSegmented Analysisfor
          a discussion of operating income on a segmented basis.
        EBITDAOur EBITDA grew 1.6% or $110
          million to $7,111 million in 2004, compared to 2003. This represented
          a growth rate of 2.6%, excluding the estimated negative impact of $71
          million from the Aliant labour disruption.      EBITDA
          growth was driven by continued improvement in wireless, Internet access
          and video services. EBITDA erosion in our legacy services was offset
          by a continued focus on productivity as well as EBITDA contributions
          from IP-based connectivity service, and VAS and VCIO revenue gains in
          our Business segment.      Our
          EBITDA margin of 42.4% in 2004 reflected a 0.3 percentage point improvement
          over last year. Wireless EBITDA margin reflected a 5.2 percentage point
          improvement despite the adverse impacts of the implementation of the
          new billing system.      We
          achieved EBITDA margin improvement by better management of COA per gross
          activation, particularly in the wireless business, and by placing a
          greater emphasis on more profitable contracts within the Enterprise
          and Wholesale   12    Bell Canada 2004
    Financial information   Amortization
          Expense
        The amount of our amortization
          expense in any year is affected by:
        how much we invested in new
            capital assets in previous years
          how many assets we retired
            during the year
          changes in accounting rules
            and estimates.Each year, we review our estimate
          of the useful life of our capital assets.
        Net benefit plans cost
          The amount of the net benefit plans cost in a year mainly depends on:
        the return on pension plan
            assets expected to be generated during the year  the lower the
            return, the higher the cost
          the present value of future
            pension benefit payments to employees  the lower the present
            value, the lower the cost
          actuarial gain (loss) 
            the difference between the actual funded status of our pension plans
            and the amount calculated using our accounting assumptions.
            We amortize this into earnings over time.Restructuring and Other Items
        This category includes various
          income and expenses that are not directly related to the operating revenues
          generated during the year. Examples are costs related to streamlining
          initiatives, asset write-downs and other types of income or charges.
      
      markets. The negative
          impact of the Aliant employee strike and the cost of the billing system
          migration partly offset the improvement at Bell Canada.      Wireless
          COA of $411 per gross activation in 2004 improved by $15 compared to
          2003, driven primarily from more targeted and cost-effective campaigns.
          COA for video services of $571 per gross activation increased $39 due
          to more customers taking a second receiver as a result of our 2TV bundle
          and aggressive retail pricing by competitors.      In
          2005, we are targeting stable EBITDA margins, as cost savings expected
          to be achieved through the benefits of our Galileo initiatives, combined
          with anticipated revenue increases from our growth services, are expected
          to mitigate declines in our legacy business. 
               We are targeting to achieve significant
          cost savings from our Galileo initiatives. We expect close to half of
          these savings will be derived from the Consumer segment, driven by the
          impact of this years employee reduction programs, the migration
          to a single bill, higher sales through our Bell.ca website, efficiencies
          in call centre operations, and our efforts to provide simpler provisioning
          and product offers. The rest of the cost savings are expected to be
          achieved in the Business segment as we eliminate network elements and
          standardize core operating processes, as well as from labour savings
          driven by this years workforce reductions.
        AMORTIZATION EXPENSEAmortization expense decreased
          0.3% or $8 million to $2,962 million in 2004, compared to 2003. This
          was a result of an increase from three to four years in the useful life
          of Bell Canadas internal use software. This was partly offset
          by an increase in our capital asset base from capital spending that
          continues to be higher than asset retirements.
        NET BENEFIT PLANS COSTThe net benefit plans cost
          increased by 30% or $54 million to $235 million in 2004, compared to
          2003. The increase resulted mainly from a higher accrued benefit obligation
          based on our most recent actuarial valuation. This was partly offset
          by the positive fund performance in 2003, which resulted in an actuarial
          gain and increased the fair value of plan assets.
               In
          the next two years, net benefit plans cost is expected to increase,
          mainly as a result of poor fund performance experienced in 2001 and
          2002. This will continue to negatively impact the accounting value of
          the plan assets used to determine the net benefit plans cost. In 2006,
          however, we expect this negative impact will have a smaller effect.
          Beyond 2006, net benefit plans cost is expected to stabilize.
        RESTRUCTURING AND OTHER ITEMSWe recorded $1,219 million
          in restructuring and other items in 2004, consisting of:
        $985 million in the third quarter
            relating to an employee departure program at Bell Canada, where 5,052
            employees chose to leave the company. By the end of the year 4,900
            employees had left the company. We expect this to result in annual
            savings of approximately $390 million.
          a $110 million provision recorded
            in the second quarter for potential cost overruns on a contract with
            the Government of Alberta, which was increased by $18 million in the
            fourth quarter$67 million in the fourth quarter
            relating to an employee departure program at Aliant under which 693
            employees decided to leave the company. Of these employees, about
            400 had left the company by January 1, 2005. We expect annual savings
            of approximately $48 million as a result of these departures.
          other charges totalling $114
            million. These consisted of future lease costs for facilities that
            were no longer needed, asset write-downs and other provisions.These charges were partly offset
          by income of $75 million recorded in the second quarter relating to
          an agreement reached between BCE and MTS to settle lawsuits. The terms
          of the settlement included:
        the unwinding of various commercial
            agreements
          the removal of contractual
            competitive restrictions effective June 30, 2004
          the orderly disposition of
            our interest in MTS, which was done in September 2004
          a premium payment to us by
            MTS if there is a change in control of MTS before 2006 and if there
            is an appreciation in MTS share price from the time of our divestiture
            to the time of any takeover transaction.We recorded $14 million in restructuring
          and other items in 2003, which included a charge of $15 million relating
          to a restructuring at Aliants subsidiary, Xwave Solutions Inc.
          (xwave).      In
          2003, Bell Canada recorded charges of $65 million relating to various
          asset write-downs and other provisions. These charges were offset by
          a credit of $66 million relating to the reversal of restructuring charges
          recorded in 2002, which were no longer necessary because fewer employees
          were terminated than expected due to an increase in the number of employees
          being transferred to other positions within Bell Canada.      See
          Note 4 to the consolidated financial statements for more information
          on the restructuring and other items.
        NET EARNINGSNet earnings applicable to
          common shares of $1,527 million in 2004 was negatively impacted by $591
          million of net losses resulting from the after-tax restructuring and
          other items of $770 million relating mainly to the employee departure
          programs at Bell Canada and Aliant. These were partly offset by:
        a net gain of $108 million
            relating to the sale of our remaining 3.24% interest in YPG
          an extraordinary gain of $69
            million relating to the acquisition of the Canadian operations of
            360networks.This compared to net gains of
          $145 million included in 2003 net earnings due mainly to a gain on sale
          of an interest in YPG and net gains on our share of Aliants sales
          of its emerging business and remote communication segments.      Excluding
          the impact of these items, net earnings applicable to common shares
          was $2,118 million in 2004, up 0.9% or $19 million from 2003. The increase
          was a result of the improvement in EBITDA and lower interest expense.
          These were partly offset by a higher net benefit plans cost. 13    Bell Canada 2004
    Financial information   Managements
          Discussion and Analysis
        Segmented Analysis 2004
      
      2003
      
      % CHANGEOperating
        revenuesConsumer
      7,502
      
      7,203
      
      4.2
      %Business
      5,851
      
      5,827
      
      0.4
      %Aliant
      2,033
      
      2,059
      
      (1.3
      %)Other Bell
        Canada
      1,939
      
      2,015
      
      (3.8
      %)Inter-segment
        eliminations
      (538
      )
      (490
      )
      (9.8
      %)TOTAL OPERATING
        REVENUES
      16,787
      
      16,614
      
      1.0
      %Operating
        incomeConsumer
      2,119
      
      2,019
      
      5.0
      %Business
      896
      
      781
      
      14.7
      %Aliant
      268
      
      415
      
      (35.4
      %)Other Bell
        Canada
      (588
      )
      621
      
      (194.7
      %)TOTAL OPERATING
        INCOME
      2,695
      
      3,836
      
      (29.7
      %)CONSUMER 
        Consumer segment revenues grew
          4.2% or $299 million to $7,502 million in 2004, compared to 2003. The
          increase was the result of continued strength in our wireless, Internet
          access and video businesses from strong gains in the number of subscribers
          to these services. This was partly offset by steady rates of decline
          in local and access and long distance revenues.
        WIRELESSConsumer wireless revenues
          grew 15.2% in 2004, compared to 2003. The increase was achieved through
          strong subscriber growth, particularly as a result of the sales programs
          initiated during the first four months of the year. Although revenue
          performance was solid, we believe that our call centres focus
          on handling billing inquiries following the implementation of
          our new billing platform somewhat diminished our ability to sell more
          services to our customers and delayed the implementation of planned
          price increases.
        VIDEOVideo revenues grew 12.0%
          in 2004, compared to 2003. This was driven by the growth in our subscriber
          base and average revenue per unit (ARPU). Our total video customer base
          reached 1,503,000 at December 31, 2004, an increase of 8.4% compared
          to last year.      Video
          net activations of 116,000 in 2004, were significantly higher than the
          83,000 achieved in 2003. This growth was stimulated by the continued
          success of the Bell bundle and the major overhaul of the Bell ExpressVu
          service to stimulate growth and invigorate the business, which included
          program repackaging and simpler pricing principles. Initiatives focused
          on churn containment, which in the fourth quarter resulted in the lowest
          churn level since 2001, also contributed to the growth. One of these
          initiatives is Bell ExpressVus move to provide services to new
          DTH customers strictly on a contract basis. As of August 1, 2004, all
          new DTH customers must opt for a one or two-year contract. Churn for
          the year was 1.0% per month, a 0.1 percentage point improvement compared
          to 2003.  14    Bell Canada 2004
    Financial information   ARPU
          per month of $49 for video services reflects a $3 increase in 2004,
          compared to 2003. The increase in ARPU for the year was positively impacted
          by the $2 to $3 rate increase for specific programming packages introduced
          on February 1, 2003, the introduction of the $2.99 system access charge
          for all customers effective April 28, 2003 and more customers paying
          for a second receiver.
               In 2005, growth in video revenues is expected
          to continue, driven by ongoing growth in our subscriber levels and increases
          in ARPU, resulting in part from our $3 programming price increase effective
          March 1, 2005 for customers who are not on contracts and are not taking
          the new program packages introduced in September 2004. Our increased
          rollout of VDSL will help contribute to subscriber growth as our penetration
          in MDUs increases.
        DATAConsumer data revenues
          grew 21% in 2004, compared to 2003. This was driven by growth of 22%
          in our high-speed Internet subscriber base and a 49% increase in revenues
          from our Sympatico-MSN.ca web portal.
               Bell Sympatico value-added services such
          as MSN Premium, Security Services and Home Networking added 337,000
          subscriptions in 2004. Our MSN Premium subscriptions in the fourth quarter
          of 2004 increased 118% over the previous quarter.
        WIRELINELocal and access revenues
          declined slightly in 2004, compared to 2003, mainly due to lower NAS
          and related Smart Touch feature revenues, partly offset by higher revenues
          from wire-line insurance and maintenance plans.
               Long distance revenues declined in 2004,
          compared to 2003, mainly as a result of volume declines in domestic,
          overseas and US minutes, reflecting competition from non-traditional
          long distance providers, partially offset by strong sales of prepaid
          cards. The reduction in higher priced overseas minutes and the impact
          of the $5 Long Distance Bundle also led to a lower average wireline
          revenue per minute in 2004.
         Consumer operating income
          increased 5.0% or $100 million to $2,119 million in 2004, compared to
          2003. The improvement related mainly to the increase in revenues, lower
          COA in wireless and productivity savings. These were partly offset by
          increased operating expenses related to salaries, cost of goods sold
          and higher net benefit plans cost.
               In addition, higher costs were driven
          by an increase in the number of contact centre agents to support the
          increased customer handling time associated with the Bell bundle and
          increased call volumes resulting from the implementation of the new
          billing platform at Bell Mobility.
               For 2005, we expect the Consumer segment
          to continue to grow its revenue, driven by the strength of wireless,
          Internet access and video businesses. However, erosion is expected to
          continue in our local and access and in long distance services, driven
          by increasing competition as cable companies enter the market with VoIP
          telephony services.
        BUSINESS 
        Business segment revenues grew
          slightly by $24 million to $5,851 million in 2004, compared to 2003.
               The increase was the result of revenue
          growth in the SMB business, which was largely offset by revenue declines
          in our Enterprise and Bell West businesses. On November 19, 2004, we
          completed the acquisition of the Canadian operations of 360networks.
          The Business segment includes the financial results of the retail portion
          of this acquisition from that date.
               From a product line perspective, increases
          in wireless and terminal sales and other revenues were partly offset
          by declines in local and access, long distance and data revenues.
         Business segment operating
          income grew 14.7% or $115 million to $896 million in 2004, compared
          to 2003. This demonstrates that our strategy of driving the shift to
          IP along with improved profitability achieved through ongoing productivity
          has traction and is delivering.
               In 2005, we expect Business segment revenues
          will grow, driven by organic growth in IP-based connectivity service
          and VAS revenues, as well as the full-year impact of the business acquisitions
          made in 2004. However, declines from our legacy services and from the
          completion of the SuperNet contract with the Government of Alberta in
          2004 will partly offset this expected growth in revenues.
        ENTERPRISEEnterprise revenues declined
          in 2004, compared to 2003, as a result of lower local and access, long
          distance and data revenues. These declines were partly offset by increases
          in wireless and terminal sales and other revenues. 15    Bell Canada 2004
    Financial information   Managements
          Discussion and Analysis
        The
          decline in data revenues relates mainly to the completion of the Hydro-Québec
          outsourcing contract in the fourth quarter of 2003. Despite this decline,
          our IP-based connectivity and VAS revenues continued to grow significantly.
          IP-based connectivity and VAS service revenues grew from 22% of enterprise
          data revenues in 2003 to 43% in 2004. By December 31, 2004, more than
          65% of our Enterprise customers used some element of our VAS portfolio.      In
          December 2004, we announced the signing of a seven-year, $140 million
          exclusive outsourcing agreement with Manulife Financial for the provisioning
          and management of its IP-based voice and data services. The outsourcing
          arrangement will lever our VAS capabilities by having BCE Connexim,
          Bell Canadas outsourcing and professional services unit, provide
          an end-to-end solution that reduces and simplifies Manulife Financials
          transition to IP. Our outsourcing capabilities play a key role in our
          strategy of securing the connectivity business of our Enterprise customers
          and preventing possible disintermediation by systems integrators. We
          also had a number of other significant contract wins during the year,
          including Fédération des Caisses Desjardins du Québec,
          La Senza Inc., Government of Québec, Hydro One Networks Inc.,
          Department of Foreign Affairs and International Trade of the Government
          of Canada, and Enterprise Rent-a-Car.      Significant
          growth in Enterprise operating income was the result of our focus on
          more profitable contracts and productivity savings, which led to reductions
          in cost of goods sold. This was partly offset by the completion of the
          Hydro-Québec contract in 2003 and higher operating expenses related
          to businesses acquired during the year (Infostream and Elix).
        SMBSMB revenues increased in 2004,
          compared to 2003, as a result of higher data, wireless and terminal
          sales and other revenues. These gains were partly offset by revenue
          declines in local and access and long distance revenues.      Business
          acquisitions in 2004, such as Accutel Conferencing Systems Inc. (Accutel)
          and Charon, contributed to the revenue growth, as did our continued
          growth in DSL high-speed Internet access services and VAS services.
          At December 31, 2004, we had 83,000 VAS subscriptions.      The
          decline in long distance revenues resulted from competitive pricing
          pressures and lower usage in our payphone business. Local and access
          revenues were also lower in our pay-phone business.      SMB
          operating income growth was driven by revenue growth and productivity
          savings, partly offset by higher operating expenses of businesses acquired
          during the year.
        BELL WESTBell West continued to grow its
          customer base leading to increases in local and access and long distance
          revenues in 2004, compared to 2003. In 2001, we were awarded a contract
          by the Government of Alberta to build a next-generation network (SuperNet)
          to bring high-speed Internet and broadband capabilities to rural communities
          in Alberta. Mechanical construction of the network was completed in
          December 2004. The decline in data revenues in 2004 reflects a decrease
          of approximately $43 million as this contract was nearing completion.      The
          improvement in operating income performance at Bell West was driven
          by the increase in local and access and long distance revenues and lower
          operating costs related to the contract with the Government of Alberta,
          partly offset by higher salary costs due to the growing workforce.
        ALIANT
        Aliant segment revenues declined
          1.3% or $26 million to $2,033 million in 2004, compared to 2003. The
          labour disruption that started on April 23, 2004 and ended on September
          20, 2004 negatively impacted revenues in 2004 by an estimated $40 million.
          This represents fewer new customers, reduced product sales, additional
          promotional activities and reduced levels of fieldwork activity during
          the labour disruption. Strong growth in wireless and Internet services
          was more than offset by declines in other areas due to the labour disruption,
          the ongoing impact of competition, and regulatory restrictions including
          those on bundling, customer win-back activities, and rates charged for
          price-regulated services.      Aliants
          wireless revenue grew 15.4% in 2004. This was driven by:
        an increase of 9.6% in Aliants
            wireless customer base, including a 26% increase in digital customers,
            reflecting
            a positive response to the extensive dealer-supported network, attractive
            pricing offers and the expansion of digital cellular service into
            new areas
          an increase of $3 in ARPU,
            reflecting the impact of a higher percentage of customers subscribing
            to digital service, higher usage and increased customer adoption of
            features.Intense long distance competition,
          the difficulty in maintaining win-back efforts during the labour disruption
          and substitution of long distance calling with Internet and wireless
          options by customers resulted in long distance revenue declines in 2004,
          compared to last year. Consumer minute volumes were down due to customer
          losses to competition and the capping of minutes on certain long distance
          plans in late 2003. Business long distance pricing declines continued
          to reflect the impact of competitive pressures, as did long distance
          volume declines, in addition to a reduction of contact centre activity.      Data
          revenues declined slightly in 2004 as higher Internet revenues were
          more than offset by other data revenue declines from the scale-back
          of marketing and sales efforts during the labour disruption and the
          continued rationalization of circuit networks by customers. The continued
          increase in Internet revenues stemmed from the increased popularity
          of enhanced services and year-over-year subscriber growth of 6%, reflecting 21%
          growth in Aliants high-speed Internet  16    Bell Canada 2004
    Financial information   customer base.
          The higher subscriber base resulted from the expansion of high-speed
          Internet service into new areas, attractive introductory offers, an
          emphasis on bundling with other products and services as well as dealer
          and online sales channel initiatives.      Terminal
          sales and other revenues declined in 2004 as a result of slower product
          sales during the labour disruption and the divestiture of non-core operations
          in the second and third quarters, which resulted in a reduction in IT
          service revenue.
        Aliants operating income declined
          35% or $147 million to $268 million in 2004, compared to 2003. This
          was largely due to:
        the labour disruption, which
            had an estimated negative impact of $68 million in 2004. Incremental
            costs were incurred during the labour disruption to enable operations
            to continue with relatively few interruptions, ensure the safety of
            employees, perform property repairs, provide training and equipment
            to employees and maintain basic customer service.
          a restructuring charge of $67
            million relating to an employee departure program. SeeRestructuring
            and Other Itemsfor
            more details.The remaining decrease of $12
          million is a result of higher operating expenses from:
        growth in wireless and Internet
            services
          an increase in net benefit
            plans cost
          normal wage and annual salary
            adjustments
          higher amortization expense
            resulting from a higher proportion of capital spending in recent years
            on broadband and wireless assets, which have shorter depreciable lives.These increases were partly offset
          by lower operating costs stemming from the xwave restructuring in 2003
          and the sale of non-core operations in the second and third quarters.      With
          the labour disruption and its impact on 2004 behind us, for 2005, we
          expect revenue growth in Aliants wireless and Internet services
          to offset continued erosion in local and access and long distance. We
          also anticipate operating income growth in 2005 driven by revenue growth
          and productivity improvements, as well as the absence of the restructuring
          charge and costs associated with the labour disruption. These positive
          impacts are expected to be partially offset by increased costs associated
          with Aliants growth services and higher net benefit plans cost.
        OTHER BELL CANADA 
        The Other Bell Canada segment
          revenues declined 3.8% or $76 million to $1,939 million in 2004, compared
          to 2003. This was due to:
        a decline in our Wholesale
            business stemming from lower long distance and data revenues from
            price competition and customers migrating services to their own network
            facilities
          our decision last year to exit
            certain contracts and promotional offers for international switched
            minutes that had low margins.The Other Bell Canada segment had
          an operating loss of $588 million in 2004, a $1,209 million decrease
          when compared to operating income of $621 million in 2003.      This
          was mainly due to the charge for restructuring and other items of $1,147
          million in 2004, mostly for the voluntary employee departure program
          at Bell Canada. See Restructuring
          and Other Itemsfor more
          details.      Excluding
          restructuring and other items, operating income decreased 9.7%, or $60
          million, in 2004. The decrease relates to costs associated with increased
          volumes of cross-border carrier exchange traffic and the repricing of
          long distance and data services in our Wholesale business. 17    Bell Canada 2004
    Financial information   Managements
          Discussion and Analysis
        PRODUCT LINE ANALYSISIn addition to discussing
          our financial results by business segment, we believe that a separate
          discussion of our consolidated revenues by product line provides further
          insight into managements view of our financial results. The table
          below shows our consolidated revenues by product line. 2004
      
      2003
      
      % CHANGELocal and
        access
      5,572
      
      5,601
      
      (0.5
      %)Long distance
      2,327
      
      2,544
      
      (8.5
      %)Wireless
      2,818
      
      2,461
      
      14.5
      %Data
      3,640
      
      3,717
      
      (2.1
      %)Video
      850
      
      759
      
      12.0
      %Terminal
          sales and other
      1,580
      
      1,532
      
      3.1
      %16,787
      
      16,614
      
      1.0
      %LOCAL AND ACCESS 
        Local and access revenues declined
          0.5% or $29 million to $5,572 million in 2004, compared to 2003. This
          decline was a result of:
        lower NAS
          lower SmartTouch feature revenues,
            mainly linked to NAS losses.The decline was partly offset
          by gains from wireline insurance and maintenance plans.
        NAS
          in service declined 1.1% or 146,000 in 2004, compared to 2003. This
          was a result of:
        continued growth in high-speed
            Internet access, which reduces the need for second telephone lines
          losses resulting from competition
          customers substituting wireline
            with wireless telephone service.In 2005, we expect continued erosion
          of our NAS in service due to these trends, as well as the launches of
          VoIP telephony by cable providers.
        LONG DISTANCE 
        Long distance revenues declined
          8.5% or $217 million to $2,327 million in 2004, compared to 2003. This
          decline stemmed from:
        lower volumes of conversation
            minutes, lower domestic rates and the pricing impact of increased
            subscriptions to the $5 Long Distance Bundle in our Consumer market
          lower volume and lower prices
            resulting from competitive pressures in our Business market.Overall, the volume of conversation
          minutes declined 5.6% in 2004. This was accompanied by a 5.6%, or $0.007,
          decrease in average revenue per minute (ARPM) to $0.117.
        We
          are anticipating continued pressure on long distance revenues in 2005,
          as well as increased take rates to our $5 Long Distance Bundle and competition
          from cable companies that are offering VoIP residential telephone service
          in 2005.   18    Bell Canada 2004
    Financial information   WIRELESS 
        In 2004, our wireless business
          continued to demonstrate strong growth.
               Wireless service revenues grew 14.5% or
          $357 million to $2,818 million in 2004, compared to 2003. This reflected
          subscriber growth of 11.6% and an increase in ARPU of $1 per month.
               Our total cellular and PCS subscriber
          base reached 4,925,000 at the end of 2004, reflecting solid net additions
          and our success in managing churn to very low levels. Including paging
          subscribers, our total wireless customer base totalled 5,352,000.
               We gained 513,000 new customers in 2004,
          matching the gains achieved in 2003. In 2004, 75% of gross activations
          came from postpaid rate plans, compared to 80% in 2003. The decrease
          was primarily due to the success of our prepaid offers, particularly
          in the last quarter. At December 31, 2004, 76% of our total cellular
          and PCS customer base were postpaid subscribers, unchanged from last
          year.
               Blended ARPU of $49 in 2004 was up from
          $48 in 2003. This was driven by an increase in revenues from:
        value-added services, such
            as Message Centre and Call Display
          long distance and data services
          higher usage.During the year, we accomplished
          a key operational initiative: to migrate our postpaid wireless customers
          to a new billing platform. The new platform will enable the consolidation
          of wireless into a single bill, which will provide simplified information
          to our customers, lower costs to Bell Canada, and enhance our ability
          to bundle our products and services.
               In 2004, revenue growth was impacted by
          our call centres focus on handling the high volume of billing
          inquiries after the migration to the new billing platform, diminishing
          our ability to sell more services to our customers and to implement
          planned price increases. Despite adding more than 600 call centre representatives,
          the high volume of calls meant customers experienced slower response
          times during the second half of the year.
               Our blended churn of 1.3% per month and
          postpaid churn of 1.1% per month reflect improvements of 0.1 and 0.2
          percentage points over 2003. This was achieved despite the migration
          to the new billing platform and increased competitive pressures.
               We continue to see ongoing growth prospects
          in the wireless market for 2005, given that Canadian wireless penetration
          still lags behind levels achieved in other countries, such as the United
          States. We expect our wireless revenues will increase due to expected
          continued subscriber and ARPU growth. We anticipate that our recently
          announced price increases for some of our value-added services and increased
          usage of wireless data services such as text and picture messaging,
          as well as web browsing, will stimulate ARPU growth.
        DATA 
        Data revenues decreased 2.1% or
          $77 million to $3,640 million in 2004, compared to 2003, in spite of
          the growth in high-speed Internet services and revenues related to business
          acquisitions. This was because of:
        declines from competitive pricing
            and volume pressures, including wholesale customers migrating traffic
            onto their own networks
          lower revenues related to the
            completion of the mechanical construction of the Government of Alberta
            SuperNet
          our exit from the low-margin
            cabling business
          the completion of the Hydro-Québec
            outsourcing contract.The number of high-speed Internet
          subscribers increased by 350,000 in 2004, resulting in 1,808,000 subscribers
          at December 31, 2004. The subscriber growth achieved this year was similar
          to that of last year, even as competition increased. At the end of 2004,
          we had a total of 743,000 dial-up customers compared to 869,000 last
          year.
               In 2005, we expect revenue erosion in
          our legacy data services as customers migrate to IP, offset by continued
          growth in high-speed Internet services, value-added solutions and acquisitions.
        VIDEO 
        See Segmented Analysis
          Consumer for a discussion of revenues from our video services.  19    Bell Canada 2004
    Financial information   Other
          Income
        Other income includes income
          that we receive from activities that are not part of our business operations,
          such as:
        net gains on investments,
            including gains or losses when we dispose of, write down or reduce
            our ownership in investments
          foreign currency gains (losses)
          interest income on cash and
            cash equivalents
          equity in net earnings (losses)
            from significantly influenced companies
          other miscellaneous income
            or expense.Non-Controlling Interest
        The non-controlling interest
          in the statements of operations reflects the percentage of a subsidiary
          that we do not own multiplied by the amount of the subsidiarys
          after-tax earnings.
        Financial and Capital Management
        This section tells you how we
          manage our cash and capital resources to carry out our strategy and
          deliver financial results. It provides an analysis of our financial
          condition, cash flows and liquidity on a consolidated basis.
        Capital Structure
        Our capital structure shows
          how much of our net assets are financed by debt and equity.
      
      Managements
          Discussion and Analysis
        TERMINAL SALES AND OTHER
        
        Terminal sales and other revenues
          increased 3.1% or $48 million to $1,580 million in 2004, compared to
          2003. This increase reflected:
        higher sales of wireless
            handsets, satellite dishes and receivers
          higher revenues related to
            business acquisitions.OTHER ITEMS
        OTHER INCOMEOther income decreased
          15.7% or $34 million to $183 million in 2004, compared to 2003. The
          decrease was a result of lower foreign currency gains and lower interest
          income. These were partly offset by higher net gains on investments
          and other miscellaneous income.Net gains on investments
          of $117 million in 2004 included:
        a gain of $108 million from
            the sale of our remaining 3.24% interest in YPG in the third quarter,
            for net cash proceeds of $123 million
          net gains on other investments
            of $9 million.Capital loss carryforwards
          fully sheltered the taxes on this gain.
               Net gains on investments of $106 million in
          2003 included:
        a $120 million gain from
            the sale of a 3.66% interest in YPG in the fourth quarter, for net
            cash proceeds of $135 million
          a $14 million loss from the
            write-down of a number of our cost-accounted investments.In April 2003, we entered into
          forward contracts to hedge US$200 million of long-term debt at Bell
          Canada that previously had not been hedged. This removed the foreign
          currency risk on the principal amount of that debt.
               Lower interest income in 2004 was a result
          of lower average cash balances.
        INTEREST EXPENSEInterest expense declined
          8.7% or $82 million to $863 million in 2004, compared to 2003. This
          was a result of a lower average debt level of approximately $860 million
          in 2004, mainly from the positive free cash flows achieved in the last
          two years. The average interest rate on our debt in 2004 and 2003 was
          7.3%.
        INCOME TAXESIncome taxes declined 36%
          or $281 million to $506 million in 2004, compared to 2003. The decline
          was mainly due to:
        lower pre-tax earnings
          no tax on the $108 million
            gain on the sale of YPG due to the availability of capital loss carryforwards
            partly offset by $45 million of restructuring charges that were not
            tax-effected
          the reduction in the statutory
            income tax rate to 34.3% in 2004 from 35.4% in 2003.The decrease was partly offset
          by a reduction of the principal amounts outstanding under the tax loss
          consolidation strategy.
               As a result of these items, the effective
          tax rate was 25.1% in 2004, compared to 25.3% in 2003.
        NON-CONTROLLING INTERESTNon-controlling interest
          credit of $9 million in 2004 represents a $62 million improvement, compared
          to 2003. The improvement was a result of:
        a higher net loss at Bell
            West, mainly due to the loss on the Government of Alberta contract
          lower net earnings at Aliant
            because of the labour disruption and the restructuring charge
          a higher net loss at Bell
            ExpressVu.DISCONTINUED OPERATIONSWe did not have any discontinued
          operations in 2004. The net gain from discontinued operations of $59
          million in 2003 consisted of:
        net gains of $56 million
            on our share of Aliants sales of its emerging business and remote
            communication segments
          our share of operating gains
            from the discontinued businesses of $3 million.EXTRAORDINARY GAINWe purchased the Canadian
          operations of 360networks in the fourth quarter of 2004 for $293 million
          in cash. The fair value of the net assets acquired exceeded the purchase
          price by approximately $227 million. For accounting purposes, the excess
          was eliminated by:
        reducing the amounts assigned
            to the acquired non-monetary assets (e.g., capital and intangible
            assets) to zero
          recognizing the balance of
            $69 million as an extraordinary gain.Financial and Capital Management
        CAPITAL STRUCTURE AT
          DECEMBER 31
      2004
      
      2003Debt
          due within one year
      1,352
      
      1,165Long-term
          debt
      9,166
      
      10,024Less:
          cash and cash equivalents
      (32
      )
      (398
      )Total
          net debt
      10,486
      
      10,791Non-controlling
          interest
      1,235
      
      1,627Total
          shareholders equity
      9,678
      
      9,520Total
          capitalization
      21,399
      
      21,938NET
          DEBT TO CAPITALIZATION
      49.0
      %
      49.2
      % 20    Bell Canada 2004
    Financial information   NET DEBT TO CAPITALIZATION RATIO
        
        Our net debt to capitalization
          ratio was 49.0% at the end of 2004, an improvement from 49.2% at the
          end of 2003. This was a result of improvements in net debt and total
          shareholders equity, which was partly offset by lower non-controlling
          interest.
               Net debt improved by $305 million to $10,486
          million in 2004. This was mainly from:
        $556 million of free cash flow
            in 2004
          $450 million repayment of short-term
            advances made to Bell Globemedia in 2003
          $433 million of capital contribution
            from BCE to effectively compensate us for the proceeds on the sale
            of MTS
          $123 million of net cash proceeds
            from the disposition of our remaining 3.24% interest in YPG.These were partly offset by the
          $1.1 billion invested in business acquisitions in 2004.
               In August of 2004, Bell Canada transferred
          its investment in MTS to BCH by exchanging all of its 355,346,988 common
          shares with a carrying value of $7,602 million held by BCH for 355,346,988
          new common shares with a carrying value of $7,256 million. This resulted
          in a decrease in other long-term assets and common shares of $346 million,
          representing the carrying value of the investment in MTS. The investment
          in MTS was then transferred to BCE. These transactions were carried
          out so BCE could use capital loss carryforwards to shelter the gain
          on the sale of the MTS shares.
               Non-controlling interest declined $392
          million in 2004 due to Bell Canadas purchase of MTS 40%
          interest in Bell West.
               Total shareholders equity increased
          $158 million to $9,678 million in 2004. This was mainly due to the $55
          million of net earnings remaining after the dividends we declared on
          common and preferred shares in 2004.
        Cash Flows We generated free cash
          flow for the year totalling $556 million or $750 million before restructuring
          and other items. Compared to 2003, free cash flow was up $163 million,
          mainly reflecting the $349 million decline in common dividends paid
          partly offset by higher capital expenditures of $134 million.
               We are targeting positive free cash flow
          generation in 2005, mainly from recurring sources. Beyond 2005, we anticipate
          generating higher sustainable free cash flow as we anticipate realizing
          the full benefit from our expected cost savings and reducing capital
          spending levels.
         The table below is a summary
          of the flow of cash into and out of Bell Canada in 2004 and 2003. 2004
      
      2003Cash
          from operating activities
      5,333
      
      5,366Capital
          expenditures
      (3,026
      )
      (2,892
      )Other
          investing activities
      (15
      )
      47Cash
          dividends paid on common shares
      (1,559
      )
      (1,908
      )Cash
          dividends paid on preferred shares
      (60
      )
      (60
      )Cash
          dividends paid by subsidiaries to non-controlling interest
      (117
      )
      (113
      )Interest
          paid on equity-settled notes
      
      
      (47
      )Free
          cash flow
      556
      
      393Business
          acquisitions
      (1,138
      )
      (120
      )Business
          dispositions
      2
      
      55Change
          in investments accounted for 
          under the cost and equity methods
      126
      
      145Change
          in advances made to 
          an affiliated company under common control
      450
      
      (180
      )Capital
          contribution by BCH
      433
      
      3,043Repayment
          of equity-settled notes
      
      
      (2,068
      )Net
          repayment of debt instruments
      (686
      )
      (2,196
      )Financing
          activities of subsidiaries with third parties
      15
      
      2Cash
          provided by discontinued operations
      
      
      321Other
          financing activities
      (124
      )
      (46
      )NET
          DECREASE IN CASH AND CASH EQUIVALENTS
      (366
      )
      (651
      )CASH FROM OPERATING ACTIVITIESCash from operating activities decreased
          0.6% or $33 million to $5,333 million in 2004, compared to 2003. This
          was mainly a result of less favourable changes in working capital that
          were mostly due to:
        cash savings of $363 million
            in 2003 generated by using cash tax strategies to consolidate tax
            losses
          an increase of $127 million
            in restructuring payments in 2004 relating to the employee departure
            program at Bell Canada.These were partly offset by: improved operating performance
            in 2004 as a result of higher EBITDA and lower interest costs 21    Bell Canada 2004
    Financial information   Debt
          Instruments
        We use a combination of long-term
          and short-term debt to finance our operations. Our short-term debt consists
          mostly of bank facilities and notes payable under commercial paper programs.
          We usually pay fixed rates of interest on our long-term debt and floating
          rates on our short-term debt.
      
      Managements
          Discussion and Analysis
        a $75 million settlement payment
            received from MTS in the third quarter of 2004.CAPITAL EXPENDITURESWe continue to make investments
        to expand and update our networks and to meet customer demand for new
        services. Capital expenditures were $3,026 million in 2004,
        or 18.0% of revenues. This
        was 4.6% or $134 million higher than capital expenditures of $2,892 million,
        or 17.4% of revenues, in 2003. The increase reflects a mix of:
        higher spending in the growth
            areas of the business, such as the migration to one national IP-MPLS
            network, our VDSL deployment and DSL footprint expansion strategies,
            and productivity enhancement initiatives
          lower spending in the legacy
            areas.In 2005, we are targeting
          a slightly higher capital intensity ratio to support our continued investments
          in our key strategic priorities of enhancing the customer experience,
          reliable bandwidth and next-generation services. SeeOur
          Strategic Priorities.
        OTHER INVESTING ACTIVITIESWe did not have any significant
          other investing activities in 2004. 
               Cash from other investing activities of $47 million
          in 2003 included $34 million of insurance proceeds that Bell
          ExpressVu received for a power failure on the Nimiq 2 satellite.
        BUSINESS ACQUISITIONSWe invested $1,138 million
          in business acquisitions in 2004. This consisted of:
        our acquisition of MTS
            40% interest in Bell West in the third quarter for $646 million
          our acquisition of the Canadian
            operations of 360networks in the fourth quarter for $293 million
          other business acquisitions
            at Bell Canada and Aliant, totalling $199 million.We invested $120 million
          in business acquisitions in 2003. This consisted mainly of:
        the purchase of BCEs
            51% interests in BCE Nexxia Corporation for a nominal amount
            and Fiberco Telecommunications for $27 million in cash
          Bell Globemedias
            100% interest in Sympatico Inc. for $45 million in cash
          an additional 30% interest
            in Connexim, Limited Partnership in the fourth quarter, which increased
            out total interest to 100%.BUSINESS DISPOSITIONSWe did not have any significant
          business dispositions in 2004. 
               We received $55 million for business dispositions
          in 2003. This related to our sale of our 89.9% ownership interest
          in Certen Inc. in the third quarter. We received $89 million
          in cash, which was reduced by $34 million Certen had in cash and
          cash equivalents at the time of sale.
        CHANGE IN INVESTMENTS ACCOUNTED
          FOR UNDER THE COST AND EQUITY METHODSIn the third quarter of 2004,
          we sold our remaining 3.24% interest in YPG for net cash proceeds of
          $123 million.      In
          the fourth quarter of 2003, we sold a 3.66% interest in YPG for
          net cash proceeds of $135 million.
        CAPITAL CONTRIBUTIONSIn December 2004, $433 million
          was contributed by BCE to effectively compensate us for the proceeds
          on the sale of MTS.      In
          the first and second quarters of 2003, we received capital contributions
          of $3,043 million in cash from BCH.
        EQUITY INSTRUMENTSWe did not have any significant
          issues or redemptions of equity instruments in 2004.      In
          May 2003, we simplified our capital structure and the capital structure
          of our parent company, BCH. We did this by carrying out certain transactions,
          including our repayment of $2,068 million in equity-settled notes
          that were payable to BCH.
        DEBT INSTRUMENTSWe made $686 million in debt
          repayments (net of issues) in 2004:
        Bell Canada repaid $952 million
            in debentures
          Aliant repaid $100 million
            in medium-term notesMost of the issues were at Bell Canada,
          which publicly issued $450 million in debentures.      We
          made $2.2 billion in debt repayments (net of issues) in 2003.
          Bell Canada repaid $1.4 billion in debentures. We also repaid
          $1.2 billion of notes payable and bank advances. The issues were
          mainly at Bell Canada, which issued $600 million in debentures.
          As publicly disclosed by Bell Canada at the time of the issue of
          these debentures, the net proceeds resulting from the issue were used
          by Bell Canada to repay maturing debt and for general corporate
          purposes.      The
          average annual interest rate on our total debt was approximately 7.3%
          in 2004 and 2003.      On
          February 11, 2005, Bell Canada issued $700 million
          in Series M-18 Medium Term Note Debentures having a maturity date
          of February 15, 2017 and afixed interest
          rate of 5.00%. Following the issuance, Bell Canada swapped the
          fixed interest rate to a floating rate. The net proceeds from the issuance
          of the debentures will be used to repay maturing short-term debt and
          for general corporate purposes.
        CASH RELATING TO DISCONTINUED
          OPERATIONSWe did not have any discontinued
          operations in 2004.Cash
          from discontinued operations was $321 million in 2003. This
          consisted mainly of net cash proceeds of $320 million on Aliants
          sale of its 53.2% interest in Stratos. 22    Bell Canada 2004
    Financial information  Credit
        Ratings The interest
          rates we pay are partly based on the quality of our credit ratings,
          which were all investment grade at March 2, 2005. Investment
          grade ratings usually mean that when we borrow money, we qualify for
          lower interest rates than companies that have ratings lower than investment
          grade.
      
      Credit
        Ratings The table below
          lists our key credit ratings at March 2, 2005.S&P(1)
      
      DBRS(2)
      
      MOODYS(3)Commercial paper
      A-1
        (mid)/stable
      
      R-1
        (mid)/stable
      
      P-2
        stableExtendable commercial
          notes
      A-1
        (mid)/stable
      
      R-1
        (mid)/stable
      
      Long-term debt
      A/stable
      
      A
        (high)/stable
      
      A3/stablePreferred shares
      P-2
        (high)/stable
      
      Pfd-2
        (high)/stable
      
       (1)
      Standard & Poors,
        a division of The McGraw-Hill Companies, Inc. (S&P)(2)
      Dominion Bond Rating
        Services Limited (DBRS)(3)
      Moodys Investors
        Service, Inc. (Moodys) Liquidity
        Our plan is to generate enough
          cash from our operating activities to pay for capital expenditures and
          dividends. In other words, we are targeting to have positive free cash
          flow in the short term and in the long term.      We
          expect to repay contractual obligations maturing in 2005 and in
          the long term from cash on hand, from cash generated from our operations
          or by issuing new debt. Contractual obligations include long-term debt.
        CASH REQUIREMENTSIn 2005, we will need
          cash mainly for capital expenditures, dividend payments, the payment
          of contractual obligations and other cash requirements.
        CAPITAL EXPENDITURESWe spent $3.0 billion
          on capital expenditures in 2004, representing 18.0% of our revenues
          for the year. Our target is for capital expenditures to be in the range
          of 18% to 19% of our total revenues in 2005.
        CONTRACTUAL OBLIGATIONSThe table below is a summary
          of our contractual obligations at December 31, 2004 that are due in
          each of the next five years and after 2009.      Long-term
          debt and notes payable and bank advances include $29 million drawn
          under our committed credit facilities. They do not include $295 million
          of letters of credit. The total amount available under these committed
          credit facilities and under our commercial paper programs, including
          the amount currently drawn, is $1,331 million.      The
          imputed interest to be paid on capital leases is $105 million.
          Rental expense relating to operating leases was $353 million in
          2004 and $315 million in 2003.      Our
          commitments for capital expenditures include investments to expand and
          update our networks and to meet customer demand. Other purchase obligations
          consist mainly of contractual obligations under service contracts.      Other
          long-term liabilities included in the table relate to Bell Canadas
          future payments over the remaining life of its contract with Certen
          for the development of Bell Canadas billing system. The total
          amount was $301 million at December 31, 2004.      At
          December 31, 2004, we had other long-term liabilities that are not included
          in the table. They consisted of an accrued employee benefit liability,
          future income tax liabilities, deferred revenue and gains on assets
          and various other long-term liabilities.      We
          did not include the accrued employee benefit liability and future income
          tax liabilities because we cannot accurately determine the timing and
          amount of cash needed for them. This is because:
        future contributions to the
            pension plans depend largely on the results of actuarial valuations
            that are performed periodically and on the investment performance
            of the pension fund assets
          future payments of income taxes
            depend on the amount of taxable earnings and on whether there are
            tax loss carryforwards available to reduce income tax liabilities.We did not include deferred revenue
          and gains on assets because they do not represent future cash payments.
        OTHER CASH REQUIREMENTSOur cash requirements may
          also be affected by the liquidity risks related to our contingencies,
          off-balance sheet arrangements and derivative instruments. We may not
          be able to quantify all of these risks.
        OFF-BALANCE SHEET ARRANGEMENTSGuarantees
          As a regular part of our business, we enter into agreements that provide
          for indemnification and guarantees to counterparties in transactions
          involving business dispositions, AFTER2005
      
      2006
      
      2007
      
      2008
      
      2009
      
      2009
      
      TOTALLong-term
          debt
          (excluding capital leases)
      1,050
      
      512
      
      662
      
      958
      
      1,023
      
      5,715
      
      9,920Notes payable and bank advances
      201
      
      
      
      
      
      
      
      
      
      
      
      201Capital leases
      101
      
      68
      
      57
      
      45
      
      31
      
      95
      
      397Operating leases
      334
      
      244
      
      220
      
      207
      
      192
      
      1,290
      
      2,487Commitments for capital 
          expenditures
      59
      
      51
      
      42
      
      
      
      
      
      
      
      152Other purchase obligations
      536
      
      361
      
      220
      
      179
      
      168
      
      392
      
      1,856Other
          long-term liabilities
          (including current portion)
      47
      
      55
      
      64
      
      61
      
      74
      
      
      
      301TOTAL
      2,328
      
      1,291
      
      1,265
      
      1,450
      
      1,488
      
      7,492
      
      15,314  23    Bell Canada
    2004 Financial information   Managements
          Discussion and Analysis
        sales of assets, sales of services,
          purchases and development of assets, securitization agreements and operating
          leases.
               We cannot reasonably estimate the maximum
          amount we might be required to pay counter parties because of the nature
          of almost all of these indemnifications. As a result, we cannot determine
          how they could affect our future liquidity, capital resources or credit
          risk profile. We have not made any significant payments under these
          indemnifications in the past. See Note 24 to the consolidated financial
          statements for more information.
        Securitization of accounts
          receivable Bell Canada and Aliant have agreements in
          place to provide us with a less expensive form of financing than debt
          financing.  Under
          the agreements, Bell Canada and Aliant sold interests in pools
          of accounts receivable to securitization trusts for a total of $1,125 million.
               The total accounts receivable that were
          sold must meet minimum performance targets. These are based on specific
          delinquency, default and receivable turnover ratio calculations, as
          well as minimum credit ratings. If these accounts receivable go into
          default, the full purchase price will have to be returned to the buyers.
               These agreements are an important part
          of our capital structure and liquidity. If we did not have them, we
          would have had to finance approximately $1,125 million by issuing
          debt or equity. See Note 9 to the consolidated financial statements
          for more information.
        DERIVATIVE INSTRUMENTSWe use derivative instruments
          to manage our exposure to interest rate risk, foreign currency risk
          and changes in the price of BCE common shares. We do not use derivative
          instruments for speculative purposes. Since we do not trade actively
          in derivative instruments, we are not exposed to any significant liquidity
          risks relating to them.      The
          carrying value of the outstanding derivative instruments was a net liability
          of $101 million at December 31, 2004. Their fair values amounted
          to a net liability of $132 million. See Note 18 to the consolidated
          financial statements for more information.
        LITIGATIONWe become involved in various
          claims and litigation as a part of our business. While we cannot predict
          the final outcome of claims and litigation that were pending at December
          31, 2004, based on information currently available, management believes
          that these claims and litigation will not have a material and negative
          effect on our consolidated financial position or results of operation.      You
          will find a more detailed description of the material claims and litigation
          pending at December 31, 2004 in the Bell Canada 2004 AIF.
        COMMITMENT UNDER THE DEFERRAL
          ACCOUNTThe deferral account is a
          mechanism resulting from the CRTCs second price cap decision of
          May 2002, which requires us to fund initiatives such as service
          improvements, reduced customer rates and/or customer rebates. We estimate
          our commitment under the deferral account to be approximately $202 million
          at December 31, 2004. We expect to clear most of this amount in 2005
          by implementing various initiatives.
        PROVISION FOR CONTRACT LOSSIn 2001, we entered into
          a contract with the Government of Alberta to build a next-generation
          network to bring high-speed Internet and broadband capabilities to rural
          communities in Alberta. Mechanical construction of the network was completed
          in December 2004. We identified cost overruns on the construction contract
          and recorded an additional provision of $128 million in 2004. Acceptance
          of the network by the Government of Alberta was initially due by January 24, 2005.
          Based on discussions with the Government of Alberta, Bell Canada has
          agreed to have the network completed and accepted by the Government
          of Alberta by the end of September 2005. There is a risk that we could
          incur higher than currently anticipated costs in completing the acceptance
          of the network by the Government of Alberta.
        SOURCES OF LIQUIDITYWhile we do not expect
          a cash shortfall in the foreseeable future, we expect to cover any shortfall
          through the financing facilities we currently have in place.
               These financing facilities, along with
          our strengthening balance sheet, give us flexibility in carrying out
          our plans for future growth. If necessary, we can supplement our liquidity
          sources by issuing additional debt or equity, or by selling non-core
          assets. We might do this to help finance business acquisitions or for
          contingencies.
               The table below is a summary of our outstanding
          lines of credit, bank facilities and commercial paper programs at December
          31, 2004. NON-COMMITTED
      
      COMMITTED
      
      TOTALCommercial
          paper credit lines
      960
      
      900
      
      1,860Other credit facilities
      371
      
      321
      
      692TOTAL
      1,331
      
      1,221
      
      2,552Drawn
      324
      
      
      
      324Undrawn
      1,007
      
      1,221
      
      2,228Bell Canada
        and Aliant may issue notes under their commercial paper programs up to
        the amount of their supporting committed lines of credit. The total amount
        of these supporting committed lines of credit available (net of letters
        of credit) was $960 million at December 31, 2004.      Bell Canada
        and Aliant had $135 million in commercial paper outstanding at December
        31, 2004.      Bell Canada
        can issue up to $400 million of Class E notes under its commercial
        paper programs. These notes are not supported by committed lines of credit
        and may be extended in certain circumstances. Bell Canada had no
        Class E notes outstanding at December 31, 2004.      The
        drawn portion of our total credit facilities includes $295 million
        in letters of credit under our committed facilities.  24    Bell Canada
    2004 Financial information   Risks
          that Could Affect Our Business
        This section describes general
          risks that could affect us.
          A risk is the possibility that an event might happen in the future that
          could have a negative effect on our financial condition, results of
          operations or business. Part of managing our business is to understand
          what these potential risks could be and to minimize them where we can.
          Because no one can predict whether an event will happen or what its
          consequences may be, the actual effect of any event on our business
          could be materially different from what we currently anticipate. In
          addition, this description of risks does not include all possible risks,
          and there may be other risks of which we are currently not aware.
      
      Risks
          that Could Affect Our Business
        Strategies and Plans
        We plan to achieve our business
          objectives through various strategies and plans.
               In
          2004, we embarked on our strategy to deliver unrivalled integrated communications
          to customers across Canada, with an overall objective to take a leadership
          position in setting the standard in IP for the industry and for our
          customers. Leveraging the opportunities created by IP-based communications
          should allow us to deliver on the guiding principles of our strategy
          of customer simplification, innovation and efficiency. This strategy
          is founded on three priorities:
        deliver an enhanced customer
            experience with the objective of enabling a significantly lower cost
            structure at Bell Canada
          deliver abundant bandwidth
            to enable all the services of the future with the reliability and
            security that customers require
          create the next-generation
            services to drive future growth.Our strategic direction involves
          significant changes in our processes, in how we approach our markets,
          and in how we develop and deliver products and services. This means
          we will need to be responsive in adapting to these changes. It also
          means that a shift in employee skills will be necessary.      We
          will need to spend capital to implement our strategies and to carry
          out our plans. However, the actual amounts of capital required and the
          actual returns from these investments could differ materially from our
          current expectations.      If
          we are unable to achieve our business objectives, our financial performance,
          including our growth prospects, could be hurt. This could have a material
          and negative effect on our results of operations.
        Economic and Market Conditions
        Our business is affected by general
          economic conditions, consumer confidence and spending, and the demand
          for, and prices of, our products and services. When there is a decline
          in economic growth and in retail and commercial activity, there tends
          to be a lower demand for our products and services. During these periods,
          customers may delay buying our products and services, or reduce or discontinue
          using them.      Weak
          economic conditions may negatively affect our profitability and cash
          flows from operations. They could also negatively affect the financial
          condition and credit risk of our customers, which could increase uncertainty
          about our ability to collect receivables and potentially increase our
          bad debt expenses.
        Increasing Competition
        We face intense competition from
          traditional competitors, as well as from new entrants to the markets
          in which we operate. We compete not only with other telecommunications
          and television service providers, but also with other businesses and
          industries. These include cable, software and Internet companies, a
          variety of companies that offer network services, such as providers
          of business information systems, system integrators and other companies
          that deal with, or have access to, customers through various communications
          networks.      Many
          of our competitors have substantial financial, marketing, personnel
          and technological resources. Other competitors may emerge from restructurings
          in the future with reduced debt and a stronger financial position. This
          means that they could have more financialflexibility
          to price their products and services at competitive rates.      Competition
          affects our pricing strategies and reduces our revenues and profitability.
          It could also affect our ability to retain existing customers and attract
          new ones. Competition puts us under constant pressure to keep our prices
          competitive. It forces us to continue to reduce costs, manage expenses
          and increase productivity. This means that we need to be able to anticipate
          and respond quickly to the constant changes in our businesses and markets.      We
          already have several domestic and foreign competitors, but the number
          of well resourced foreign competitors with a presence in Canada could
          increase in the future. Over the past two years, the Governement of
          Canada has reviewed the foreign ownership restrictions that apply to
          telecommunications carriers and to broadcasting distribution undertakings
          (BDUs). Removing or easing the limits on foreign ownership could result
          in foreign companies entering the Canadian market by making acquisitions
          or investments. This could result in greater access to capital for our
          competitors or the arrival of new competitors with global scale, which
          would increase competitive pressure. It is impossible to predict the
          outcome of the governments review or to assess how any change
          in foreign ownership restrictions may affect us because the government
          has not completed its review of these matters.
        WIRELINE AND LONG DISTANCEWe experience significant
          competition in the provision of long distance service from dial-around
          providers, prepaid card providers, VoIP service providers and others,
          and from traditional competitors such as inter-exchange carriers and
          resellers. We also face increasing cross-platform competition as customers
          replace traditional services with new technologies. For example, our
          wireline business competes with VoIP, wireless and Internet services,
          including chat services, instant messaging and e-mail. We also expect
          to face competitive pressure from cable companies as they implement
          voice services over their networks and from other emerging competitors
          such as electrical utilities. These alternative technologies, products
          and services are now making significant inroads in our legacy services,
          which typically represent our higher margin business.      Technology
          substitution, and VoIP in particular, has reduced barriers to entry
          in the industry. This has allowed competitors with far lower investments
          in financial, marketing, personnel and technological resources to rapidly
          launch new products and services and gain market share. This trend is
          expected to accelerate in the future, which could materially and negatively
          affect our financial performance.      Contracts
          for long distance services to large business customers are very competitive.
          Customers may choose to switch to competitors that offer lower prices
          to gain market share and 25    Bell Canada
    2004 Financial information   Anticipating Technological
          Change
        We operate in markets that are
          experiencing constant technological change, evolving industry standards,
          changing client needs, frequent introductions of new products and services,
          and short product life cycles.
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Liquidity
        Our ability to generate cash and
          to maintain capacity to meet our financial obligations and provide for
          planned growth depends on our sources of liquidity.      Our
          cash requirements may be affected by the risks associated with our contingencies,
          off-balance sheet arrangements, derivative instruments and assumptions
          built in our business plan.
      
      Managements
          Discussion and Analysis
        that are less concerned about
          the quality of service or impact on their earnings.     These
          competitive factors suggest that our wireline accesses and long distance
          volumes will continue to decline in the future. Continued decline will
          lead to reduced economies of scale in those businesses and, in turn,
          lower margins. Our strategy is to mitigate these declines by building
          the business for newer growth services, but the margins on newer services
          will likely be less than the margins on legacy services. If the legacy
          services decline faster than the rate of growth of our newer services,
          our financial performance will be negatively and materially affected.
        INTERNET ACCESSCable companies and independent
          Internet service providers (ISPs) have increased competition in the
          broadband and Internet access services business. In particular, competition
          from cable companies has focused on increased bandwidth and discounted
          pricing on bundles. Competition has led to pricing for Internet access
          in Canada that is among the lowest in the world.      In
          addition, service providers that are funded by regional electrical utilities
          may continue to develop and market services that compete directly with
          Bell Canadas Internet access and broadband services. Developments
          in wireless broadband services may also result in increased competition
          in certain geographic areas. This could materially and negatively affect
          the financial performance of our Internet access services business.
        WIRELESSThe Canadian wireless telecommunications
          industry is also highly competitive. We compete directly with other
          wireless service providers that aggressively introduce, price and market
          their products and services and with wireline service providers. We
          expect competition to intensify as new technologies, products and services
          are developed.
        VIDEOBell ExpressVu competes
          directly with another DTH satellite television provider and with cable
          companies across Canada. These cable companies have upgraded their networks,
          operational systems and services, which could improve their competitiveness.
          This could materially and negatively affect the financial performance
          of Bell ExpressVu.
        Improving Productivity and Containing
          Capital Intensity
        We continue to implement several
          productivity improvements while containing our capital intensity. There
          will be a material and negative effect on our profitability if we do
          not continue to successfully implement these productivity improvements,
          reduce costs and manage capital intensity while maintaining the quality
          of our service. For example, each year between 2002 and 2004, we
          were required to reduce the price of certain of our services that are
          subject to regulatory price caps and may be required to do so again
          in 2005. In addition, we have reduced our prices in some business
          data services that are not regulated in order to remain competitive
          and we may have to continue doing so in the future. Our profits will
          decline if we cannot lower our expenses at the same rate. There would
          also be a material and negative effect on our profitability if market
          factors or other regulatory actions result in lower revenues and we
          cannot reduce our expenses at the same rate.      Many
          productivity improvements require capital expenditures to implement
          systems that automate or assist in our operations. There is no assurance
          that these investments will be effective in delivering the planned productivity
          improvements.
        Anticipating Technological Change
        Our success will depend in large
          part on how well we can anticipate and respond to changes in industry
          standards and client needs, and how quickly and efficiently we can introduce
          new products, services and technologies and upgrade existing ones.      We
          may face additional financial risks as we develop new products, services
          and technologies, and update our networks to stay competitive. Newer
          technologies, for example, may quickly become obsolete or may need more
          capital than expected. Development could be delayed for reasons beyond
          our control. Substantial investments usually need to be made before
          new technologies prove to be commercially viable. There is also a significant
          risk that current regulation could be expanded to apply to newer technologies.
          A regulatory change could delay our launch of new services and restrict
          our ability to market these services if, for example, new pricing rules
          or marketing or bundling restrictions were introduced or existing ones
          extended.      We
          are in the process of moving our core circuit-based infrastructure to
          IP technology. As part of this move, we also plan to discontinue certain
          services that are based on circuit-based infrastructure. In some cases,
          this could be delayed or prevented by customers or regulatory actions.
          If we cannot discontinue these services as planned, we will not be able
          to achieve improvements as expected.      There
          is no assurance that we will be successful in developing, implementing
          and marketing new technologies, products, services or enhancements in
          a reasonable time, or that they will have a market. There is also no
          assurance that efficiencies will increase as expected. New products
          or services that use new or evolving technologies could make our existing
          ones unmarketable or cause their prices to fall.
        Liquidity
        In general, we finance our capital
          needs in four ways:
        from cash generated by our
            operations or investments
          by borrowing from commercial
            banks
          through debt and equity offerings
            in the capital markets
          by selling or otherwise disposing
            of assets.An increased level of debt financing
          could lower our credit ratings, increase our borrowing costs and give
          us less flexibility to take advantage of business opportunities.      Our
          ability to raise financing depends on our ability to access the capital
          markets and the syndicated commercial loan market. The cost of funding
          depends largely on market conditions, and the outlook for our business
          and credit ratings  26    Bell Canada
    2004 Financial information   at
          the time capital is raised. If our credit ratings are downgraded, our
          cost of funding could significantly increase. In addition, participants
          in the capital and syndicated commercial loan markets have internal
          policies limiting their ability to invest in, or extend credit to, any
          single borrower or group of borrowers or to a particular industry.      Bell Canada
          and some of its subsidiaries have entered into renewable credit facilities
          with various financial institutions. They include facilities serving
          as backup facilities for issuing commercial paper. There is no assurance
          that these facilities will be renewed on favourable terms.      We
          need significant amounts of cash to implement our business plan. This
          includes cash for capital expenditures to provide our services, dividend
          payments and payment of our contractual obligations, including repayment
          of our outstanding debt.      Our
          plan in 2005 is to generate enough cash from our operating activities
          to pay for capital expenditures and dividends. We expect to pay contractual
          obligations maturing in 2005 from cash on hand, from cash generated
          from our operations or by issuing debt. If actual results are different
          from our business plan or if the assumptions in our business plan change,
          we may have to raise more funds than expected by issuing debt or equity,
          borrowing from banks or selling or otherwise disposing of assets.      If
          we cannot raise the capital we need upon acceptable terms, we may have
          to:
        limit our ongoing capital expenditures
          limit our investment in new
            businesses
          try to raise additional capital
            by selling or otherwise disposing of assets.Any of these possibilities could
          have a material and negative effect on our cash flow from operations
          and growth prospects.
        Making Acquisitions
        Our growth strategy includes making
          strategic acquisitions and entering into joint ventures. There is no
          assurance that we will find suitable companies to acquire or to partner
          with, or that we will have the financial resources needed to complete
          any acquisition or to enter into any joint venture. There could also
          be difficulties in integrating the operations of acquired companies
          with our existing operations or in operating joint ventures.
        Litigation, Regulatory Matters
          and Changes in Laws
        Pending or future litigation,
          regulatory initiatives or regulatory proceedings could have a material
          and negative effect on our businesses, operating results and financial
          condition. Changes in laws or regulations or in how they are interpreted,
          and the adoption of new laws or regulations (including changes in, or
          the adoption of, new tax laws that result in higher tax rates or new
          taxes) could also materially and negatively affect us.      Please
          see the Bell Canada 2004 AIF for a detailed description of:
        the principal legal proceedings
            involving us
          certain regulatory initiatives
            and proceedings affecting us.Please
          also seeChanges to Wireline
          Regulationin this MD&A
          for a description of certain regulatory initiatives and proceedings
          that could affect us.
        Funding and Control of Subsidiaries
        Bell Canada is currently
          funding, directly or indirectly, and may in the future continue to fund,
          the operating losses of some of its subsidiaries, but it is under no
          obligation to continue doing so. If Bell Canada decides to stop
          funding any of its subsidiaries and that subsidiary does not have other
          sources of funding, this would have a material and negative effect on
          the subsidiarys results of operations and financial condition
          and on the value of its securities.      In
          addition, Bell Canada does not have to remain the majority holder
          of, or maintain its current level or nature of ownership in, any subsidiary,
          unless it has agreed otherwise. The announcement of a decision by Bell Canada
          to change the nature of its investment in a subsidiary, to dispose of
          some or all of its interest in a subsidiary or any other similar decision
          could have a material and negative effect on the subsidiarys results
          of operations and financial condition and on the value of its securities.      If
          Bell Canada stops funding a subsidiary, changes the nature of its
          investment or disposes of all or part of its interest in a subsidiary,
          stakeholders or creditors of the subsidiary might decide to take legal
          action against Bell Canada. While we believe that these kinds of
          claims have no legal foundation, they could negatively affect the market
          price of Bell Canadas securities. Bell Canada could
          also have to devote considerable management time and resources in responding
          to any such claim.
        Pension Fund Contributions
        Most of our pension plans had
          pension fund surpluses as of our most recent actuarial valuation. As
          a result, we have not had to make regular contributions to the pension
          funds in the past few years.      The
          decline in the capital markets in 2001 and 2002, combined with
          historically low interest rates and early retirement programs recently
          offered to employees, have significantly reduced
          the pension fund surpluses. This has negatively affected our net earnings.      If
          returns on pension plan assets decline in the future or if interest
          rates decline further, the surpluses will also continue to decline.
          This could have a material and negative effect on our results of operations. 
               We expect to contribute approximately $200
          million to our defined benefit pension plans in 2005, subject to the
          completion of actuarial valuations. Following the completion of such
          actuarial valuations, we might have to make contributions to our defined
          benefit pension plans in 2005, in excess  27    Bell Canada
    2004 Financial information   Renegotiating Labour AgreementsApproximately 48% of our employees are represented by unions and
          are covered by collective agreements.
      
      Managements
          Discussion and Analysis
        of the expected amount of approximately
          $200 million, which could have a negative effect on our liquidity.
        Renegotiating Labour Agreements
        The following important collective
          agreement expires on or before December 31, 2005:
        the collective agreement between
            the Canadian Telecommunications Employees Association (CTEA)
            and Bell Canada representing approximately 10,000 clerical and associated
            employees, which expires on May 31, 2005. Negotiations have
            began in March 2005.Renegotiating collective agreements
          could result in higher labour costs and work disruptions, including
          work stoppages or work slowdowns. Difficulties in renegotiations or
          other labour unrest could significantly hurt our businesses, operating
          results and financial condition. We have established a program to implement
          a number of measures to help minimize disruptions and seek to ensure
          that customers continue to receive normal service during labour disruptions.
          There can be no assurance that a strike, if one occurs, would not disrupt
          service to our customers. In addition, work disruptions at our service
          providers, including work slowdowns and work stoppages due to strikes,
          could significantly hurt our business, including our customer relationships
          and results of operations.
        Events Affecting Our Networks
        Network failures could materially
          hurt our business, including our customer relationships and operating
          results. Our operations depend on how well we protect our networks,
          equipment, applications and the information stored in our data centres
          against damage from fire, natural disaster, power loss, hacking, computer
          viruses, disabling devices, acts of war or terrorism, and other events.
          Our operations also depend on the timely replacement and maintenance
          of our networks and equipment. Any of these events could cause our operations
          to be shut down indefinitely.
               Our networks are connected with the networks
          of other telecommunications carriers, and we rely on them to deliver
          some of our services. Any of the events mentioned in the previous paragraph,
          as well as strikes or other work disruptions, bankruptcies, technical
          difficulties or other events affecting the networks of these other carriers,
          could also hurt our business, including our customer relationships and
          operating results.
        Software and system upgrades
        Many aspects of the BCE group
          companies businesses including, but not limited to, the provision
          of telecommunication services and customer billing, depend to a large
          extent on various IT systems and software, which must be improved and
          upgraded on a regular basis and replaced from time to time. The implementation
          of system and software upgrades and conversions is a very complex process,
          which may have several adverse consequences including billing errors
          and delays in customer service. Any of these events could significantly
          hurt our customer relationships and businesses and have a material and
          adverse effect on our results of operations.
        Contract with the Government of
          Alberta
        In 2001, we entered into a contract
          with the Government of Alberta to build a next-generation network to
          bring high-speed Internet and broadband capabilities to rural communities
          in Alberta. Mechanical construction of the network was completed in
          December 2004. We identified cost overruns on the construction
          contract and recorded an additional provision of $128 million in
          2004. Acceptance of the network by the Government of Alberta was initially
          due by January 24, 2005. Based on discussions with the Government
          of Alberta, Bell Canada has agreed to have the network completed and
          accepted by the Government of Alberta by the end of September 2005.
          There is a risk that we could incur higher than currently anticipated
          costs in completing the acceptance of the network by the Government
          of Alberta.
        Changes to Wireline Regulation
        DECISIONS OF REGULATORY AGENCIESOur business is affected
          by decisions made by various regulatory agencies, including the CRTC.
          For example, many of the decisions of the CRTC try to balance requests
          from competitors for access to facilities, such as the telecommunications
          networks, switching and transmission facilities, and other network infrastructure
          of incumbent telephone companies, with the rights of the incumbent telephone
          companies to compete reasonably freely. There is a risk that such decisions
          of the CRTC, and in particular the decisions dealing with prices at
          which we must provide such access, may adversely affect our business
          and results of operations.
        SECOND PRICE CAP DECISIONIn May 2002, the CRTC
          issued decisions relating to new price cap rules that will govern incumbent
          telephone companies for a four-year period starting in June 2002.
          These decisions:
        set a 3.5% productivity factor
            on many capped services, which may require us to reduce prices for
            these services
          extended price cap regulation
            to more services
          reduced the prices that incumbent
            telephone companies can charge competitors for services
          set procedures for enforcing
            standards of service quality
          effectively froze rates for
            residential services.The CRTC also established a
          deferral account and, on March 24, 2004, initiated a public
          proceeding inviting proposals on the disposition of the amounts accumulated
          in the accounts of the incumbent telephone companies during the first
          two years of the price cap period.
               The total balance in Bell Canadas
          and Aliants deferral accounts at December 31, 2004 was
          estimated to be approximately $202 million.
               On May 19, 2004, Bell Canada
          filed its proposal, as part of the public proceeding initiated by the
          CRTC on March 24, 2004, asking for approval to use some of
          the funds in its deferral account to implement the following initiatives:  28 Bell Canada 2004 Financial
    information   Competitor
          Digital Network Service
          The CRTC released Decision 2005-6 on February 3, 2005,
          regarding Competitor Digital Network (CDN) services. This decision determined
          the rates, terms and conditions for the provision of digital network
          services by Bell Canada and the other incumbent telephone companies
          to their competitors.
      
      expand its broadband services
            to certain areas that are not economically viable to serve under its
            commercial broadband program
          reduce rates for some of its
            optional local services
          implement network upgrades
            required to support Bell Canadas High Probability of Call Completion
            feature. This feature would give designated calls on the Bell Canada
            network a higher probability of completion under normal network loads
            and when the Public Switched Telephone Network (PSTN) is busy and
            experiencing call blocking conditions.On January 28, 2005,
          Aliant filed its proposal for the disposition of any amounts in its
          deferral account. Its proposal included:
        funding of rate reductions
            in response to competitive pressures
          recovery of funds used to deploy
            telecommunications devices for the deaf for payphones pursuant to
            a CRTC directive
          funding E9-1-1 enhancements
            in Atlantic Canada
          recovery of costs and lost
            revenue resulting from a number of events that were beyond its control.It is expected that this proceeding
          will close in the second half of 2005.
               If the CRTC does not approve these proposals,
          there is a risk that the funds in Bell Canadas and Aliants
          deferral accounts could be used in a way that could have a negative
          financial effect on them.
        COMPETITOR DIGITAL NETWORK SERVICEThe CRTC’s decision
          concerning CDN services includes many changes that will affect both
          Bell Canada and Aliant as providers of CDN services in their respective
          operating territories and as a buyers of those services elsewhere in
          Canada. The CRTC has determined that the scope of CDN services should
          be broadened from access elements only to also include intra-exchange
          facilities, inter-exchange facilities in certain metropolitan areas,
          channelization and co-location links (expanded CDN services). However,
          other than for the access and link components, the CRTC determined that
          these expanded CDN services should not be priced as essential facilities
          but will be priced to include appropriate mark-ups so as
          to encourage competitors to construct their own facilities.
               There are two important financial aspects
          to note in this decision. First, the reduced prices for the expanded
          CDN services are to be applied on a going-forward basis only, and Bell Canada
          will be compensated for the resulting revenue losses from the deferral
          account. Secondly, Bell Canada will also be compensated through
          the deferral account, for both the retroactive and the future application
          of reduced rates for the CDN services currently tariffed. The incumbent
          telephone companies are required to file the estimated draw-down from
          the deferral account with the CRTC within 30 days of this decision.
        RETAIL QUALITY OF SERVICE INDICATORSAs part of the second
          price cap decision, incumbent telephone companies are also subject
          to an interim penalty mechanism for retail quality of service. Under
          this mechanism, these companies could pay a penalty of up to 5% of their
          annual revenues from total local retail, business and residential services
          that are regulated. For Bell Canada, the potential penalty amount
          could be as much as approximately $262 million annually.
               The interim penalty mechanism covers 13
          retail quality of-service-indicators. If a company does not meet the
          CRTCs average annual standard for any of these indicators, the
          penalty could range from $5 million to $20 million for each
          indicator that is not met on an annual average basis. The amount of
          penalty payable would be based on how much the actual results for each
          indicator deviated from the CRTC standard.
               This mechanism is currently under review
          in the proceeding initiated by Public Notice 2003-3, Retail
          quality of service rate adjustment plan and related issues,and
          a decision has not yet been made. Based on actual results year-to-date,
          we do not expect Bell Canada to face any penalties for the penalty
          period of July 1, 2004 to June 30, 2005.
        DECISION ON INCUMBENT AFFILIATESOn December 12, 2002,
          the CRTC released its decision on incumbent affiliates, which requires
          Bell Canada and its carrier affiliates to receive CRTC approval
          on contracts that bundle tariffed and non-tariffed products and services.
          This means that:
        all existing contracts that
            bundle tariffed and non-tariffed products and services must be filed
            with the CRTC for approval
          all new contracts that bundle
            tariffed and non-tariffed products and services must receive CRTC
            approval before they are carried out
          carrier affiliates must meet
            the same approval requirements as Bell Canada on products and
            services they offer in Bell Canadas operating territory.On September 23, 2003,
          the CRTC issued a decision that requires Bell Canada and its carrier
          affiliates to include a detailed description of the bundled services
          they provide to customers when they file tariffs with the CRTC. The
          customers name will be kept confidential, but the pricing and
          service arrangements it has with us will be available on the public
          record.
               This decision increased the regulatory
          burden for Bell Canada and its carrier affiliates at both the wholesale
          and retail levels. It could also cause some of their large customers
          to choose another preferred supplier, which could have a material and
          negative effect on their results of operations. Bell Canadas
          appeal of this decision to the Federal Court of Canada was dismissed
          on September 14, 2004. As a result, Bell Canada has submitted
          tariffs for CRTC approval for those contracts with bundles that have
          not yet expired in order to provide more detailed descriptions of the
          bundled services.  29    Bell Canada 2004
    Financial information   Licences and Changes to Wireless
          Regulation
        Companies must have a spectrum
          licence to operate cellular, PCS and other radio-telecommunications
          systems in Canada. The Minister of Industry awards spectrum licences,
          through a variety of methods, at his or her discretion under the
          Radiocommunication Act.
      
      Managements
          Discussion and Analysis
        ALLSTREAM AND CALL-NET APPLICATION
          CONCERNING CUSTOMER-SPECIFIC ARRANGEMENTSOn January 23, 2004,
          Allstream Corp. (Allstream) and Call-Net Enterprises Inc. (Call-Net)
          filed a joint application asking the CRTC to order Bell Canada
          to stop providing service under any customer-specific arrangements that
          are currently filed with the CRTC and are not yet approved.
               Allstream and Call-Net have proposed that
          Bell Canada should only provide services to these customers under
          its general tariff.
               Bell Canada provided its comments
          opposing all aspects of this application. If the CRTC grants it, Bell Canada
          will be required to cancel contracts with many of its enterprise customers
          and, in some cases, to reprice services. This could have a material
          and negative effect on Bell Canadas ability to offer new
          services to the large business customer market on competitive terms
          and conditions.
        PUBLIC NOTICE ON CHANGES TO MINIMUM
          PRICESOn October 23, 2003, the CRTC issued a public notice asking
          for comments on its preliminary view that revised rules may be needed
          for setting minimum prices for the regulated services of incumbent telephone
          companies and for how they price their services, service bundles and
          customer contracts. The CRTC sought comments on proposed pricing restrictions
          on volume or term contracts for retail tariffed services. It issued
          an amended public notice on December 8, 2003. The record of
          this proceeding was completed with the filing of arguments on June 11, 2004
          and reply arguments on June 25, 2004.
               If the CRTC determines the proposals are
          to be implemented as proposed, we will be required to increase the minimum
          prices we charge for regulated services. This would negatively limit
          our ability to compete.
        APPLICATION SEEKING CONSISTENT
          REGULATIONOn November 6, 2003, Bell Canada filed an application
          requesting that the CRTC start a public hearing to review how similar
          services offered by cable companies and telephone companies are regulated.
          This would allow consistent rules to be developed that recognize and
          support the growing competition between these sectors. Bell Canada
          also requested that this proceeding address any rules that might be
          needed to govern VoIP services provided by cable companies and others.
               On April 7, 2004, the CRTC invited
          comments on its preliminary views on the regulation of VoIP services
          and invited interested parties to participate in a public consultation
          on the regulatory framework for VoIP. The CRTCs preliminary view
          is that VoIP services using telephone numbers that conform to the North
          American Numbering Plan (NANP) and allow subscribers to make or receive
          calls from any telephone with access to the PSTN are functionally the
          same as switched telecommunications services. The CRTCs preliminary
          conclusion is that when incumbent telephone companies provide VoIP services
          in their incumbent territories, they should be required to respect their
          existing tariffs or to file proposed tariffs where required, in order
          to conform with the regulatory rules that apply. The CRTC also provided
          preliminary views on 9-1-1 services, message relay service and privacy
          safeguards provided by local VoIP service providers. Bell Canada
          provided its comments to the CRTC on June 18, 2004. The CRTC
          held the public consultation on the regulatory framework for VoIP from
          September 21 to 23, 2004. Bell Canada filed reply comments
          on October 13, 2004.
               A decision is expected in the second quarter
          of 2005. There is a risk that the CRTC might decide to regulate
          VoIP services provided by us and other incumbent telephone companies
          but not the VoIP services provided by certain other competitors, cable
          companies in particular. These proceedings could determine the rules
          for competition with other service providers and limit our ability to
          compete in the future.
               The CRTC has included a Proceeding
          on Regulatory Symmetry in its 20052006 Work Plan. If
          cable companies and the incumbent telephone companies are subject to
          different regulations for similar services, and specifically for similar
          bundles of services, the incumbent telephone companies would be at a
          competitive disadvantage which could have a material and negative effect
          on their revenues and profitability.
        Licences for Broadcasting
        On November 18, 2004,
          the CRTC issued Broadcasting Decision CRTC 2004-496, which approved
          Bell Canadas applications for licences to operate terrestrial
          broadcasting distribution undertakings, using its wireline facilities,
          to serve large cities in Southern Ontario and Québec. Bell Canada
          will be licensed under the same terms and conditions that apply to major
          cable operators, without any delays or other conditions that would negatively
          affect its ability to compete with them. The licences will be issued
          once Bell Canada informs the CRTC that it is ready to commence
          operations and will expire on August 31, 2011. Bell Canada
          is required to have the terrestrial broadcasting distribution undertakings
          operational no later than November 18, 2006, unless an extension
          of time is approved by the CRTC.
        Licences and Changes to Wireless
          Regulation
        As a result of an Industry
          Canada decision, the cellular and PCS licences of Bell Mobility Inc.,
          and of Aliant Telecom Inc. and MT&T Mobility Inc. (two
          subsidiaries of Aliant), which would have expired on March 31,
          2006, will now expire in 2011. The PCS licences that were awarded in
          the 2001 PCS auction will expire on November 29, 2011. As a result,
          these cellular and PCS licences are now classified as spectrum licences
          with a 10-year licence term. While we expect that they will be renewed
          at term, there is no assurance that this will happen. Industry Canada
          can revoke a companys licence at any time if the company does
          not comply with the licences conditions. While we believe that
          we comply with the conditions of our licences, there is no assurance
          that Industry Canada will agree. Should there be a disagreement, this
          could have a material and negative effect on us.
               In October 2001, the Minister of
          Industry announced plans for a national review of Industry Canadas
          procedures for approving and placing wireless and radio towers in Canada,
          including a review of the role of municipal authorities in the approval
          process. If the consultation process results in more  30    Bell Canada 2004
    Financial information   municipal involvement in
          the approval process, there is a risk that it could significantly slow
          the expansion of wireless networks in Canada. This could have a material
          and negative effect on our operations. The final report from the National
          Antenna Tower Policy Review Committee was filed with Industry Canada
          in September 2004. Industry Canada is now reviewing the report
          and considering what next steps, if any, it will take, after which it
          may invite comments from interested parties, including the wireless
          carriers, on the report and its recommendations. It is not possible
          to predict at this time if or when any action might be taken on the
          findings of the report.
        Revenue from Major Customers
        A significant amount of revenue
          earned by our Enterprise unit comes from a small number of major customers.
          If we lose contracts with these major customers and cannot replace them,
          it could have a material and negative effect on our financial results.
        Voluntary Departure Programs
        In 2004, we announced an
          early retirement program and early departure program for our employees.
          We estimate annual savings of approximately $390 million relating
          to these programs because of lower salaries, bonuses and non-pension
          benefits. There is a risk that the amount we expect to save each year
          from these programs will be lower than expected if, for example, we
          incur outsourcing, replacement and other costs.
        Competition Bureaus Investigation
          Concerning System Access Fees
        On December 9, 2004,
          Bell Canada was notified by the Competition Bureau that the Commissioner
          of Competition had initiated an inquiry under the misleading advertising
          provisions of theCompetition
          Actconcerning Bell Mobilitys description
          or representation of system access fees (SAFs) and was served with a
          court order, under section 11 of theCompetition
          Act, compelling Bell Mobility to produce
          certain records and other information that would be relevant to the
          Competition Bureaus investigation.      SAFs
          are charged on a monthly basis to Bell Mobility cellular subscribers
          to assist Bell Mobility to recover certain costs associated with
          its mobile communications network. These costs include maintenance costs,
          the installation of new equipment, retrofitting of new technologies
          and fees for spectrum licences. These costs also include the recovery
          of the contribution tax charged by the CRTC to support telephone services
          in rural and remote areas of Canada.      Bell Mobility
          may be subject to financial penalties by way of fines, administrative
          monetary penalties, and /or demands for restitution of a portion of
          the SAFs charged to cellular subscribers if it is found to have contravened
          the misleading advertising provisions of theCompetition
          Act.
        Increased Accidents from Using
          Cellphones
        Some studies suggest that using
          handheld cellphones while driving may result in more accidents. It is
          possible that this could lead to new regulations or legislation banning
          the use of handheld cellphones while driving, as it has in Newfoundland
          and Labrador and in several U.S. states. If this happens, cellphone
          use in vehicles could decline, which would negatively affect our business.
        Health Concerns about Radio Frequency
          Emissions
        It has been suggested that some
          radio frequency emissions from cellphones may be linked to certain medical
          conditions. In addition, some interest groups have requested investigations
          into claims that digital transmissions from handsets used with digital
          wireless technologies pose health concerns and cause interference with
          hearing aids and other medical devices. This could lead to additional
          government regulation, which could have a material and negative effect
          on our business. In addition, actual or perceived health risks of wireless
          communications devices could result in fewer new network subscribers,
          lower network usage per subscriber, higher churn rates, product liability
          lawsuits or less outside financing being available to the wireless communications
          industry. Any of these would have a negative effect on our business.
        Bell ExpressVu
        Bell ExpressVu currently
          uses three satellites, Nimiq 1, Nimiq 2 and Nimiq 3,
          for its video services. Telesat operates or directs the operation of
          these satellites.      In
          order to restore the backup capacity for Bell ExpressVu, which
          was diminished by the partial failure of Nimiq 2, Telesat reached
          an agreement with DirecTV for an existing spare in-orbit satellite (Nimiq 3).
          Telesat received approval from Industry Canada to relocate this satellite
          to the orbital slots currently occupied by Nimiq 1 or Nimiq 2.
          In July 2004, the CRTC granted final approval to the agreement
          between Bell ExpressVu and Telesat to lease the full capacity of
          Nimiq 3.      Satellites
          are subject to significant risks. Any loss, failure, manufacturing defects,
          damage or destruction of these satellites, of Bell ExpressVus
          terrestrial broadcasting infrastructure or of Telesats tracking,
          telemetry and control facilities that operate the satellites could have
          a material and negative effect on Bell ExpressVus results
          of operations and financial condition.      Bell ExpressVu
          is subject to programming and carriage requirements under CRTC regulations.
          Changes to the regulations that govern broadcasting could negatively
          affect Bell ExpressVus competitive position or the cost of
          providing its services. Bell ExpressVus DTH satellite television
          distribution undertaking licence was renewed in March 2004 and
          expires on August 31, 2010.      Bell ExpressVu
          continues to face competition from unregulated U.S. DTH satellite television
          services that are illegally sold in Canada. In response, it is participating
          in legal actions that are challenging the sale of U.S. DTH satellite
          television  31    Bell Canada 2004
    Financial information   Our Accounting Policies This section discusses key estimates and assumptions that management
          has made under these principles and how they affect the amounts reported
          in the financial statements and notes. It also describes the key changes
          in accounting standards and our accounting policies, and how they affect
          our financial statements.
          We have prepared our consolidated financial statements according to
          Canadian GAAP. See Note 1 to the consolidated financial statements for
          more information about the accounting principles we used to prepare
          our financial statements. Employee Benefit Plans We maintain defined
          benefit plans that provide pension, other retirement and post-employment
          benefits for some of our employees. The amounts reported in the financial
          statements relating to these benefits are determined using actuarial
          calculations that are based on several assumptions. Discount Rate The discount rate is the interest rate used to determine the present
          value of the future cash flows that we expect will be needed to settle
          employee benefit obligations. It is based on the yield on long-term
          high-quality corporate fixed income investments, with maturities matching
          the estimated cash flows from the plan.
      
      Managements
          Discussion and Analysis
        equipment in Canada. While Bell ExpressVu has been successful in
          increasing its share of the satellite television market despite this
          competition, there is no assurance that it will continue to do so.      Bell ExpressVu
          faces a loss of revenue resulting from the theft of its services. It
          is taking numerous actions to reduce these losses, including legal action,
          investigations, implementing electronic countermeasures targeted at
          illegal devices, leading information campaigns and developing new technology.
          Bell ExpressVu introduced a smart card swap for its authorized
          digital receivers beginning in 2004, that is designed to block
          unauthorized reception of Bell ExpressVu signals. The smart card
          swap is being introduced in phases and is expected to be completed in
          the second half of 2005. As with any technology-based security
          system, it is not possible to eliminate with absolute certainty the
          possibility that security may be compromised at some point in the future.      On
          October 28, 2004, the Court of Québec ruled in R.
          v. DArgyand Theriaultthat the provisions in the Radiocommunication
          Act(Canada) making it a criminal offence to manufacture, offer
          for sale or sell any device used to decode an encrypted subscription
          signal relating to the unauthorized reception of satellite signals violate
          the freedom of expression rights enshrined in the Canadian Charter
          of Rights and Freedoms. The Canadian Department of Justice has launched
          an appeal of this decision to the Superior Court of Québec. It
          remains a criminal offence throughout Canada to manufacture, offer for
          sale or sell any device used to engage in the unauthorized reception
          of satellite signals. If this decision is ultimately upheld by the courts
          and Parliament does not enact new provisions criminalizing the unauthorized
          reception of satellite signals, Bell ExpressVu may face increasing
          loss of revenue from the unauthorized reception of satellite signals.
        Our Accounting Policies
        CRITICAL ACCOUNTING ESTIMATESUnder Canadian GAAP,
          we are required to make estimates when we account for and report assets,
          liabilities, revenues and expenses, and to disclose contingent assets
          and liabilities in our financial statements. We are also required to
          continually evaluate the estimates that we use.      We
          base our estimates on past experience and on other factors that we believe
          are reasonable under the circumstances. Because this involves varying
          degrees of judgment and uncertainty, the amounts currently reported
          in the financial statements could, in the future, prove to be inaccurate.      We
          consider the estimates described in this section to be an important
          part of understanding our financial statements because they rely heavily
          on managements judgment and are based on factors that are highly
          uncertain.      Our
          senior management has discussed the development and selection of the
          critical accounting estimates described in this section with the audit
          committee of the board of directors. The audit committee has reviewed
          these critical accounting estimates.
        EMPLOYEE BENEFIT PLANSWe perform a valuation at
          least every three years to determine the actuarial present value of
          the accrued pension and other retirement benefits. The valuation uses
          managements assumptions for the discount rate, expected long-term
          rate of return on plan assets, rate of compensation increase, health-care
          cost trend and expected average remaining years of service of employees.
               While we believe that these assumptions
          are reasonable, differences in actual results or changes in assumptions
          could materially affect employee benefit obligations and future net
          benefit plans costs.
               We account for differences between actual
          and assumed results by recognizing differences in benefit obligations
          and plan performance over the working lives of the employees who benefit
          from the plans.
               The two most significant assumptions used
          to calculate the net employee benefit plans cost are the discount rate
          and the expected long-term rate of return on plan assets. Each of our
          operating segments is affected by these assumptions.
        DISCOUNT RATEWe determine the appropriate
          discount rate at the end of every year. Our discount rate was 6.2% at
          December 31, 2004, a decrease from 6.5% at December 31, 2003.
          The table below shows the impact on the net benefit plans cost for 2005
          and the accrued benefit asset at December 31, 2005 of a 0.5%
          increase and a 0.5% decrease in the discount rate. IMPACT ON
        NET BENEFIT
        PLANS COST
        FOR 2005
      
      IMPACT ON
        ACCRUED
        BENEFIT
        ASSET AT
        DECEMBER 31, 2005Discount
          rate increased to 6.7%Consumer
      (27
      )
      27Business
      (24
      )
      24Aliant
      (12
      )
      12Other Bell Canada
      (12
      )
      12TOTAL
      (75
      )
      75Discount rate
        decreased to 5.7%Consumer
      28
      
      (28
      )Business
      25
      
      (25
      )Aliant
      10
      
      (10
      )Other Bell Canada
      12
      
      (12
      )TOTAL
      75
      
      (75
      )Although
          there is no immediate impact on our balance sheet, a lower discount
          rate results in a higher accrued benefit obligation and a lower pension
          surplus. This means that we may have to increase any cash contributions
          to the plan.  32    Bell Canada 2004
    Financial information    Goodwill
          Impairment We assess the value
          of goodwill of all reporting units within each of our operating segments
          every year and when events or changes in circumstances indicate that
          it might be impaired.
        Contingencies We become involved in
        various litigation and regulatory matters as a part of our business. Each
        of our operating segments may be affected. Pending litigation, regulatory
        initiatives or regulatory proceedings represent potential financial loss
        to our business.
      
      EXPECTED
          LONG-TERM RATE OF RETURN
        The expected long-term
          rate of return is a weighted average rate of our forward-looking view
          of long-term returns on each of the major plan asset categories in our
          funds.      We
          determine the appropriate expected long-term rate of return at the end
          of every year. We assumed an expected long-term rate of return on plan
          assets of 7.5% in 2004, which is the same as it was in 2003.
          The table below shows the impact on the net benefit plans cost for 2005
          and the accrued benefit asset at December 31, 2005 of a 0.5%
          increase and a 0.5% decrease in the expected rate of return on plan
          assets.IMPACT
          ON NET BENEFIT PLANS COSTFOR 2005
      
      IMPACT
        ON ACCRUED BENEFIT ASSET AT DECEMBER 31, 2005Expected
        rate of return increased
        to 8.0%Consumer
      (24
      )
      24Business
      (21
      )
      21Aliant
      (5
      )
      5Other
          Bell Canada
      (10
      )
      10TOTAL
      (60
      )
      60Expected
        rate of return decreased
        to 7.0%Consumer
      24
      
      (24
      )Business
      21
      
      (21
      )Aliant
      5
      
      (5
      )Other
          Bell Canada
      10
      
      (10
      )TOTAL
      60
      
      (60
      ) Although
          there is no immediate impact on our balance sheet, poor fund performance
          results in a lower fair value of plan assets and a lower pension surplus.
          This means that we may have to increase any cash contributions to the
          plan.
        GOODWILL IMPAIRMENTWe generally measure
          for impairment using a projected discounted cash flow method and confirm
          our assessment using other valuation methods. If the assets carrying
          value is more than its fair value, we record the difference as a reduction
          in the amount of goodwill on the balance sheet and an impairment charge
          in the statement of operations.      We
          make a number of significant estimates when calculating fair value using
          a projected discounted cash flow method. These estimates include the
          assumed growth rates for future cash flows, the numbers of years used
          in the cash flow model, the discount rate and many others.      We
          believe that all of our estimates are reasonable. They are consistent
          with our internal planning and reflect our best estimates, but they
          have inherent uncertainties that management may not be able to control.      Any
          changes in each of the estimates used could have a material impact on
          the calculation of the fair value and resulting impairment charge. As
          a result, we are unable to reasonably quantify the changes in our overall
          financial performance if we had used different assumptions.      We
          cannot predict whether an event that triggers impairment will occur,
          when it will occur or how it will affect the asset values we have reported.      There
          were no impairment charges recorded in 2004 or 2003.
        CONTINGENCIESWe accrue a potential
          loss if we believe the loss is probable and it can be reasonably estimated.
          We base our decision on information that is available at the time. We
          estimate the amount of the loss by consulting with the outside legal
          counsel that is handling our defence. This involves analyzing potential
          outcomes and assuming various litigation and settlement strategies.      If
          the final resolution of a legal or regulatory matter results in a judgment
          against us or requires us to pay a large settlement, it could have a
          material and negative effect on our results of operations, cash flows
          and financial position in the period that the judgment or settlement
          occurs. Any accrual would be charged to operating income and included
          inAccounts payable and
          accrued liabilitiesorOther long-term liabilities.
          Any cash settlement would be included in cash from operating activities.      None
          of our operating segments had any significant provisions relating to
          pending litigation, regulatory initiatives or regulatory proceedings
          at December 31, 2004. We have not made any significant changes
          to our estimates in the past two years.
        INCOME TAXESManagement believes
          that it has adequately provided for income taxes based on all of the
          information that is currently available. The calculation of income taxes
          in many cases, however, requires significant judgment in interpreting
          tax rules and regulations, which are constantly changing. Each of our
          operating segments may be affected.      Our
          tax filings are also subject to audits, which could materially change
          the amount of current and future income tax assets and liabilities.
          Any change would be recorded as a charge or a credit to income tax expense.
          Any cash payment or receipt would be included in cash from operating
          activities.      There
          were no significant changes to the estimates we made in the past two
          years.
        Recent Changes to Accounting
          Standards and Policies
        Please see Note 1 to the consolidated
          financial statements for more information about the accounting policies
          we adopted in 2004. These are the result of new accounting standards
          for:
        impairment of long-lived assets
          asset retirement obligations
          hedging relationships.Future Changes to Accounting
          Standards  33    Bell Canada 2004
    Financial information   Managements
          Discussion and Analysis
        FINANCIAL INSTRUMENTSThe CICA issued revisions
          to section 3860 of the CICA Handbook,Financial
          Instruments  Disclosure and Presentation.
          The revisions change the accounting for certain financial instruments
          that have liability and equity characteristics. It requires instruments
          that meet specific criteria to be classified as liabilities on the balance
          sheet. Some of these financial instruments were previously classified
          as equities.      These
          revisions come into effect on January 1, 2005. Because we
          do not have any instruments with these characteristics, adopting this
          section on January 1, 2005 will not affect our consolidated
          financial statements.
        COMPREHENSIVE INCOMEThe CICA issued section
          1530 of the CICA Handbook,Comprehensive
          Income. The section is effective for fiscal
          years beginning on or after October 1, 2006. It describes how to report
          and disclose comprehensive income and its components.      Comprehensive
          income is the change in a companys net assets that results from
          transactions, events and circumstances from sources other than the companys
          shareholders. It includes items that would not normally be included
          in net earnings, such as:
        changes in the currency translation
            adjustment relating to self-sustaining foreign operations
          unrealized gains or losses
            on available-for-sale investments.The CICA also made changes
          to section 3250 of the CICA Handbook,Surplus,and reissued it as section
          3251,Equity.The
          section is also effective for fiscal years beginning on or after October 1,
          2006. The changes in how to report and disclose equity and changes in
          equity are consistent with the new requirements of section 1530,Comprehensive
          Income.      Adopting
          these sections on January 1, 2007 will require us to start reporting
          the following items in the consolidated financial statements:
        comprehensive income and its
            components
          accumulated other comprehensive
            income and its components.FINANCIAL INSTRUMENTS  RECOGNITION
          AND MEASUREMENTThe CICA issued section
          3855 of the CICA Handbook,Financial
          Instruments  Recognition and Measurement.The
          section is effective for fiscal years beginning on or after October 1,
          2006. It describes the standards for recognizing and measuring financial
          assets, financial liabilities and non-financial derivatives.
        This
          section requires that:
        all financial assets
            be measured at fair value, with some exceptions like loans and investments
            that are classified
            as held-to-maturity
          all financial liabilities
            be measured at fair value if they are derivatives or classified as
            held for trading purposes. Other financial liabilities are measured
            at their carrying value.
          all derivative financial instruments
            be measured at fair value, even when they are part of a hedging relationship.We are currently evaluating the
          impact on our consolidated financial statements of adopting this section
          on January 1, 2007.
        HEDGESThe CICA recently
          issued section 3865 of the CICA Handbook, Hedges.The section
          is effective for fiscal years beginning on or after October 1,
          2006, and describes when and how hedge accounting can be used.
               Hedging is an activity used by a company
          to change an exposure to one or more risks by creating an offset between:
        changes in the fair value of
            a hedged item and a hedging item
          changes in the cash flows attributable
            to a hedged item and a hedging item, or
          changes resulting from a risk
            exposure relating to a hedged item and a hedging item.Hedge accounting makes
          sure that all gains, losses, revenues and expenses from the derivative
          and the item it hedges are recorded in the statement of operations in
          the same period.      We
          are currently evaluating the impact on our consolidated financial statements
          of adopting this section on January 1, 2007.  34    Bell Canada 2004
    Financial information   Financial
            statements at a glance
        
        Consolidated
            financial statements
          The financial statements contain
            our results and financial history for the past two years. The notes
            are an important part of understanding our financial results. They
            explain how we arrived at the numbers in the financial statements,
            describe significant events or changes that affect the numbers, and
            explain certain items in the financial statements. They also include
            details about our financial results that are not shown in the financial
            statements.
          Managements report
          These financial statements form
            the basis for all of the financial information that appears in this
            report.      The
            financial statements and all of the information in this report are
            the responsibility of the management of Bell Canada and have
            been reviewed and approved by the board of directors. The board of
            directors is responsible for ensuring that management fulfills its
            financial reporting responsibilities. Deloitte & Touche LLP, the
            shareholders auditors, have audited the financial statements.      Management
            has prepared the financial statements according to Canadian generally
            accepted accounting principles. Under these principles, management
            has made certain estimates and assumptions that are reflected in the
            financial statements and notes. Management believes that these financial
            statements fairly present Bell Canadas consolidated financial
            position, results of operations and cash flows.      Management
            has a system of internal controls designed to provide reasonable assurance
            that the financial statements are accurate and complete in all material
            respects. This is supported by an internal audit group that reports
            to the audit committee, and includes communication with employees
            about policies for ethical business conduct. Management believes that
            the internal controls provide reasonable assurance that our financial
            records are reliable and form a proper basis for preparing the financial
            statements, and that our assets are properly accounted for and safeguarded.      The
            board of directors has appointed an audit committee, which is made
            up of unrelated and independent directors. The audit committees
            responsibilities include reviewing the financial statements and other
            information in this report, and recommending them to the board of
            directors for approval. The internal auditors and the shareholders
            auditors have free and independent access to the audit committee.35
        Management’s
          report35
        Auditors’
          report36
        Statements
          of operations36
        Statements
          of retained earnings37
        Balance
          sheets38
        Statements
          of cash flows39
        Notes
          to consolidated financial statementsThis section of our report contains the audited consolidated financial
          statements of Bell Canada and detailed notes with explanations
          and additional information.
          Bell Canada consists of many businesses, including subsidiaries
          and joint ventures. We present the financial information for all of
          our holdings as one consolidated company.
          Except in the auditors report,we,
          usandourmean Bell Canada,
          its subsidiaries and joint ventures.MICHAEL J. SABIA
            Chief Executive Officer
          March 2, 2005
        SIIM A. VANASELJA
            Chief Financial Officer
        KARYN A. BROOKS
            Vice-President
            and ControllerAuditors
            report
          To the shareholders of Bell Canada:      We
            have audited the consolidated balance sheets of Bell Canada as
            at December 31, 2004 and 2003, and the consolidated
            statements of operations, retained earnings and cash flows for each
            of the years in the two-year period ended December 31, 2004.
            These consolidated financial statements are the responsibility of
            Bell Canadas management. Our responsibility is to express
            an opinion on these consolidated financial statements based on our
            audits.      We
            conducted our audits in accordance with Canadian generally accepted
            auditing standards. Those standards require that we plan and perform
            an audit to obtain reasonable assurance whether the financial statements
            are free of material misstatement. An audit includes examining, on
            a test basis, evidence supporting the amounts and disclosures in the
            consolidated financial statements. An audit also includes assessing
            the accounting principles used and significant estimates made by management,
            as well as evaluating the overall financial statement presentation.      In
            our opinion, these consolidated financial statements present fairly,
            in all material respects, the financial position of Bell Canada
            as at December 31, 2004 and 2003 and the results of
            its operations and its cash flows for each of the years in the two-year
            period ended December 31, 2004, in accordance with Canadian
            generally accepted accounting principles.
          
          Deloitte & Touche LLPChartered AccountantsMontréal, CanadaMarch 2, 2005
 35    Bell Canada 2004
    Financial information    Consolidated
        statements of operationsFOR THE YEAR ENDED DECEMBER 31 (IN
          $ MILLIONS)
      NOTES
      
      2004
      
      2003OPERATING REVENUES
      
      
      16,787
      
      16,614Operating expenses
      
      
      (9,676
      )
      (9,613
      )Amortization expense
      
      
      (2,962
      )
      (2,970
      )Net benefit plans cost
      21
      
      (235
      )
      (181
      )Restructuring and other items
      4
      
      (1,219
      )
      (14
      )TOTAL OPERATING EXPENSES
      
      
      (14,092
      )
      (12,778
      )OPERATING INCOME
      
      
      2,695
      
      3,836Other income
      5
      
      183
      
      217Interest expense
      6
      
      (863
      )
      (945
      )PRE-TAX EARNINGS FROM CONTINUING
          OPERATIONS
      
      
      2,015
      
      3,108Income taxes
      7
      
      (506
      )
      (787
      )Non-controlling interest
      
      
      9
      
      (53
      )EARNINGS FROM CONTINUING OPERATIONS
      
      
      1,518
      
      2,268Discontinued operations
      8
      
      
      
      59NET EARNINGS BEFORE EXTRAORDINARY
          GAIN
      
      
      1,518
      
      2,327Extraordinary gain
      3
      
      69
      
      Net earnings
      
      
      1,587
      
      2,327Dividends on preferred shares
      
      
      (60
      )
      (58
      )Interest on equity-settled notes
      
      
      
      
      (25
      )NET EARNINGS APPLICABLE TO COMMON
          SHARES
      
      
      1,527
      
      2,244 Consolidated
        statements of retained earningsFOR
          THE YEAR ENDED DECEMBER 31 (IN $ MILLIONS)
      NOTES
      
      2004
      
      2003Balance at beginning of year, as
          previously reported
      
      
      313
      
      118Accounting policy change for asset
          retirement obligations
      1
      
      (7
      )
      (7
      )BALANCE AT BEGINNING OF YEAR, AS
          RESTATED
      
      
      306
      
      111Consolidation
          of variable interest entity
      1
      
      
      
      (25
      )Net
          earnings
      
      
      1,587
      
      2,327Dividends
          declared on common shares
      
      
      (1,472
      )
      (2,022
      )Dividends
          declared on preferred shares
      
      
      (60
      )
      (58
      )Interest
          on equity-settled notes
      
      
      
      
      (25
      )Other
      
      
      
      
      (2
      )BALANCE AT END OF YEAR
      
      
      361
      
      306 36    Bell Canada 2004
    Financial information    Consolidated
        balance sheetsAT DECEMBER 31 (IN $ MILLIONS)
      NOTES
      
      2004
      
      2003ASSETSCURRENT ASSETSCash
          and cash equivalents
      
      
      32
      
      398Notes
          receivable from related parties
      22
      
      
      
      450Accounts
          receivable
      9
      
      1,607
      
      1,711Other
          current assets
      10
      
      964
      
      499TOTAL CURRENT ASSETS
      
      
      2,603
      
      3,058CAPITAL ASSETS
      11
      
      19,501
      
      19,276OTHER LONG-TERM ASSETS
      12
      
      2,592
      
      3,526INDEFINITE-LIFE INTANGIBLE ASSETS
      13
      
      796
      
      796GOODWILL
      14
      
      2,174
      
      1,586TOTAL ASSETS
      
      
      27,666
      
      28,242LIABILITIESCURRENT LIABILITIESAccounts payable and accrued liabilities
      
      
      2,948
      
      2,582Interest
          payable
      
      
      147
      
      158Dividends
          payable
      
      
      387
      
      471Debt
          due within one year
      15
      
      1,352
      
      1,165TOTAL CURRENT LIABILITIES
      
      
      4,834
      
      4,376LONG-TERM DEBT
      16
      
      9,166
      
      10,024OTHER LONG-TERM LIABILITIES
      17
      
      2,753
      
      2,695TOTAL LIABILITIES
      
      
      16,753
      
      17,095NON-CONTROLLING INTEREST
      
      
      1,235
      
      1,627COMMITMENTS AND CONTINGENCIES
      23SHAREHOLDERS EQUITYPREFERRED SHARES
      19
      
      1,100
      
      1,100COMMON SHAREHOLDERS
        EQUITYCommon
          shares
      19
      
      7,689
      
      7,602Contributed
          surplus
      19
      
      528
      
      512Retained
          earnings
      
      
      361
      
      306TOTAL COMMON SHAREHOLDERS
          EQUITY
      
      
      8,578
      
      8,420TOTAL SHAREHOLDERS EQUITY
      
      
      9,678
      
      9,520TOTAL LIABILITIES AND SHAREHOLDERS
          EQUITY
      
      
      27,666
      
      28,242On behalf
        of the board of directors: Director
        Director
 37    Bell Canada 2004
    Financial information    Consolidated
        statements of cash flowsFOR THE YEAR ENDED DECEMBER 31 (IN
          $ MILLIONS)
      2004
      
      2003CASH FLOWS FROM OPERATING ACTIVITIESEarnings from continuing operations
      1,518
      
      2,268Adjustments to reconcile earnings
          from continuing operations to
          cash flows from operating activities:Amortization
          expense
      2,962
      
      2,970Net
          benefit plans cost
      235
      
      181Restructuring
          and other items
      1,219
      
      14Net
          gains on investments
      (117
      )
      (106
      )Future
          income taxes
      (148
      )
      198Non-controlling
          interest
      (9
      )
      53Contributions
          to employee pension plans
      (87
      )
      (142
      )Other
          employee future benefit plan payments
      (81
      )
      (87
      )Payments
          of restructuring and other items
      (251
      )
      (124
      )Operating
          assets and liabilities
      92
      
      141CASH FLOWS
        FROM OPERATING ACTIVITIES
      5,333
      
      5,366CASH FLOWS
        FROM INVESTING ACTIVITIESCapital expenditures
      (3,026
      )
      (2,892
      )Business acquisitions
      (1,138
      )
      (120
      )Business dispositions
      2
      
      55Change in investments accounted
          for under the cost and equity methods
      126
      
      145Increase (decrease) in advances
          made to an affiliated company under common control
      450
      
      (180
      )Other
      (15
      )
      47CASH FLOWS FROM INVESTING ACTIVITIES
      (3,601
      )
      (2,945
      )CASH FLOWS FROM FINANCING ACTIVITIESIncrease (decrease) in notes payable
          and bank advances
      167
      
      (1,161
      )Issue of long-term debt
      461
      
      717Repayment of long-term debt
      (1,314
      )
      (1,752
      )Repayment of equity-settled notes
      
      
      (2,068
      )Contribution of capital
      433
      
      3,043Issue of equity securities/partnership
          units and convertible debentures by
          subsidiaries to non-controlling interest/BCE Inc.
      40
      
      110Redemption of equity securities
          by subsidiaries from non-controlling interest
      (25
      )
      (108
      )Cash dividends paid on common shares
      (1,559
      )
      (1,908
      )Cash dividends paid on preferred
          shares
      (60
      )
      (60
      )Cash dividends/distributions paid
          by subsidiaries to non-controlling interest
      (117
      )
      (113
      )Interest paid on equity-settled
          notes
      
      
      (47
      )Other
      (124
      )
      (46
      )CASH FLOWS FROM FINANCING ACTIVITIES
      (2,098
      )
      (3,393
      )Cash used in continuing operations
      (366
      )
      (972
      )Cash provided by discontinued operations
      
      
      321Net decrease in cash and cash equivalents
      (366
      )
      (651
      )Cash and cash equivalents at beginning
          of year
      398
      
      1,049CASH AND CASH EQUIVALENTS AT END
          OF YEAR
      32
      
      398 38    Bell Canada 2004
    Financial information  All amounts are in millions of Canadian dollars, except where noted.
        
        Notes to consolidated
            financial statements
          Note 1  Significant
            accounting policies
          Basis of presentation We have prepared the consolidated
            financial statements according to Canadian generally accepted accounting
            principles (GAAP). 
                 We consolidate the financial statements of
            all of the companies we control. We proportionately consolidate
            our share of the financial statements of our joint venture interests.
            All transactions and balances between these companies have been eliminated
            on consolidation.
          Comparative figures We
            have reclassified some of the figures for the comparative periods
            in the consolidated financial statements to make them consistent with
            the presentation for the current period.
                 We have restated financial information
            for previous periods to reflect the adoption of section 3110 of the
            Canadian Institute of Chartered Accountants (CICA) Handbook, Asset
            Retirement Obligations, effective January 2004, as described
            under Recent Changes to Accounting Standards.
          Using estimates When
            preparing financial statements according to GAAP, management makes
            estimates and assumptions relating to:
          reported amounts of revenues
              and expenses
            reported amounts of assets
              and liabilities
            disclosure of contingent
              assets and liabilities.Actual results could be different
          from these estimates.Recognizing
            revenue
          We recognize operating revenues
            when they are earned, specifically when:
          services are provided or
              products are delivered to customers
            there is clear proof that
              an arrangement exists
            amounts are fixed or can
              be determined
            our ability to collect is
              reasonably assured.In particular, we recognize:
          fees for long distance and
              wireless services, and other fees, such as network access fees,
              licence fees, hosting fees, maintenance fees and standby fees, when
              we provide the services or over the term of the contract
            subscriber revenue when customers
              receive the service
            advertising revenue when
              advertisements are aired, or printed and distributed
            revenue from the sale of
              equipment when the equipment is delivered to customers and accepted
            revenue on long-term contracts
              as services are provided, equipment is delivered and accepted, or
              contract milestones are met.When a transaction involves
            more than one product or service, we allocate revenue to each based
            on its relative fair value. 
                 We may enter into arrangements with subcontractors
            who provide services to our customers. When we act as the principal
            in these arrangements, we recognize revenue based on the amounts billed
            to customers. Otherwise, we recognize the net amount that we keep
            as revenue.
                 We accrue an estimated amount for sales
            returns, based on our past experience, when revenue is recognized.
                 We record payments we receive in advance
            as deferred revenues until we provide the service or deliver the product
            to customers. Deferred revenues are presented in Accounts payable
            and accrued liabilitiesor in Other long-term liabilitieson
            the balance sheet.
          Cash and cash equivalents
          We generally classify highly
            liquid investments with a short-term maturity of three months or less
            asCash and cash equivalents.
 39    Bell Canada 2004
    Financial information   Equity method An
          investment is initially recorded at cost and adjustments are made to
          include our share of the investments net earnings or losses. These
          adjustments are included in our net earnings. The amount of our investment
          is reduced by the amount of dividends received or receivable from the
          investment.
        Cost method The
          investment is recorded at cost. Dividends received or receivable from
          the investment are included in our net earnings.
      
      Notes to consolidated
          financial statements
        Note 1  Significant
          accounting policies (contd)
        Securitization of accounts receivable
        We consider a transfer of accounts
          receivable to be a sale when we give up control of them in exchange
          for proceeds from a trust (other than our retained beneficial interest
          in the accounts receivable).
               We determine the fair value of the accounts
          receivable transferred based on the present value of future expected
          cash flows, which we project using managements best estimates
          of discount rates, weighted-average life of accounts receivable, credit
          loss ratios and other key assumptions. We recognize a loss on this kind
          of transaction, which is included in Other income. The loss partly
          depends on the carrying amount of the accounts receivable that are transferred.
          We allocate this amount to accounts receivable sold, or to our retained
          interest, according to its relative fair value on the day the transfer
          is made.
               Accounts receivable are transferred on
          a fully-serviced basis. As a result, we:
        recognize a servicing liability
            on the day accounts receivable are transferred to the trust
          amortize this liability to
            earnings over the expected life of the transferred accounts receivable.Capital assets We
          carry capital assets at cost, less accumulated amortization. Most of
          our telecommunications assets are amortized using the group depreciation
          method. When we retire assets in the ordinary course of business, we
          charge their original cost to accumulated amortization. In general,
          we amortize capital assets on a straight-line basis over the estimated
          useful lives of the assets. We review the estimates of the useful lives
          of the assets every year and adjust them if needed. ESTIMATED
        USEFUL LIFETelecommunications
        assets
      10 to 25
        yearsMachinery
        and equipment
      2 to 20 yearsBuildings
      10 to 40
        yearsSatellites
      10 to 15
        yearsFinite-life
        intangible assetsSoftware
      3 to 7 yearsCustomer relationships
      5 to 40 years We capitalize construction
          costs, labour and overhead (including interest) related to assets we
          build or develop.      We
          capitalize some of the costs of developing or buying software for internal
          use. We expense software maintenance and training costs when they are
          incurred. The expense is included inOperating
          expensesin the statement
          of operations.      We
          assess capital assets for impairment when events or changes in circumstances
          indicate that we may not be able to recover their carrying value. We
          calculate impairment by deducting the assets fair value based
          on discounted cash flows expected from its use and disposition, from
          its carrying value. Any excess is deducted from earnings.
        Accounting for investments
        We use the following methods to
          account for investments that are not consolidated or proportionately
          consolidated in our financial statements:
        the equity method for our investments
            in companies where we have a significant influence on their operating,
            investing and financing activities
          the cost method for our investments
            in all other companies.We include investments
          inOther long-term assetson the balance sheet.
          Earnings from investments are included inOther incomein
          the statement of operations.      We
          expense declines in the fair values of our investments when management
          considers them to be longer term. The expense is included inOther
          incomein the statement
          of operations.
        Costs of issuing debt and equity
        The costs of issuing debt are
          capitalized inOther long-term
          assets. They are amortized
          on a straight-line basis over the term of the related debt and are included
          inInterest expensein
          the statement of operations. The costs of issuing equity are reflected
          in the statement of retained earnings. 40    Bell Canada 2004
    Financial information  Goodwill
        Goodwill is created when we
          acquire a business. It is calculated by deducting the fair value of
          the net assets acquired from the consideration given and represents
          the value of factors that contribute to greater earning power, such
          as a good reputation, customer loyalty or intellectual capital.Translation of foreign currencies
        The way we account for a foreign
          operation depends on whether it is self-sustaining or integrated. A
          self-sustaining foreign operation is largely independent of the parent
          company. An integrated foreign operation depends on the parent company
          to finance or run its operations.
      
      Indefinite-life intangible
        assets Our indefinite-life
          intangible assets consist mainly of spectrum licences. We assess these
          assets for impairment in the fourth quarter of every year and when events
          or changes in circumstances indicate that an asset might be impaired.
          We calculate the impairment by deducting the assets fair value,
          based on estimates of discounted future cash flows or other valuation
          methods, from its carrying value. Any excess is deducted from earnings.
        Goodwill We
          assess goodwill of individual reporting units for impairment in the
          fourth quarter of every year and when events or changes in circumstances
          indicate that goodwill might be impaired. We assess goodwill for impairment
          in two steps:
        we identify a potential impairment
            by comparing the fair value of a reporting unit to its carrying value.
            Fair value is based on estimates of discounted future cash flows or
            other valuation methods. When the fair value of the reporting unit
            is less than its carrying value, we allocate the fair value to all
            of its assets and liabilities, based on their fair values. The amount
            that the fair value of the reporting unit exceeds the total of the
            amounts assigned to its assets and liabilities is the fair value of
            goodwill.
          we determine if there is an
            impairment by comparing the carrying value of goodwill to its fair
            value. Any excess is deducted from earnings.Translation of foreign currencies
        SELF-SUSTAINING FOREIGN OPERATIONS
        For self-sustaining foreign operations,
          we use:
        the exchange rates on the date
            of the balance sheet for assets and liabilities
          the average exchange rates
            during the year for revenues and expenses.Translation exchange gains and
          losses are reflected as a currency translation adjustment in shareholders
          equity. When we reduce our net investment in a self-sustaining foreign
          operation, we recognize a portion of the currency translation adjustment
          in earnings.
        INTEGRATED FOREIGN OPERATIONS
        For integrated foreign operations,
          we use:
        the exchange rates on the date
            of the balance sheet for monetary assets and liabilities, such as
            cash, accounts receivable and payable, and long-term debt
          the historical exchange rates
            for non-monetary assets and liabilities, such as capital assets
          the average exchange rates
            during the year for revenues and expenses.Translation exchange gains and
          losses are included inOther
          incomein the statement
          of operations.
        DOMESTIC TRANSACTIONS AND BALANCES
          IN FOREIGN CURRENCIES
        For domestic transactions made
          in foreign currencies, we use:
        the exchange rates on the date
            of the balance sheet for monetary assets and liabilities
          the historical exchange rates
            for non-monetary assets and liabilities
          the average exchange rates
            during the year for revenues and expenses.Translation exchange gains and
          losses are included inOther
          incomein the statement
          of operations.
        Derivative financial instruments
        We use various derivative financial
          instruments to hedge against:
        interest rate risk
          foreign exchange rate risk
          changes in the price of BCE Inc.
            (BCE) common shares relating to special compensation payments (SCPs). 41    Bell Canada 2004
    Financial information   Notes to consolidated
          financial statements
        Note 1  Significant
          accounting policies (contd)
        We do not use derivative financial
          instruments for speculative or trading purposes.      We
          document all relationships between derivatives and the items they hedge,
          and our risk management objective and strategy for using various hedges.
          This process includes linking every derivative to:
        a specific asset or liability
            on the balance sheet, or
          a specific net investment in
            self-sustaining foreign operations, or
          a specific firm commitment,
            or
          an anticipated transaction.We assess how effective derivatives
          are in managing risk when the hedge is put in place, and on an ongoing
          basis. If a hedge becomes ineffective, we stop using hedge accounting.      We
          follow these policies when accounting for derivatives:
        foreign exchange translation
            gains or losses on the net investment in foreign subsidiaries are
            recorded as a currency translation adjustment. Any realized or unrealized
            gains or losses on instruments covering the net investment are also
            recognized as a currency translation adjustment
          deferred gains or losses relating
            to derivatives that qualify for hedge accounting are recognized in
            earnings when the hedged item is sold or when the anticipated transaction
            is ended early
          gains and losses related to
            hedges of anticipated transactions are recognized in earnings or are
            recorded as adjustments of carrying values when the transaction takes
            place
          derivatives that are economic
            hedges, but do not qualify for hedge accounting, are recognized at
            fair value. We record the change in fair value in earnings
          any premiums paid for financial
            instruments are deferred and expensed to earnings over the term of
            the contract
          any forward premiums or discounts
            on forward foreign exchange contracts that are used to hedge long-term
            debt denominated in foreign currencies are amortized as an adjustment
            to interest expense over the term of the forward contract.The following describes our policies
          for specific kinds of derivatives.
        INTEREST RATE SWAP AGREEMENTSWe use interest rate swap
          agreements to help manage the fixed and floating interest rate mix of
          our total debt portfolio. These agreements often involve exchanging
          interest payments without exchanging the notional principal amount that
          the payments are based on. We record the exchange of payments as an
          adjustment of interest expense on the hedged debt. We include the related
          amount payable or receivable from counterparties inOther
          long-term assets or liabilities.
        FOREIGN CURRENCY SWAP AGREEMENTSWe use foreign currency swap
          agreements to manage the foreign exchange rate exposure of some of our
          debt that is denominated in foreign currencies. We designate these agreements
          as hedges of firm commitments to pay interest and/or principal on the
          foreign currency risk. We recognize gains and losses on these contracts
          the same way we recognize the gains and losses on the hedged item. Unrealized
          gains or losses are included inOther
          long-term assets or liabilities.
        Forward contracts We
          use forward contracts to manage:
        the exchange rate exposure
            of some of our debt denominated in foreign currencies. We designate
            these agreements as hedges of firm commitments to pay the principal
            in the foreign currency.
          the exposure to anticipated
            forecasted transactions denominated in foreign currencies. We designate
            these agreements as hedges of future cash flows.
          changes in the price of BCE common
            shares relating to SCPs.We recognize gains and losses
          on these contracts the same way we recognize the gains and losses on
          the hedged item. Unrealized gains or losses are included inOther
          long-term assets or liabilities. 42    Bell Canada 2004
    Financial information   Curtailment
        A curtailment is a significant
          reduction in plan benefits that can result when a DB pension plan is
          amended or restructured. Types of curtailments include:
        a reduction in the expected
            number of years of future service of active employees
          the elimination of the right
            to earn defined benefits for some or all of the future service of
            employees.Settlement A
          company makes a settlement when it substantially settles all or part
          of an accrued benefit obligation. An example is a lump-sum cash payment
          to employees in exchange for their rights to receive future benefits.
      
      Employee benefit
          plans
        (I) DEFINED BENEFIT PLANSWe maintain defined benefit
          (DB) plans that provide pension benefits for some of our employees.
          Benefits are based on the employees length of service and average
          rate of pay during his or her last five years of service. Most employees
          are not required to contribute to the plans. The plans provide increasing
          pension benefits to help protect a portion of the income of retired
          employees against inflation.      We
          are responsible for adequately funding our DB pension plans. We make
          contributions to them based on various actuarial cost methods that are
          permitted by pension regulatory bodies. Contributions reflect actuarial
          assumptions about future investment returns, salary projections and
          future service benefits.     We
          also provide other future benefits to some of our employees, including:
        health-care and life insurance
            benefits during retirement
          other post-employment benefits,
            including various disability plans, workers compensation and
            medical benefits to former or inactive employees, their beneficiaries
            and dependants, from the time their employment ends until their retirement
            starts, under certain circumstances.We do not fund the other employee
          future benefit plans.      We
          accrue our obligations and related costs under employee benefit plans,
          net of the fair value of plan assets. Pension and other retirement benefit
          costs are determined using:
        the projected benefit method,
            prorated on years of service, which takes into account future pay
            levels
          a discount rate based on market
            interest rates of high-quality bonds with maturities that match the
            timing and benefits expected to be paid by the plans
          managements best estimate
            of the plans expected investment performance, pay increases,
            retirement ages of employees and expected health-care costs.We value pension plan assets at
          fair value, which is determined using current market values. We use
          a market-related value to calculate the expected return on plan assets.
          This value is based on a four-year weighted average of the fair value
          of the pension plan assets.      We
          amortize past service costs from plan amendments on a straight-line
          basis over the average remaining service period of employees who were
          active on the day of the amendment. This represents the period that
          we expect to realize economic benefits from the amendments.      Transitional
          assets and obligations that arose upon implementation of new accounting
          standards for employee future benefits are amortized on a straight-line
          basis over the average remaining service period of employees expected
          to receive benefits under the plans.      We
          use the corridor approach to recognize actuarial gains and losses into
          earnings. First we deduct 10% of the benefit obligation or the market-related
          value of plan assets, whichever is greater, from the unamortized net
          actuarial gains or losses based on a market-related value basis. Then
          we amortize the excess over the average remaining service period of
          active employees. At the end of 2004, this ranges from approximately
          10 to 17 years, with a weighted average period of 14 years.      When
          the restructuring of a benefit plan results in both a curtailment and
          a settlement of obligations, we account for the curtailment before we
          account for the settlement.      December 31
          is the measurement date for most of our employee benefit plans. Our
          actuaries perform a valuation at least every three years to determine
          the actuarial present value of the accrued pension and other retirement
          benefits. The last actuarial valuation of most of our pension plans
          was performed on January 1, 2003.
        (II) DEFINED CONTRIBUTION PLANSSome of our subsidiaries
          offer defined contribution (DC) plans that provide certain employees
          with pension benefits.      In
          January 2005, Bell Canada introduced a DC pension plan for
          its employees. Current employees had the option of retaining their DB
          coverage or switching to the new DC coverage.     Going
          forward, most new employees will participate in the DC pension arrangements.      We
          recognize a pension cost for DC plans when the employee provides service
          to the company, essentially coinciding with the cash contributions to
          the plan. 43    Bell Canada 2004
    Financial information   Black-Scholes option pricing
          model
        The Black-Scholes option pricing
          model is a financial model we use to calculate the weighted-average
          fair value of a stock option granted using four key assumptions: stock
          dividend yield, expected stock volatility, risk-free interest rate and
          expected life of the stock option.
      
      Notes to consolidated
          financial statements
        Note 1  Significant
          accounting policies (contd)
        Income taxesCurrent
          income tax expense is the estimated income taxes payable for the current
          year before any refunds or the use of losses incurred in previous years.
          We use the asset and liability method to account for future income taxes.
          Future income taxes reflect:
        the temporary differences between
            the carrying amounts of assets and liabilities for accounting purposes
            and the amounts used for tax purposes, on an after-tax basis
          the benefit of losses and non-refundable
            tax credits that will more likely than not be realized and carried
            forward to future years to reduce income taxes.We calculate future income taxes
          using the rates enacted by tax law and those substantively enacted.
          A tax law is substantively enacted when it has been tabled in the legislature
          but may not have been passed into law. The effect of a change in tax
          rates on future income tax assets and liabilities is included in earnings
          in the period when the change is substantively enacted.
        Subscriber acquisition costs
        We expense all subscriber acquisition
          costs when services are activated.
        Stock-based compensation plans
        Bell Canadas stock-based
          compensation plans include employee savings plans (ESPs), restricted
          share units (RSUs) and long-term incentive plans. Before 2000, the long-term
          incentive plans often included SCPs.      Starting
          in 2004, we made a number of prospective changes to the key features
          in our stock-based compensation plans, including:
        the value of the long-term
            incentive plans where stock options are granted was reduced to account
            for the introduction of a new mid-term incentive plan that uses RSUs
          setting specific performance
            targets that must be met before the option can be exercised.We credit to share capital any
          amount employees pay when they exercise their stock options or buy shares.
          We recognize the contributions Bell Canada makes under ESPs as
          compensation expense. We also recognize compensation expense or recovery
          relating to SCPs.
        RSUsFor each RSU granted we record
          a compensation expense that equals the market value of a BCE common
          share at the date of grant prorated over the vesting period. The compensation
          expense is adjusted for future changes in the market value of BCE common
          shares until the vesting date. The cumulative effect of the change in
          value is recognized in the period of the change. Vested RSUs will be
          paid in BCE common shares purchased on the open market or in cash,
          as the holder chooses, as long as minimum share ownership requirements
          are met.
        STOCK OPTIONSEffective January 2003,
          we use the fair-value based method to account for employee stock options
          and the Black-Scholes option pricing model to measure the compensation
          expense of options. This method is used for options granted on or after
          January 1, 2002. For options that contain specific performance-based
          targets, this is reflected in the calculation of the weighted-average
          fair value per option granted.
        Recent changes to accounting standards
        ASSET RETIREMENT OBLIGATIONSEffective January 1, 2004,
          we retroactively adopted section 3110 of the CICA Handbook,Asset
          Retirement Obligations.
          This section describes how to recognize and measure liabilities related
          to the legal obligations of retiring property, plant and equipment.      These
          obligations are initially measured at fair value and are adjusted for
          any changes resulting from age, and any changes to the timing or the
          amount of the original estimate of undiscounted cash flows. The asset
          retirement cost is capitalized as part of the related assets and is
          amortized into earnings over time. 44    Bell Canada 2004
    Financial information   The impact on our consolidated statements of operations for the year
          ended December 31, 2004 and the comparative periods was negligible.
          At December 31, 2003 and 2002, this resulted in:
        an increase of $6 million
            in capital assets
          an increase of $17 million
            in other long-term liabilities
          a decrease of $4 million
            in future income tax liabilities
          a decrease of $7 million
            in retained earnings.IMPAIRMENT OF LONG-LIVED ASSETSEffective January 1, 2004,
          we adopted section 3063 of the CICA Handbook,Impairment
          of Long-Lived Assets.
          Adopting this section affects how we recognize, measure and disclose
          the impairment of long-lived assets.      An
          impairment loss is recognized on a long-lived asset to be held and used
          when its carrying value exceeds the total undiscounted cash flows expected
          from its use and disposition.      Before
          January 1, 2004, the amount of the loss was determined by
          deducting the assets net recoverable amount (based on undiscounted
          cash flows expected from its use and disposition) from its carrying
          value.      After
          January 1, 2004, the amount of the loss is determined by deducting
          the assets fair value (based on discounted cash flows expected
          from its use and disposition) from its carrying value.
        HEDGING RELATIONSHIPSEffective January 1, 2004,
          we adopted Accounting Guideline 13,Hedging
          Relationships. The guideline
          specifies when hedge accounting can be used, and includes requirements
          for documenting and designating hedge relationships. It also requires
          companies to regularly and frequently assess the effectiveness of these
          hedging relationships. The guideline does not change the method of accounting
          for derivative instruments in hedging relationships.      Adopting
          this guideline did not affect our consolidated financial statements.
          All outstanding hedges that previously qualified for hedge accounting
          continue to qualify for hedge accounting under this guideline.
        CONSOLIDATION OF VARIABLE INTEREST
          ENTITIESEffective July 1, 2003,
          we adopted Accounting Guideline 15,Consolidation
          of Variable Interest Entities,
          on a retroactive basis without a restatement of previous periods. This
          resulted in an increase of $25 million in the deficit at July 1, 2003.
          At December 31, 2004 we had no interest in these types of
          entities.
        Future changes to accounting standards
        FINANCIAL INSTRUMENTSThe CICA issued revisions
          to section 3860 of the CICA Handbook,Financial
          Instruments  Disclosure and Presentation.The
          revisions change the accounting for certain financial instruments that
          have liability and equity characteristics. It requires instruments that
          meet specific criteria to be classified as liabilities on the balance
          sheet. Some of these financial instruments were previously classified
          as equities.      These
          revisions come into effect on January 1, 2005. Because we
          do not have any instruments with these characteristics, adopting this
          section on January 1, 2005 will not affect our consolidated
          financial statements.
        COMPREHENSIVE INCOMEThe CICA issued section 1530
          of the CICA Handbook,Comprehensive
          Income.The section is
          effective for fiscal years beginning on or after October 1, 2006.
          It describes how to report and disclose comprehensive income and its
          components.      Comprehensive
          income is the change in a companys net assets that results from
          transactions, events and circumstances from sources other than the companys
          shareholders. It includes items that would not normally be included
          in net earnings, such as:
        changes in the currency translation
            adjustment relating to self-sustaining foreign operations
          unrealized gains or losses
            on available-for-sale investments.The CICA also made changes to
          section 3250 of the CICA Handbook,Surplus,and reissued it as section
          3251,Equity.The
          section is also effective for fiscal years beginning on or after October 1,
          2006. The changes in how to report and disclose equity and changes in
          equity are consistent with the new requirements of section 1530,Comprehensive
          Income.      Adopting
          these sections on January 1, 2007 will require us to start reporting
          the following items in the consolidated financial statements:
        comprehensive income and its
            components
          accumulated other comprehensive
            income and its components. 45    Bell Canada 2004
    Financial information   Notes to consolidated
          financial statements
        Note 1  Significant
          accounting policies (contd)
        FINANCIAL INSTRUMENTS  RECOGNITION
          AND MEASUREMENTThe CICA issued section 3855
          of the CICA Handbook,Financial
          Instruments  Recognition and Measurement.The
          section is effective for fiscal years beginning on or after October 1,
          2006. It describes the standards for recognizing and measuring financial
          assets, financial liabilities and non-financial derivatives.      This
          section requires that:
        all financial assets be measured
            at fair value, with some exceptions like loans and investments that
            are classified as held-to-maturity
          all financial liabilities be
            measured at fair value if they are derivatives or classified as held
            for trading purposes. Other financial liabilities are measured at
            their carrying value.
          all derivative financial instruments
            be measured at fair value, even when they are part of a hedging relationship.We are currently evaluating the
          impact on our consolidated financial statements of adopting this section
          on January 1, 2007.
        HEDGESThe CICA recently issued
          section 3865 of the CICA Handbook,Hedges.The section is effective
          for fiscal years beginning on or after October 1, 2006, and describes
          when and how hedge accounting can be used.      Hedging
          is an activity used by a company to change an exposure to one or more
          risks by creating an offset between:
        changes in the fair value of
            a hedged item and a hedging item
          changes in the cash flows attributable
            to a hedged item and a hedging item, or
          changes resulting from a risk
            exposure relating to a hedged item and a hedging item.Hedge accounting makes sure that
          all gains, losses, revenues and expenses from the derivative and the
          item it hedges are recorded in the statement of operations in the same
          period.      We
          are currently evaluating the impact on our consolidated financial statements
          of adopting this section on January 1, 2007.
        Note 2  Segmented information
        In the first quarter of 2004,
          we changed our internal organizational structure and started reporting
          our results of operations under four segments:Consumer,
          Business, AliantandOther Bell Canada.Our reporting structure
          reflects how we manage our business and how we classify our operations
          for planning and measuring performance.      The
          Consumer segment provides local telephone, long distance, wireless,
          Internet access, video and other services to Bell Canadas
          residential customers, mainly in Ontario and Québec. Wireless
          services are also offered in Western Canada and video services are provided
          nationwide.      The
          Business segment provides local telephone, long distance, wireless,
          data, including Internet access, and other services to Bell Canadas
          small and medium-sized businesses and large enterprise customers in
          Ontario and Québec, as well as business customers in Western
          Canada.      The
          Aliant segment provides local telephone, long distance, wireless, data
          (including Internet access), and other services to residential and business
          customers in Atlantic Canada and represents the operations of our subsidiary,
          Aliant Inc. (Aliant). At December 31, 2004, Bell Canada
          owned 53% of Aliant. The remaining 47% was publicly held.      The
          Other Bell Canada segment includes Bell Canadas Wholesale
          business, and the financial results of Télébec Limited
          Partnership (Télébec), NorthernTel Limited Partnership
          (NorthernTel) and Northwestel Inc. (Northwestel). Our Wholesale
          business provides local telephone, long distance, wireless, data and
          other services to competitors who resell these services. Télébec,
          NorthernTel and Northwestel provide telecommunications services to less
          populated areas of Québec, Ontario and Canadas northern
          territories. At December 31, 2004, Bell Canada owned
          100% of Northwestel and 63% of Télébec and NorthernTel.
          The Bell Nordiq Income Fund owned the remaining 37%.      In
          classifying our operations for planning and measuring performance, all
          restructuring and other items at Bell Canada and its subsidiaries
          except for Aliant are included in the Other Bell  Canada segment
          and not allocated to the Consumer or Business segments. 46    Bell Canada 2004
    Financial information   The accounting policies used by the segments
          are the same as those we describe in Note 1, Significant
          Accounting Policies. Segments
          negotiate sales with each other as if they were unrelated parties.      We
          measure the profitability of each segment based on its operating income.      Our
          operations, including most of our revenues, capital assets and goodwill,
          are located in Canada.
      
      The
        table below is a summary of financial information by segment.FOR THE YEAR ENDED DECEMBER 31, 2004
      CONSUMER
      
      BUSINESS
      
      ALIANT
      
      OTHERBELLCANADA
      
      INTER-
        SEGMENT ELIMINATIONS
      
      CONSOLIDATEDOperating revenuesExternal customers
      7,446
      
      5,702
      
      1,895
      
      1,744
      
      
      
      16,787Inter-segment
      56
      
      149
      
      138
      
      195
      
      (538
      )
      TOTAL OPERATING REVENUES
      7,502
      
      5,851
      
      2,033
      
      1,939
      
      (538
      )
      16,787OPERATING INCOME (LOSS)
      2,119
      
      896
      
      268
      
      (588
      )
      
      
      2,695Other income
      
      
      
      
      
      
      
      
      
      
      183Interest expense
      
      
      
      
      
      
      
      
      
      
      (863
      )Income taxes
      
      
      
      
      
      
      
      
      
      
      (506
      )Non-controlling interest
      
      
      
      
      
      
      
      
      
      
      9EARNINGS FROM CONTINUING OPERATIONS
      
      
      
      
      
      
      
      
      
      
      1,518SEGMENT ASSETS
      10,265
      
      11,678
      
      3,179
      
      2,544
      
      
      
      27,666INVESTMENTS AT EQUITY
      
      
      
      
      
      
      4
      
      
      
      4CAPITAL EXPENDITURES
      (1,481
      )
      (898
      )
      (295
      )
      (352
      )
      
      
      (3,026
      )FOR THE YEAR ENDED 
          DECEMBER 31, 2003Operating revenuesExternal customers
      7,148
      
      5,678
      
      1,909
      
      1,879
      
      
      
      16,614Inter-segment
      55
      
      149
      
      150
      
      136
      
      (490
      )
      TOTAL OPERATING REVENUES
      7,203
      
      5,827
      
      2,059
      
      2,015
      
      (490
      )
      16,614OPERATING INCOME
      2,019
      
      781
      
      415
      
      621
      
      
      
      3,836Other income
      
      
      
      
      
      
      
      
      
      
      217Interest expense
      
      
      
      
      
      
      
      
      
      
      (945
      )Income taxes
      
      
      
      
      
      
      
      
      
      
      (787
      )Non-controlling interest
      
      
      
      
      
      
      
      
      
      
      (53
      )EARNINGS
          FROM CONTINUING OPERATIONS
      
      
      
      
      
      
      
      
      
      
      2,268SEGMENT ASSETS
      10,580
      
      9,881
      
      3,334
      
      4,447
      
      
      
      28,242INVESTMENTS AT EQUITY
      
      
      
      
      
      
      381
      
      
      
      381CAPITAL EXPENDITURES
      (1,287
      )
      (936)
      
      (333
      )
      (336
      )
      
      
      (2,892
      ) 47    Bell Canada 2004
    Financial information   Infostream is a systems and storage
          technology firm that provides networking solutions for voice over Internet
          protocol (VoIP), storage area networks and network management.
          Charon is a full-service IT solutions provider that specializes in server-based
          computing, systems integration, IT security, software development and
          IT consulting.
          Elix offers technology consulting, integration and implementation of
          call routing and management systems, IT application integration, and
          design and implementation of electronic voice-driven response systems.
      
      Notes to consolidated
          financial statements
        Note 3  Business acquisitions
          and dispositions
        The consolidated statements of
          operations include the results of acquired businesses from the date
          they were purchased.
        Business acquisitions
        We made a number of business acquisitions
          in 2004, including:
        Canadian operations of 360networks
            Corporation (360networks)
            In November 2004, Bell Canada acquired the Canadian operations
            of 360networks, a telecommunications service provider. The purchase
            included the shares of 360networks subsidiary GT Group Telecom
            Services Corporation and certain related interconnected U.S. network
            assets. Following the purchase, Bell Canada sold the retail customer
            operations in Central and Eastern Canada to Call-Net Enterprises Inc.
            (Call-Net). For a share of the revenues, Bell Canada now provides
            to Call-Net network facilities and other operations and support services
            so Call-Net can service its new customer base. The fair value of the
            net assets acquired exceeded the purchase price. For accounting purposes,
            the excess was eliminated by:
            reducing the amounts assigned
                to the acquired non-monetary assets to nil
              recognizing the balance
                of $69 million as an extraordinary gain in our consolidated
                statement of operations.
          DownEast Mobility Limited
            (DownEast) In
            October 2004, Aliant acquired 100% of the outstanding shares
            of DownEast, a communication solutions retailer.
          Bell West
            In August 2004, Bell Canada acquired Manitoba Telecom Services Inc.s
            (MTS) 40% interest in Bell West. Bell Canada now owns 100%
            of Bell West.
          Infostream Technologies Inc.
            (Infostream)
            In May 2004, Bell Canada acquired 100% of the outstanding
            shares of Infostream.
          Charon Systems Inc.
            (Charon) In
            May 2004, Bell Canada acquired 100% of the assets of Charon.
          Elix Inc. (Elix)
            In March 2004, Bell Canada acquired 75.8% of the outstanding
            shares of Elix.
          Accutel Conferencing Systems Inc.
            (Canada) and Accutel Conferencing Systems Corp. (U.S.) (collectively
            Accutel) In
            February 2004, Bell Canada acquired 100% of the outstanding
            shares of Accutel, which provides teleconferencing services.Of the goodwill acquired in 2004,
          $30 million was deductible for tax purposes. 48    Bell Canada 2004
    Financial information   The
        table below provides a summary of all business acquisitions made in 2004.
        The purchase price allocation for all 2004 acquisitions is based
        on estimates. The final purchase price allocation for each business acquisition
        is expected to be completed within 12 months of the acquisition date.CANADIAN
        OPERATIONS
        OF
        360NETWORKS
      
      40%
        
        INTEREST
        IN BELL WEST
      
      ALL
        OTHER
        BUSINESS ACQUISITIONS
      
      TOTALCONSIDERATION RECEIVED:Non-cash working capital
      (9
      )
      
      
      10
      
      1Capital assets
      
      
      (15
      )
      33
      
      18Other long-term assets
      429
      
      5
      
      13
      
      447Goodwill
      
      
      395
      
      193
      
      588Long-term debt
      
      
      
      
      
      
      Other long-term liabilities
      (58
      )
      
      
      (2
      )
      (60
      )Non-controlling interest
      
      
      261
      
      
      
      261362
      
      646
      
      247
      
      1,255Bank indebtedness at acquisition
      
      
      
      
      (4
      )
      (4
      )NET ASSETS ACQUIRED
      362
      
      646
      
      243
      
      1,251EXTRAORDINARY GAIN
      69
      
      
      
      
      
      69Consideration given:Cash
      283
      
      645
      
      193
      
      1,121Acquisition
          costs
      10
      
      1
      
      2
      
      13Future
          cash payment
      
      
      
      
      4
      
      4Issuance
          of 582,081 Aliant common shares
      
      
      
      
      15
      
      15Non-cash
      
      
      
      
      29
      
      29293
      
      646
      
      243
      
      1,182 Business disposition
        SALE OF CERTEN INC. (CERTEN)On July 2, 2003,
          Bell Canada sold its 89.9% ownership interest in Certen to a subsidiary
          of Amdocs Limited for $89 million in cash.      The
          carrying value of Certens net assets was $159 million at
          the time of the sale. Certen had total assets of $450 million,
          including $34 million in cash and cash equivalents, and total liabilities
          of $291 million. At the time of the sale, Bell Canada extended
          the remaining term of its contract with Certen and Amdocs Limited from
          four years to seven years for the outsourcing of billing operations
          and the development of customer care and billing solutions.      Bell Canada
          received a perpetual right to use and modify the intellectual property
          relating to the billing system. It recorded the perpetual right as an
          intangible asset of $494 million that will be amortized against
          earnings over the remaining life of the contract.      Bell Canada
          recorded a liability of $392 million. This represented its future
          payments to Certen over the remaining life of the contract for the development
          of Bell Canadas billing system. This liability will be reduced
          as Bell Canada makes payments to Certen.      The
          future income tax liability relating to the intangible asset and long-term
          liability was $32 million. The transaction did not result in any
          gain or loss for Bell Canada. Before the sale, Certens results
          of operations were presented in the Other Bell Canada segment. 49    Bell Canada 2004
    Financial information   Notes
        to consolidated financial statements Note 4
           Restructuring and other items2004
      
      2003Employee departure programs
      (1,063
      )
      Provision for contract loss
      (128
      )
      Settlement
          with MTS
      75
      
      Other charges
      (103
      )
      (14
      )RESTRUCTURING AND OTHER ITEMS
      (1,219
      )
      (14
      ) 2004 EMPLOYEE DEPARTURE PROGRAM 
          BELL CANADAIn 2004, we recorded
          a pre-tax charge of $985 million related to the employee departure
          program that Bell Canada announced in June 2004. The cost
          was included in the Other Bell Canada segment. The program consisted
          of two phases:
        an early retirement plan; 3,965
            employees chose to receive a package that included a cash allowance,
            immediate pension benefits, an additional guaranteed pension payable
            up to 65 years of age, career transition services and post-employment
            benefits
          a departure plan; 1,087 employees
            chose to receive a special cash allowance.Almost all of the employees who
          chose to take advantage of the program left Bell Canada in 2004.
          The rest will leave during 2005.
               We also recorded a pre-tax charge of $11 million
          for relocating employees and closing real estate facilities that are
          no longer needed because of the employee departure program. We expect
          to spend approximately $65 million in the future for similar costs
          that will be expensed as incurred.
        EMPLOYEE DEPARTURE PROGRAM 
          ALIANTAliant recorded a pre-tax
          charge of $67 million. Under the plan, 693 employees chose to receive
          a cash allowance. The program is expected to be completed by the end
          of 2005.      The
          table below provides a summary of the costs recognized in 2004,
          as well as the corresponding liability at December 31, 2004. BELL
        CANADA
      
      ALIANT
      
      CONSOLIDATEDEmployee departure program costs
      985
      
      67
      
      1,052Less:Cash
          payments
      (194
      )
      
      
      (194
      )Pension and other post-retirement
          benefits applied to:Other
          long-term assets
      (660
      )
      
      
      (660
      )Other
          long-tem liabilities
      (11
      )
      
      
      (11
      )BALANCE
          IN ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AT DECEMBER 31, 2004
      120
      
      67
      
      187 PROVISION FOR CONTRACT
          LOSSIn 2001, we entered
          into a contract with the Government of Alberta to build a next-generation
          network to bring high-speed Internet and broadband capabilities to rural
          communities in Alberta. Mechanical construction of the network was completed
          in  December 2004. We identified cost overruns on the construction
          contract and recorded an additional provision of $128 million in
          2004.
        SETTLEMENT WITH MTSOn May 20, 2004,
          Bell Canada filed a lawsuit against MTS after MTS announced it
          would purchase Allstream Inc. (Allstream). Bell Canada sought
          damages and an injunction that would prevent MTS from breaching the
          terms and conditions of the commercial agreements it had with Bell Canada.
          On June 3, 2004, Bell Canada also filed a lawsuit against
          Allstream seeking damages related to the same announcement.      On
          June 30, 2004, BCE reached an agreement with MTS to settle
          the lawsuits. The terms of the settlement included:
        a payment of $75 million
            by MTS to Bell Canada for unwinding various commercial agreements.
            This settlement was recordedin the second quarter of 2004 and
            received on August 3, 2004.
          the removal of contractual
            competitive restrictions to allow Bell Canada and MTS to compete
            freely with each other, effective June 30, 2004
          the orderly disposition of
            our interest in MTS. Our voting rights in MTS were waived after receiving
            the $75 million payment. 50    Bell Canada 2004
    Financial information  a premium payment to us by
            MTS in the event there is a change in control of MTS before 2006.
            The payment will equal the appreciation in MTSs share price
            from the time of our divestiture to the time of any takeover transaction.On August 1, 2004, the
          MTS shares were transferred from Bell Canada to BCE as part
          of a corporate reorganization. The purpose of this reorganization was
          to ensure that capital loss carryforwards at BCE would be available
          to be utilized against the gain on the sale of the MTS shares. See Note 19,Share capital,for
          more information.
        OTHER CHARGESDuring 2004, we recorded
          other pre-tax charges totalling $103 million. These costs consisted
          mostly of future lease costs for facilities that were no longer needed,
          asset write-downs and other provisions, net of a reversal of previously
          recorded restructuring charges that were no longer necessary because
          of the introduction of a new employee departure program.
        2003RESTRUCTURING
          OF XWAVE SOLUTIONS INC.Aliant recorded a pre-tax
          restructuring charge of $15 million in 2003. This was a result
          of a restructuring plan at its subsidiary Xwave Solutions Inc.
          Costs associated with the restructuring include severance and related
          benefits, technology lease cancellation penalties and real estate rationalization
          costs. The restructuring was completed in 2004.
        BELL CANADA CHARGESIn 2003, Bell Canada
          recorded other charges of $65 million that related to various asset
          write-downs and other provisions. These charges were offset by a credit
          of $66 million relating to the reversal of the restructuring charges
          recorded in 2002, which were no longer necessary because fewer
          employees were terminated than expected. This was because of an increase
          in the number of employees being transferred to other positions within
          Bell Canada. Note 5
         Other income
      2004
      
      2003Net gains
        on investments
      117
      
      106Interest income
      53
      
      87Foreign currency
        gains (losses)
      (2
      )
      19Other
      15
      
      5OTHER INCOME
      183
      
      217In 2004, net gains on investments of $117 million was mainly
          from a gain of $108 million from the sale of Bell Canadas
          remaining 3.24% interest in YPG General Partner Inc. for net cash
          proceeds of $123 million. Capital loss carryforwards were available
          to be utilized against the taxes on the gains on sale.      Net
          gains on investments of $106 million in 2003 were mainly from:
        a $120 million gain from
            the sale of a 3.66% interest in YPG General Partner Inc. for
            net proceeds of $135 million in cash
          a $14 million loss from
            the write-down of a number of our cost-accounted investments. Note 6
         Interest expense2004
      
      2003Interest expense
        on long-term debt
      (830
      )
      (900
      )Interest expense
        on other debt
      (33
      )
      (45
      )TOTAL INTEREST
        EXPENSE
      (863
      )
      (945
      ) 51    Bell Canada 2004
    Financial information   Notes to consolidated
          financial statements
        Note 7  Income taxesThe table below is a reconciliation
          of income tax expense at Canadian statutory rates of 34.3% in 2004
          and 35.4% in 2003, and the amount of reported income tax expense
          in the statements of operations. 2004
      
      2003Income taxes computed at statutory
          rates
      691
      
      1,100Savings
          from loss utilization transactions
      (179
      )
      (363
      )Net
          gains on investments
      (40
      )
      (48
      )Large
          corporations tax
      31
      
      43Other
      3
      
      55TOTAL INCOME TAX EXPENSE
      506
      
      787 The
        table below shows the significant components of income tax expense relating
        to earnings from continuing operations.2004
      
      2003Current income taxes
      654
      
      589Future income taxesUtilization (recognition) of loss
          carryforwards
      (6
      )
      180Change
          in statutory rate
      2
      
      9Change in temporary differences
          and other
      (144
      )
      9TOTAL INCOME TAX EXPENSE
      506
      
      787 The
        table below shows future income taxes resulting from temporary differences
        between the carrying amounts of assets and liabilities for accounting
        purposes and the amounts used for tax purposes, as well as tax loss carryforwards.2004
      
      2003Non-capital loss carryforwards
      563
      
      180Capital loss carryforwards
      13
      
      12Capital assets
      (152
      )
      (68
      )Employee benefit plans
      (54
      )
      (298
      )Investment tax credits carryforwards
      126
      
      Other
      (20
      )
      77TOTAL FUTURE INCOME TAXES
      476
      
      (97
      )Future income taxes are comprised
          of:Future income tax asset  current
          portion
      456
      
      116Future income tax asset  long-term
          portion
      311
      
      224Future income tax liability 
          current portion
      (16
      )
      (13
      )Future income tax liability 
          long-term portion
      (275
      )
      (424
      )TOTAL FUTURE INCOME TAXES
      476
      
      (97
      ) At December 31, 2004,
          Bell Canada had $2,164 million in non-capital loss carryforwards.
          We
        recognized a future tax asset
            of $563 million for financial reporting purposes for approximately
            $1,588 million of the non-capital loss carryforwards. Of the
            total, $1,526 million expires in varying annual amounts until
            the end of 2011. The balance expires in varying annual amounts from
            2012 to 2024.
          did not recognize a future
            tax asset for financial reporting purposes for approximately $576 million
            of the non-capital loss carryforwards. Of the total, $506 million
            expires in varying annual amounts until the end of 2011. The balance
            expires in varying annual amounts from 2012 to 2024.At December 31, 2004,
          Bell Canada had $222 million in capital loss carryforwards,
          which can be carried forward indefinitely. We:
        recognized a future tax asset
            of $13 million for financial reporting purposes for approximately
            $72 million of the capital loss carryforwards
          did not recognize a future
            tax asset for financial reporting purposes on the balance. 52    Bell Canada 2004
    Financial information   Aliants
          emerging business segment consisted mainly of Aliants investments
          in iMagicTV Inc., Prexar LLC and AMI Offshore Inc. iMagicTV Inc.
          is a software development company that provides broadband TV software
          and solutions to service providers around the world. Prexar LLC is an
          Internet services provider. AMI Offshore Inc. provides process
          and systems control technical services, and contracts manufacturing
          solutions to offshore oil and gas and other industries.
          Aliants remote communications segment consisted of Aliants
          53.2% investment in Stratos Global Corporation (Stratos). Stratos offers
          Internet Protocol (IP), data and voice access services through a range
          of newly emerging and established technologies, including satellite
          and microwave, to customers in remote locations.
      
      Note 8
         Discontinued operations2004
      
      2003Aliants
        remote communications segment
      
      
      63Aliants
        emerging business segment
      
      
      (4
      )NET GAIN FROM
        DISCONTINUED OPERATIONS
      
      
      59The
        table below is a summarized statement of operations for the discontinued
        operations.2004
      
      2003Revenue
      
      
      547Operating
        gain from discontinued operations, before tax
      
      
      26Gain from
        discontinued operations, before tax
      
      
      121Income tax
        expense on operating gain
      
      
      (7
      )Income tax
        expense on gain
      
      
      (16
      )Non-controlling
        interest
      
      
      (65
      )NET GAIN FROM
        DISCONTINUED OPERATIONS
      
      
      59 Aliants emerging business segment Effective
          May 2003, we started presenting the financial results of Aliants
          emerging business segment as discontinued operations.      Almost
          all of the assets of Aliants emerging business segment were sold
          at December 31, 2003.
        Aliants remote communications
        segmentEffective December 2003,
          we started presenting the financial results of Aliants remote
          communications segment as discontinued operations.      In
          December 2003, Aliant completed the sale of Stratos, after receiving
          the required regulatory approvals. Aliant received $340 million
          ($320 million net of selling costs) in cash for the sale. The transaction
          resulted in a gain on sale of $105 million ($48 million after
          taxes and non-controlling interest). 53    Bell Canada 2004
    Financial information   Notes
        to consolidated financial statementsNote 9
         Accounts receivable2004
      
      2003Trade accounts receivable
      1,676
      
      1,696Other accounts receivable
      62
      
      228Allowance for doubtful accounts
      (131
      )
      (213
      )1,607
      
      1,711 Securitization of accounts receivable
        Bell Canada sold an interest
          in a pool of accounts receivable to a securitization trust for a total
          of $1 billion in cash at December 31, 2004 ($900 million
          at December 31, 2003), under a revolving sales agreement that
          came into effect on December 12, 2001. The agreement expires
          on December 12, 2006. Bell Canada had a retained interest
          of $133 million in the pool of accounts receivable at December 31, 2004
          ($128 million at December 31, 2003), which equals the
          amount of over collateralization in the receivables it sold.      Aliant
          sold an interest in a pool of accounts receivable to a securitization
          trust for a total of $125 million in cash at December 2004
          ($130 million at December 31, 2003), under a revolving
          sales agreement that came into effect on December 13, 2001.
          The agreement expires on December 13, 2006. Aliant had a retained
          interest of $43 million in the pool at December 31, 2004
          ($29 million at December 31, 2003).      Bell Canada
          and Aliant continue to service these accounts receivable. The buyers
          interest in the collection of these accounts receivable ranks ahead
          of the interests of Bell Canada and Aliant, which means that Bell Canada
          and Aliant are exposed to certain risks of default on the amount securitized.
          They have provided various credit enhancements in the form of overcollateralization
          and subordination of their retained interests.      The
          buyers will reinvest the amounts collected by buying additional interests
          in the Bell Canada and Aliant accounts receivable until the agreements
          expire. The buyers and their investors have no claim on Bell Canadas
          and Aliants other assets if customers do not pay amounts owed
          on time.      In 2004,
          we recognized a pre-tax loss of $26 million on the revolving sale
          of accounts receivable for the combined securitizations, compared to
          a pre-tax loss of $33 million in 2003.      The
          table below shows balances for the combined securitizations at December 31, 2004
          and the assumptions that were used in the model on the date of transfer
          and at December 31, 2004. A 10% or 20% adverse change in each
          of these assumptions would have no significant effect on the current
          fair value of the retained interest. RANGE
      
      2004
      
      2003Securitized interest in accounts
          receivable
      
      
      1,125
      
      1,030Retained interest
      
      
      176
      
      157Servicing liability
      
      
      1.3
      
      1.4Average accounts receivable managed
      
      
      1,323
      
      1,265Assumptions:Cost
          of funds
      2.25%–3.05
      %
      2.55
      %
      3.22
      %Average
          delinquency ratio
      7.61%–8.24
      %
      8.24
      %
      7.58
      %Average
          net credit loss ratio
      0.91%1.07
      %
      1.03
      %
      0.95
      %Weighted-average
          life (days)
      3235
      
      32
      
      35Servicing
          fee liability
      2.00
      %
      2.00
      %
      2.00
      % The
          table below is a summary of certain cash flows received from and paid
          to the trusts during the year.2004
      
      2003Collections reinvested in revolving
          sales
      14,331
      
      13,612Increase (decrease) in sale proceeds
      95
      
      (5
      ) 54    Bell Canada 2004
    Financial information   Note 10
         Other current assets2004
      
      2003Future income taxes (Note 7)
      456
      
      116Inventory
      288
      
      254Prepaid expenses
      220
      
      129964
      
      499  Note 11
         Capital assets2004
      
      
      
      
      
      2003COST
      
      ACCUMULATED
          AMORTIZATION
      
      NET
        BOOK
        VALUE
      
      COST
      
      ACCUMULATED
          AMORTIZATION
      
      NET
        BOOK
        VALUETelecommunications assetsInside
          plant
      20,066
      
      13,836
      
      6,230
      
      20,234
      
      13,587
      
      6,647Outside
          plant
      12,627
      
      8,008
      
      4,619
      
      12,221
      
      7,659
      
      4,562Station
          equipment
      2,788
      
      1,625
      
      1,163
      
      2,759
      
      1,526
      
      1,233Machinery and equipment
      4,919
      
      2,716
      
      2,203
      
      4,636
      
      2,497
      
      2,139Buildings
      2,542
      
      1,329
      
      1,213
      
      2,415
      
      1,260
      
      1,155Plant under construction
      1,411
      
      
      
      1,411
      
      841
      
      
      
      841Satellites
      764
      
      211
      
      553
      
      728
      
      148
      
      580Land
      77
      
      
      
      77
      
      78
      
      
      
      78Other
      173
      
      37
      
      136
      
      314
      
      115
      
      199TOTAL PROPERTY, PLANT AND EQUIPMENT
      45,367
      
      27,762
      
      17,605
      
      44,226
      
      26,792
      
      17,434Finite-life intangible assetsSoftware
      3,149
      
      1,273
      
      1,876
      
      2,883
      
      1,044
      
      1,839Other
      25
      
      5
      
      20
      
      5
      
      2
      
      3TOTAL CAPITAL ASSETS
      48,541
      
      29,040
      
      19,501
      
      47,114
      
      27,838
      
      19,276 The cost of assets under capital
          leases was $1,356 million at December 31, 2004, and $1,285 million
          at December 31, 2003. The net book value of these assets was
          $911 million at December 31, 2004, and $931 million
          at December 31, 2003.      Amortization
          of capital assets was $2,949 million in 2004, and $2,957 million
          in 2003.      Retirements
          charged to accumulated amortization were $1,534 million in 2004,
          and $391 million in 2003. Note 12
         Other long-term assets2004
      
      2003Accrued benefit asset (Note 21)
      1,473
      
      2,080Note receivable from parent
          company
      498
      
      498Future income taxes (Note 7)
      311
      
      224Long-term notes and other receivables
      73
      
      59Investments at cost
      51
      
      61Investments at equity
      4
      
      381Other
      182
      
      2232,592
      
      3,526Investments at equity include no goodwill at December 31, 2004,
          and goodwill of $171 million at December 31, 2003. 
               Amortization of deferred charges was $13 million
          in 2004 and in 2003. 55    Bell Canada 2004
    Financial information   Notes
          to consolidated financial statementsNote 13
         Indefinite-life intangible assets2004
      
      2003Spectrum licences
      778
      
      778Cable licences
      18
      
      18TOTAL
      796
      
      796  Note 14
         GoodwillOTHER 
        BELL CANADA
      
      CONSOLI- 
        DATEDCONSUMER
      
      BUSINESS
      
      ALIANTBALANCE  DECEMBER 31, 2003
      587
      
      556
      
      351
      
      92
      
      1,586Additions (Note 3)
      4
      
      478
      
      31
      
      75
      
      588BALANCE  DECEMBER 31, 2004
      591
      
      1,034
      
      382
      
      167
      
      2,174  Note 15
         Debt due within one yearWEIGHTED-AVERAGEINTEREST RATE
      
      WEIGHTED-AVERAGEMATURITY2004
      
      2003Bank advances
      2.58
      %
      N/A
      
      25
      
      18Notes payable
      2.06
      %
      30 days
      
      176
      
      14Long-term debt due within one year
          (Note 16)
      
      
      
      
      1,151
      
      1,133TOTAL DEBT DUE WITHIN ONE YEAR
      
      
      
      
      1,352
      
      1,165N/A: Not applicable.
        RestrictionsSome
        of the credit agreements: require us to meet specific
            financial ratios
          restrict our acquisition of
            capital assets
          restrict the payment of dividends.We are in compliance with all conditions
        and restrictions. 56    Bell Canada 2004
    Financial information   Note 16
         Long-term debtWEIGHTED-AVERAGEINTEREST
        RATE
      
      MATURITY
      
      2004
      
      2003BELL CANADADebentures and notes (a)
      7.34
      %
      2005-2054
      
      8,246
      
      8,789Subordinated debentures
      8.21
      %
      2026-2031
      
      275
      
      275Capital leases (b)
      7.45
      %
      2005-2015
      
      825
      
      891Other
      
      
      
      
      75
      
      212TOTAL  BELL CANADA
      
      
      
      
      9,421
      
      10,167ALIANTDebentures, notes and bonds (c)
      8.02
      %
      2005-2025
      
      885
      
      985Other
      
      
      
      
      11
      
      5TOTAL  ALIANT
      
      
      
      
      896
      
      990TOTAL DEBT
      
      
      
      
      10,317
      
      11,157Less: Amount due within one year
          (Note 15)
      
      
      
      (1,151
      )
      (1,133
      )LONG-TERM DEBT
      
      
      
      
      9,166
      
      10,024 (a)
      Bell CanadaAll debentures and
        notes are unsecured. They include US$200 million maturing in 2006 and
        US$200 million maturing in 2010, which have both been swapped into Canadian
        dollars; $125 million of long-term debt includes call options that allow
        for early repayment of the principal amounts when certain premiums are
        paid.(b)
      Bell CanadaIncludes capital
        leases of $84 million in 2004 and $75 million in 2003, net of loans receivable
        of $284 million in 2004 and $300 million in 2003. These obligations were
        from agreements that Bell Canada entered into in 1999 and 2001 to sell
        and lease back telecommunications equipment for a total of $399 million.
        Some of the proceeds were invested in interest-bearing loans receivable.
        The capital lease obligations, net of loans receivable, were originally
        issued for US$39 million and have been swapped into Canadian dollar obligations.(c)
      AliantAll debentures and
        notes are unsecured. The bonds ($185 million in 2004 and 2003) are secured
        by deeds of trust and mortgage, and by supplemental deeds. These instruments
        contain a first fixed and specific mortgage, a pledge and charge upon
        all real and tangible property and equipment, which includes inventory
        and all capital investments except software, and all rights and licences
        related to that property of Aliant Telecom Inc. The bonds also provide,
        based on province of issue, a floating charge on all future real and tangible
        property of Aliant Telecom Inc. and all revenues and proceeds derived
        from that property. Aliant has a floating interest rate through a swap
        agreement on $100 million of debt.RestrictionsSome of the debt agreements:require us to meet specific
            financial ratios
          impose covenants, maintenance
            tests and new issue tests.We are in compliance with all conditions
        and restrictions. Note 17
         Other long-term liabilities2004
      
      2003Accrued benefit liability (Note 21)
      1,425
      
      1,292Future income taxes (Note 7)
      275
      
      424Deferred revenue and gains on assets
      184
      
      71Deferred contract payments
      254
      
      301Other
      615
      
      607TOTAL OTHER LONG-TERM LIABILITIES
      2,753
      
      2,695 57    Bell Canada 2004
    Financial information  Notes
            to consolidated financial statements
          Note 18  Financial instruments
          Using derivatives
          We use derivative instruments
            to manage our exposure to interest rate risk, foreign currency risk
            and changes in the price of BCE common shares. We do not use derivative
            instruments for speculative purposes. Since we do not trade actively
            in derivative instruments, we are not exposed to any significant liquidity
            risks relating to them.      The
            following derivative instruments were outstanding at December 31, 2004:
          cross-currency swaps and
              forward contracts that hedge foreign currency risk on a portion
              of our long-term debt
            interest rate swaps that
              hedge interest rate risk on a portion of our long-term debt
            forward contracts that hedge
              foreign currency risk on anticipated transactions
            forward contracts on BCE
              common shares that hedge the fair value exposure related to SCPs.Credit risk We
            are exposed to credit risk if counterparties to our derivative instruments
            are unable to meet their obligations. We expect that they will be
            able to meet their obligations because we deal with institutions that
            have strong credit ratings and we regularly monitor our credit risk
            and credit exposure.      There
            was no credit risk relating to derivative instruments at December 31, 2004.
            We are also exposed to credit risk from our customers, but the concentration
            of this risk is minimized because we have a large and diverse customer
            base.
          Currency exposures We
            use cross-currency swaps and forward contracts to hedge debt that
            is denominated in foreign currencies. We also use forward contracts
            to hedge foreign currency risk on anticipated transactions. Derivatives
            that qualify for hedge accounting, and the underlying hedged items,
            are marked to current rates.      The
            principal amount to be received under currency contracts was US$551 million
            at December 31, 2004. The principal amount to be paid under
            these contracts was $738 million at December 31, 2004.
          Interest rate exposures We use interest rate swaps to
            manage the mix of fixed and floating interest rates on our debt. We
            have entered into interest rate swaps with a notional amount of $100 million,
            maturing in 2011. We pay interest at a rate equal to a three-month
            bankers acceptance floating interest rate plus 2.1%. We receive
            interest on these swaps at a rate of 6.8%.      We
            have also issued swaptions for the right to enter into interest rate
            swap transactions for a notional amount of $90 million. If exercised,
            these swaptions will involve the payment of fixed interest rates of
            10.5% and 11.1% in exchange for the receipt of the three-month bankers
            acceptance floating rate from 2006 until maturity in 2013.
          Fair value Fair
            value is the amount that willing parties would accept to exchange
            a financial instrument based on the current market for instruments
            with the same risk, principal and remaining maturity. We base fair
            values on estimates using present value and other valuation methods.      These
            estimates are affected significantly by our assumptions for the amount
            and timing of estimated future cash flows and discount rates, which
            all reflect varying degrees of risk. Potential income taxes and other
            expenses that would be incurred on disposition of these financial
            instruments are not reflected in the fair values. As a result, the
            fair values are not necessarily the net amounts that would be realized
            if these instruments were actually settled.
 58    Bell Canada 2004
    Financial information   The carrying value of all financial instruments approximates fair value,
        except for those noted in the table below.2004
      
      
      
      2003CARRYING
      
      FAIR
      
      CARRYING
      
      FAIRVALUE
      
      VALUE
      
      VALUE
      
      VALUEInvestment in Nortel Networks
          Corporation (Nortel) (1)
      12
      
      21
      
      12
      
      27Long-term debt due within one year
      1,151
      
      1,164
      
      1,133
      
      1,147Long-term debt
      9,166
      
      10,868
      
      10,024
      
      11,669Derivative financial instruments,
          net asset (liability) position:Forward contract hedge of SCPs
      (19
      )
      (21
      )
      (19
      )
      (21
      )Currency
          contracts(2)
      (74
      )
      (83
      )
      (92
      )
      (95
      )Interest
          rate swaps
      (8
      )
      (28
      )
      (9
      )
      (25
      ) (1)
      We have designated
        2 million of our approximately 5 million Nortel common shares
        to manage our exposure to outstanding rights to SCPs.(2)
      Currency contracts
        include cross-currency interest rate swaps and foreign currency forward
        contracts. Some of the cross-currency interest rate swaps are economic
        hedges that do not qualify for hedge accounting. We carry these at fair
        value and all gains or losses are recorded in the statement of operations. Note
          19  Share capital
        Preferred shares
        Bell Canadas articles
          of amalgamation provide for an unlimited number of Class A Preferred
          Shares, Class B Preferred Shares and Class C Preferred Shares. The terms
          set out in the articles authorize Bell Canadas directors
          to issue Class A Preferred Shares in one or more series and to set the
          number of shares and conditions for each series.      The
          table below is a summary of the principal terms of Bell Canadas
          Class A Preferred Shares. There were no Class B Preferred Shares or
          Class C Preferred Shares issued and outstanding at December 31, 2004.
          Bell Canadas articles of amalgamation describe the terms
          and conditions of these shares in detail. NUMBER
        OF SHARES
      
      STATED CAPITALANNUAL
        DIVI-
        DEND
      
      CONVERTIBLE
      
      CONVERSION
      
      REDEMPTION
      
      REDEMPTION
      
      
      
      ISSUED AND
      
      AT DECEMBER 31SERIES
      RATE
      
      INTO
      
      DATE
      
      DATE
      
      PRICE
      
      AUTHORIZED
      
      OUTSTANDING
      
      2004
      
      200315(1)
      5.50
      %
      Series 16
      
      February 1,
        2005
      
      February 1,
        2005
      
      $25.50
      
      24,000,000
      
      16,000,000
      
      400
      
      40016(1)
      fixed
      
      Series 15
      
      February 1,
        2010
      
      February 1,
        2010
      
      $25.00
      
      24,000,000
      
      
      
      
      
      17
      5.25
      %
      Series 18
      
      May 1, 2006
      
      May 1, 2006
      
      $25.00
      
      22,000,000
      
      14,000,000
      
      350
      
      35018
      floating
      
      Series 17
      
      May 1, 2011
      
      At any time
      
      $25.50
      
      22,000,000
      
      
      
      
      
      19
      5.55
      %
      Series 20
      
      August 1,
        2006
      
      August 1,
        2006
      
      $25.00
      
      22,000,000
      
      14,000,000
      
      350
      
      35020
      floating
      
      Series 19
      
      August 1,
        2011
      
      At any time
      
      $25.50
      
      22,000,000
      
      
      
      
      
      1,100
      
      1,100(1)
          See Note 26, Subsequent
          events,for recent developments.
        
        Voting rights
        All of the issued
          and outstanding preferred shares at December 31, 2004 were
          non-voting, except under special circumstances when the holders are
          entitled to one vote per share.
        Entitlement to dividendsAt December 31, 2004,
          holders of Series 15, 17 and 19 shares were entitled to fixed cumulative
          quarterly dividends. The dividend rate on the Series 17 and 19
          shares is reset every five years, as set out in Bell Canada’s
          articles of amalgamation. On and after February 1, 2005, if
          Series 15 shares are issued, holders will be entitled to floating
          adjustable cumulative monthly dividends.  59    Bell Canada 2004
    Financial information   Notes
          to consolidated financial statements
        Note 19  Share capital (contd)
        If Series
          16 shares are issued, their holders will be entitled to fixed cumulative
          quarterly dividends. The dividend rate on these shares will be reset
          every five years, as set out in Bell Canada’s articles of amalgamation. 
               If Series18 and 20 shares are issued, their
          holders will be entitled to floating adjustable cumulative monthly dividends.
        Conversion features All
          of the issued and outstanding preferred shares at December 31, 2004
          were convertible at the holders option into another associated
          series of preferred shares on a one-for-one basis as per the terms set
          out in Bell  Canadas articles of amalgamation.
        Redemption features Bell Canada
          may redeem Series 15 shares at any time on or after February 1, 2005. Bell Canada may redeem
          Series 17 and 19 shares on the redemption date and every five years
          after that date. If Series 16 shares
          are issued, Bell Canada may redeem them on the redemption date
          and every five years after that date. 
          If Series 18 and 20 shares are issued, Bell Canada may redeem
          them at any time.
        Common shares Bell Canadas
          articles of amalgamation provide for an unlimited number of voting common
          shares.
        The table below provides details
          about the outstanding common shares of Bell Canada. 2004
      
      
      
      2003NUMBER
      
      STATED
      
      NUMBER
      
      STATEDOF
        SHARES
      
      CAPITAL
      
      OF
        SHARES
      
      CAPITALOUTSTANDING, BEGINNING OF YEAR
      355,346,988
      
      7,602
      
      355,346,988
      
      4,264Shares purchased for cancellation
          (a)
      (355,346,988
      )
      (7,602
      )
      
      
      Shares issued (a)
      355,346,988
      
      7,256
      
      
      
      Transfer from contributed surplus
          (b)
      
      
      433
      
      
      
      3,338OUTSTANDING, END OF YEAR
      355,346,988
      
      7,689
      
      355,346,988
      
      7,602 (a)
      In August of 2004,
        Bell Canada transferred its investment in MTS to BCH by exchanging
        all of the 355,346,988 common shares with a carrying value of $7,602 million
        held by BCH for 355,346,988 new common shares with a carrying value of
        $7,256 million. This resulted in a decrease in other long-term assets
        and common shares of $346 million, representing the carrying value
        of the investment in MTS. The investment in MTS was then transferred to
        BCE.  These transactions were carried out so BCE could use capital
        loss carryforwards to shelter the gain on the sale of the MTS shares.(b)
      In December of 2004,
        BCE made a capital contribution of $433 million to BCH. BCH
        then transferred the $433 million to Bell Canadas contributed
        surplus. Bell Canada subsequently transferred this amount from contributed
        surplus to share capital. These transactions were carried out so BCE could
        effectively compensate Bell Canada for the proceeds on the sale of
        MTS. Contributed surplus2004
      
      2003Balance, beginning of year
      512
      
      815Capital contribution by BCH
      433
      
      3,043Transfer to common shares
      (433
      )
      (3,338
      )Compensation cost for stock options
      16
      
      15Other
      
      
      (23
      )BALANCE, END OF YEAR
      528
      
      512 60    Bell Canada 2004
    Financial information   Note
          20  Stock-based compensation plans
        Employee savings plans (ESPs)ESPs are designed to encourage
          employees of Bell Canada and its participating subsidiaries to
          own shares of BCE. Each year, employees who participate in the plans
          can choose to have up to a certain percentage of their annual earnings
          withheld through regular payroll deductions to buy BCE common shares.
          In some cases, the employer may also contribute up to a maximum percentage
          of the employees annual earnings to the plan.      Each
          participating company decides on its maximum percentages. For Bell Canada,
          employees can contribute up to 12% of their annual earnings. Bell Canada
          contributes up to 2%.      The
          trustee of the ESPs buys BCE common shares for the participants
          on the open market, by private purchase or from BCE (where the
          shares are issued from treasury). BCE chooses the method the trustee
          uses to buy the shares.      There
          were 35,951 employees participating in the plans at December 31, 2004.
          The total number of common shares bought for employees was 6,437,429
          in 2004 and 6,047,494 in 2003. Compensation expense related
          to ESPs was $36 million in 2004 and $36 million in 2003.
        Stock optionsUnder
          BCEs long-term incentive programs, BCE may grant options
          to key employees to buy BCE common shares. The subscription price
          is usually equal to the market value of the shares on the last trading
          day before the grant comes into effect.      For
          options granted before January 1, 2004, the right to exercise
          options generally vests or accrues by 25% a year for four years of continuous
          employment from the day of grant, unless a special vesting period applies.
          Options become exercisable when they vest and can be exercised for a
          period of up to 10 years from the date of grant.      For
          most options granted after January 1, 2004, the right to exercise
          options vests after two to three years of continuous employment from
          the day of grant, if specific performance targets are met. Options become
          exercisable when they vest and can be exercised for a period of up to
          six years from the date of grant. Subject to achieving specific performance
          targets, 50% of the options will vest after two years and 100% after
          three years.     Special
          vesting provisions may apply if:
        there is a change of control
            of BCE and the option holders employment ends under certain
            circumstances
          the option holder is employed
            by a designated subsidiary of BCE, and BCEs ownership interest
            in that subsidiary falls below the percentage set out in the program.When the Nortel common shares
          were distributed in May 2000, each outstanding BCE stock option
          was cancelled and replaced by two new stock options. The first option
          gives the holder the right to buy one BCE common share. The second
          option gives the holder the right to buy approximately 1.57 post-split
          common shares of Nortel (Nortel option) at exercise prices that maintain
          the holders economic position.
               The table below is a summary of the status
          of our portion of BCEs stock option programs. 2004
      
      
      
      2003WEIGHTED-
      
      
      
      WEIGHTED-AVERAGE
      
      
      
      AVERAGENUMBER
      
      EXERCISE
      
      NUMBER
      
      EXERCISEOF
        SHARES
      
      PRICE
        ($
      )
      OF
        SHARES
      
      PRICE
        ($
      )Outstanding, January 1
      15,769,753
      
      $32
      
      12,550,221
      
      $33Granted
      4,280,800
      
      $30
      
      3,994,202
      
      $28Exercised
      (668,398
      )
      $16
      
      (294,677
      )
      $17Expired/forfeited
      (940,920
      )
      $33
      
      (710,005
      )
      $33Transfers in/out
      216,295
      
      $32
      
      230,012
      
      $32Outstanding, December 31
      18,657,530
      
      $32
      
      15,769,753
      
      $32EXERCISABLE, DECEMBER 31
      8,520,041
      
      $34
      
      5,239,055
      
      $36 61    Bell Canada 2004
    Financial information   Notes
          to consolidated financial statements
        Note 20  Stock-based compensation
          plans (contd)
        The table below shows you more
          about our portion of BCEs stock option programs at December 31, 2004.OPTIONS
        OUTSTANDING
      
      OPTIONS
        EXERCISABLEWEIGHTED-
      
      WEIGHTED-
      
      
      WEIGHTED-AVERAGE
      
      AVERAGE
      
      
      AVERAGEREMAINING
      
      EXERCISE
      
      
      EXERCISERANGE OF EXERCISE PRICES
      NUMBER
      
      LIFE
      
      PRICE
        ($
      )
      NUMBER
      PRICE
        ($
      )Below $20
      716,617
      
      4
        years
      
      $16
      
      716,617
      $16$20 - $30
      9,039,174
      
      7
        years
      
      $29
      
      1,457,539
      $28$30 - $40
      5,086,044
      
      7
        years
      
      $34
      
      3,102,590
      $34Over $40
      3,815,695
      
      6
        years
      
      $41
      
      3,243,295
      $4118,657,530
      
      
      
      $32
      
      8,520,041
      $34 Assumptions used in stock option
          pricing model
        The table below shows the assumptions
          used to determine the stock-based compensation expense, using the Black-Scholes
          option pricing model.2004
      
      2003Compensation expense ($ millions)
      16
      
      15Number of stock options granted
      4,280,800
      
      3,994,202Weighted average fair value per
          option granted ($)
      4
      
      6Weighted average assumptions:Dividend
          yield
      4.0
      %
      3.6
      %Expected
          volatility
      27
      %
      30
      %Risk-free
          interest rate
      3.2
      %
      4.0
      %Expected
          life (years)
      3.6
      
      4.5Starting
          in 2004, most of the stock options granted contain specific performance
          targets that must be met before the option can be exercised. This is
          reflected in the calculation of the weighted average fair value per
          option granted.
        Restricted share units (RSUs)
        In 2004, BCE granted
          RSUs to executives and other key employees. The value of an RSU is always
          equal to the value of one BCE common share. Dividends in the form
          of additional RSUs are credited to the participants account on
          each dividend payment date and are equivalent in value to the dividend
          paid on BCE common shares. Each executive is granted a specific
          number of RSUs for a given performance period, based on his or her position
          and level of contribution. At the end of each given performance period,
          RSUs will vest if performance objectives are met or will be forfeited. 
               Vested RSUs will be paid in BCE common
          shares purchased on the open market, in cash or through a combination
          of both, as the holder chooses, as long as individual share ownership
          requirements are met. 62    Bell Canada 2004
    Financial information   The
        table below is a summary of the status of RSUs.NUMBER OF RSUsOutstanding, January 1, 2004
      Granted
      1,497,730Dividends credited
      46,165Expired/forfeited
      (37,367
      )OUTSTANDING, DECEMBER 31, 2004
      1,506,528VESTED, DECEMBER 31, 2004
      For
        the year ended December 31, 2004, we recorded a compensation
        expense for RSUs of $16 million. Special
          compensation payments (SCPs)
        Before 2000, when BCE granted
          options to officers, vice-presidents and other key employees, related
          rights to SCPs were also often granted. SCPs are cash payments representing
          the amount that the market value of the shares on the date of exercise
          of the related options exceeds the exercise price of these options.      When
          the distribution of Nortel common shares was made in 2000, the outstanding
          options were cancelled and replaced with options to buy BCE common
          shares and options to buy Nortel common shares. The related SCPs were
          adjusted accordingly.      For
          each right to an SCP held before the distribution, right holders now
          have rights related to both BCE and Nortel common shares.
                The number of SCPs outstanding at December 31, 2004
          was:
        693,780 relating to BCE common
            shares
          1,468,359 relating to Nortel
            common shares.All of the outstanding SCPs covered
          the same number of shares as the options to which they relate. It is
          the employers responsibility to make the payments under the SCPs.
          There was income related to SCPs of $9 million in 2004 and $20 million
          in 2003. The amounts include a recovery of SCP expense previously
          established at $9 million for 2004, and $32 million for 2003,
          relating to forfeitures of SCPs. 63    Bell Canada 2004
    Financial information   Notes
          to consolidated financial statements
        Note 21  Employee benefit plans
        We provide pension, other retirement
          and post-employment benefits for almost all of our employees. These
          include DB pension plans, plans that provide other employee future benefits
          and DC pension plans.
        Components of accrued benefit asset
        (liability) The table below
          shows the change in benefit obligations, change in fair value of plan
          assets and the funded status of the DB plans. PENSION
        BENEFITS
      
      OTHER
        BENEFITS2004
      
      2003
      
      2004
      
      2003Accrued benefit obligation, beginning
          of year
      11,936
      
      11,315
      
      1,596
      
      1,611Current
          service cost
      213
      
      204
      
      31
      
      30Interest
          cost on accrued benefit obligation
      770
      
      724
      
      103
      
      104Actuarial
          (gains) losses
      748
      
      479
      
      103
      
      (53
      )Benefit
          payments
      (703
      )
      (693
      )
      (81
      )
      (87
      )Employee
          contributions
      3
      
      2
      
      
      
      Special
          termination costs(1)
      660
      
      (27
      )
      (12
      )
      Plan
          amendment(2)
      75
      
      
      
      14
      
      2Divestitures
          and other(3)
      12
      
      (68
      )
      (2
      )
      (11
      )ACCRUED BENEFIT OBLIGATION, END
          OF YEAR
      13,714
      
      11,936
      
      1,752
      
      1,596Fair value of plan assets, beginning
          of year
      11,990
      
      11,068
      
      133
      
      125Actual
          return on plan assets
      1,017
      
      1,523
      
      4
      
      8Benefit
          payments
      (703
      )
      (693
      )
      (81
      )
      (87
      )Employer
          contributions
      78
      
      137
      
      81
      
      87Employee
          contributions
      3
      
      2
      
      
      
      Divestitures
          and other(3)
      6
      
      (47
      )
      
      
      FAIR VALUE OF PLAN ASSETS, END OF
          YEAR
      12,391
      
      11,990
      
      137
      
      133Plan surplus (deficit)
      (1,323
      )
      54
      
      (1,615
      )
      (1,463
      )Unamortized net actuarial (gains)
          losses
      2,516
      
      1,896
      
      48
      
      (60
      )Unamortized past service costs
      139
      
      83
      
      16
      
      2Unamortized transitional (asset)
          obligation
      (12
      )
      (54
      )
      279
      
      330ACCRUED BENEFIT ASSET (LIABILITY),
          END OF YEAR
      1,320
      
      1,979
      
      (1,272
      )
      (1,191
      )ACCRUED BENEFIT ASSET INCLUDED IN
          OTHER LONG-TERM ASSETS
      1,473
      
      2,080
      
      
      
      ACCRUED
          BENEFIT LIABILITY INCLUDED IN OTHER LONG-TERM
          LIABILITIES
      (153
      )
      (101
      )
      (1,272
      )
      (1,191
      ) (1)
      Costs in 2004
        relate to the employee departure programs announced at Bell Canada.
        See Note 4,Restructuring
        and other items, for more information.(2)
      Costs in 2004
        relate to DB pension plan amendments at Aliant whereby certain bargaining
        unit employees and eligible management employees were awarded past service
        benefits.(3)
      Costs in 2003
        mainly relate to Bell Canadas sale of its 89.9% ownership interest
        in Certen.For DB pension plans with an accrued
          benefit obligation that was more than plan assets:
        the accrued benefit obligation
            was $13,714 million at December 31, 2004, and $2,407 million
            at December 31, 2003
          the fair value of plan assets
            was $12,391 million at December 31, 2004, and $1,798 million
            at December 31, 2003.For DB pension plans with an accrued
          benefit obligation that was less than plan assets:
        the accrued benefit obligation
            was nil at December 31, 2004, and $9,529 million at
            December 31, 2003
          the fair value of plan assets
            was nil at December 31, 2004, and $10,192 million at
            December 31, 2003. 64    Bell Canada 2004
    Financial information  Components
        of net benefit plans cost (credit)The
          table below shows the net benefit plans cost (credit) before and after
          recognizing its long-term nature. The recognized net benefit plan cost
          (credit) reflects the amount reported in our statement of operations
          and is calculated according to our accounting policy. PENSION
        BENEFITS
      
      OTHER
        BENEFITSFOR THE YEAR ENDED DECEMBER 31
      2004
      
      2003
      
      2004
      
      2003Current service cost
      222
      
      209
      
      31
      
      30Interest cost on accrued benefit obligation
      770
      
      724
      
      103
      
      104Actual return on plan assets
      (1,017
      )
      (1,523
      )
      (4
      )
      (8
      )Past
          service costs arising during
          period
      75
      
      
      
      14
      
      2Actuarial
          loss (gain) on accrued benefit
          obligation
      748
      
      479
      
      103
      
      (53
      )ELEMENTS OF EMPLOYEE FUTURE BENEFIT
          PLANS COST (CREDIT), BEFORE
          RECOGNIZING ITS LONG-TERM
          NATURE
      798
      
      (111
      )
      247
      
      75Excess
          (deficiency) of actual return over
          expected return (1)
      108
      
      630
      
      (6
      )
      (1
      )Deferral
          of amounts arising during
          period:Past service costs
      (75
      )
      
      
      (14
      )
      (2
      )Actuarial (loss) gain on accrued
          benefit obligation
      (748
      )
      (479
      )
      (103
      )
      53Amortization
          of previously deferred
          amounts:Past service costs
      9
      
      9
      
      
      
      Net actuarial losses
      22
      
      13
      
      
      
      Transitional (asset) obligation
      (42
      )
      (43
      )
      36
      
      36ADJUSTMENTS TO RECOGNIZELONG-TERM NATURE OFEMPLOYEE FUTURE BENEFITPLANS COST (CREDIT)
      (726
      )
      130
      
      (87
      )
      86Other
      3
      
      1
      
      
      
      NET BENEFIT PLANS COST, RECOGNIZED
      75
      
      20
      
      160
      
      161Comprised of:Defined benefit plans cost
      66
      
      15
      
      160
      
      161Defined contribution plans cost
      9
      
      5
      
      
      
       (1)
      The expected return
        on plan assets for a given year is calculated based on the market-related
        value of the plan assets at the beginning of that year. The market-related
        value of pension plan assets was $12,435 million at January 1, 2004
        and $11,998 million at January 1, 2003. 65    Bell Canada 2004
    Financial information   Notes
          to consolidated financial statements
        Note 21  Employee benefit
          plans (contd)
        Significant assumptionsWe used the following key assumptions
          to measure the accrued benefit obligation and the net benefit plans
          cost (credit) for the DB pension plans and plans that provide other
          employee future benefits. These assumptions are long-term, which is
          consistent with the nature of employee benefit plans. PENSION
          BENEFITS
      
      OTHER
        BENEFITS2004
      
      2003
      
      2004
      
      2003AT DECEMBER 31ACCRUED BENEFIT OBLIGATION:Discount rate, end of year
      6.25
      %
      6.5
      %
      6.25
      %
      6.5
      %Rate of compensation increase,
          end of year
      3.5
      %
      3.5
      %
      3.5
      %
      3.5
      %FOR THE YEAR ENDED DECEMBER 31NET BENEFIT PLANS COST (CREDIT):Discount
          rate, end of preceding year
      6.5
      %
      6.5
      %
      6.5
      %
      6.5
      %Expected
          return on plan assets, end
          of preceding year
      7.5
      %
      7.5
      %
      7.5
      %
      7.5
      %Rate
          of compensation increase, end
          of preceding year
      3.5
      %
      3.5
      %
      3.5
      %
      3.5
      %We assumed the following trend rates in health-care costs: 
        a 4.5% annual rate of increase
            in the cost per person of covered health-care benefits for 2004
            and the foreseeable future
          a 10.5% annual rate of increase
            in the cost of medication for 2004 with a gradual decline to
            4.5% over six years.Assumed trend rates in health-care
          costs have a significant effect on the amounts reported for the health-care
          plans. The table below, for example, shows the effect of a 1% change
          in the assumed trend rates in health-care costs. 1% INCREASE
      
      1% DECREASEEffect on other benefits 
          total service and interest cost
      16
      
      (13
      )Effect on other benefits 
          accrued obligation
      154
      
      (136
      )Pension plan assets
        The investment strategy for the
          major benefit plans is to maintain a diversified portfolio of assets,
          invested in a prudent manner to maintain the security of funds while
          maximizing returns within our guidelines.      The
          expected rate of return assumption is based on our target asset allocation
          policy and the expected future rates of return on these assets.      The
          table below shows the allocation of our pension plan assets at December 31, 2004
          and 2003, target allocation for 2004 and the expected long-term
          rate of return by asset class. PERCENTAGE
        OF
        PLAN ASSETS
        AT DECEMBER 31WEIGHTED-AVERAGE
        EXPECTED 
        LONG-TERM
        RATE OF RETURNWEIGHTED-AVERAGE 
        TARGET ALLOCATIONASSET CATEGORY
      2004
      
      2004
      
      2003
      
      2004Equity securities
      45%
         65
      %
      57
      %
      56
      %
      9.0
      %Debt securities
      35%
         55
      %
      43
      %
      44
      %
      5.5
      %TOTAL / AVERAGE
      
      
      100
      %
      100
      %
      7.5
      %Equity securities included approximately $94 million of BCE common
          shares or 0.7% of total plan assets at December 31, 2004,
          and approximately $110 million of BCE common shares or 0.9%
          of total plan assets at December 31, 2003.      Debt
          securities included approximately $8 million of BCE and affiliates
          debentures or 0.1% of total plan assets at December 31, 2004,
          and $107 million or 0.9% of total plan assets at December 31, 2003. 66    Bell Canada 2004
    Financial information  Projected cash flows
        We are responsible for adequately
          funding our DB pension plans. We make contributions to them based on
          various actuarial cost methods that are permitted by pension regulatory
          bodies. Contributions reflect actuarial assumptions about future investment
          returns, salary projections and future service benefits.    We
          contribute to the DC pension plans as employees provide service.      The
          table below shows the amounts we contributed to the DB and DC pension
          plans and the payments made to beneficiaries under other employee benefit
          plans. PENSION
          BENEFITS
      
      OTHER BENEFITS2004
      
      2003
      
      2004
      
      2003Aliant
      67
      
      125
      
      4
      
      4Bell Canada
      20
      
      17
      
      77
      
      83TOTAL
      87
      
      142
      
      81
      
      87Comprised of:Contributions to DB plans
      78
      
      137
      
      81
      
      87Contributions to DC plans
      9
      
      5
      
      
      
      We expect to contribute approximately $200 million to the DB pension plans
        in 2005, subject to actuarial valuations being completed. We expect to
        pay $92 million to beneficiaries under other employee benefit plans in
        2005.
             We expect to contribute $18 million to the DC
        pension plans in 2005. Estimated
          future benefit paymentsThe
        table below shows the estimated future benefit payments for the next 10
        years as at December 31, 2004.PENSION
      
      OTHERBENEFITS
      
      BENEFITS2005
      825
      
      922006
      845
      
      982007
      863
      
      1052008
      881
      
      1122009
      899
      
      1192010-2014
      4,753
      
      719TOTAL ESTIMATED FUTURE BENEFIT PAYMENTS
      9,066
      
      1,245 67    Bell Canada 2004
    Financial information   Notes
          to consolidated financial statements
        Note 22  Related party transactions
          and balances
        The table below shows the type
          and amount of transactions we have with related parties. All of the
          transactions were part of our regular business and were agreed to by
          Bell Canada and the related parties.2004
      
      2003PURCHASE OF EQUIPMENT, SUPPLIES
          AND SERVICESCGI
          Group Inc. (CGI) (a)
      345
      
      391Telesat
          Canada (Telesat) (b)
      64
      
      25Bell Globemedia Inc.
          (Bell Globemedia) (c)
      37
      
      36Emergis Inc.
          (Emergis) (d)
      23
      
      89Entourage
          Technology Solutions Inc. (Entourage) (e)
      152
      
      145BCE Corporate
          Services Inc. (BCECS) (f)
      29
      
      15SALE OF EQUIPMENT AND SERVICESCGI
          (a)
      30
      
      35Bell Globemedia
          (c)
      20
      
      17Emergis
          (d)
      40
      
      103Entourage
          (e)
      32
      
      32 (a)
      CGI is a joint venture
        of BCE. BCE owns 29% of the company.(b)
      Telesat is a wholly-owned
        subsidiary of BCE.(c)
      Bell Globemedia
        is a subsidiary of BCE. BCE owns 68.5% of the company.(d)
      Before BCE sold
        Emergis, in June 2004, it was a subsidiary of BCE. BCE owned
        63.9% of the company.(e)
      Entourage is an equity
        investment of Bell Canada. Bell Canada owns 33% of the company.(f)
      BCECS is a wholly-owned
        subsidiary of BCE. The
        table below shows the balances we have with related parties.2004
      
      2003Cash and cash equivalents BCE
      
      
      59Notes receivable from Bell Globemedia
          (c)
      
      
      450Accounts receivable
      45
      
      109Notes receivable from parent company
      498
      
      498Accounts payable
      39
      
      56Dividends payable to parent company
      374
      
      461Debt due within one year (g)
      77
      
      40Long-term debt (g)
      387
      
      391 (g)
      Debt due within one
        year and long-term debt consist mainly of a capital lease obligation due
        to Telesat. Loss utilization
          transactions
        Bell Canada realizes tax
          savings by using strategies to take advantage of tax losses within the
          BCE group of companies. The transactions described below are all
          part of a tax loss consolidation strategy that follows the transaction
          steps laid out in advanced tax rulings. 68    Bell Canada 2004
    Financial information   Emergis, 4122780
          Canada Inc. and Bell Canada
        In the first quarter of 2003,
          Emergis, which was then a subsidiary of BCE, advanced $1 billion
          in cash to us through a subordinated interest-bearing demand loan. We
          used the proceeds to acquire preferred shares from 4122780 Canada Inc.,
          a wholly-owned subsidiary of Emergis. 4122780 Canada Inc. then
          advanced $1 billion to Emergis through an interest-free subordinated
          demand loan.      For 2004,
          the interest rate on the loan was equal to 5.2% and the dividend rate
          on the preferred shares was equal to 3.7%. The interest rate and
          the dividend rate are reset at the beginning of every year.      We
          had the legal right to offset the demand loan payable to Emergis and
          the investment in preferred shares of 4122780 Canada Inc. Because
          we intended to do this, we presented these items on a net basis. The
          related interest expense net of the dividend income is presented as
          interest expense and the equivalent amount of tax savings on the interest
          expense is presented as a reduction of the income tax expense.      As
          a result of the sale of BCEs interest in Emergis during the second
          quarter of 2004 all amounts outstanding under this tax loss consolidation
          savings strategy were settled.
        BCE, 3787842 Canada Inc. and
        Bell CanadaIn
          the fourth quarter of 2002, BCE advanced $12 billion
          in cash to us through a subordinated interest-bearing demand loan. We
          used the proceeds to acquire preferred shares from 3787842 Canada Inc.,
          a wholly-owned subsidiary of BCE. 3787842 Canada Inc. then advanced
          $12 billion to BCE through an interest-free subordinated demand
          loan.      In
          the second quarter of 2003, BCE advanced an additional $7 billion
          in cash to us through a subordinated interest-bearing demand loan. We
          used the proceeds to acquire more preferred shares in 3787842 Canada Inc.
          3787842 Canada Inc. then advanced $7 billion to BCE through
          an interest-free subordinated demand loan.      The
          principal amounts outstanding under this tax loss consolidation savings
          strategy were reduced to $7 billion during 2004.
                For 2004, the effective interest
          rate on the loans was equal to 5.3%, which is essentially the same as
          the dividend rate on the preferred shares. The interest rate and the
          dividend rate are reset at the beginning of every year.      We
          have the legal right to offset the demand loans payable to BCE and
          the investment in preferred shares of 3787842 Canada Inc. Because
          we intend to do this, we have presented these items and the related
          interest expense and dividend income on a net basis. The tax savings
          resulting from the interest expense is presented as a reduction of the
          income tax expense. The tax savings are distributed as an additional
          dividend on common shares at the end of each quarter.
        BCH, 4047974 Canada Inc. and
        Bell CanadaIn
          the second quarter of 2002, BCH advanced $5 billion in cash
          to us through a subordinated interest-bearing demand loan. We used the
          proceeds to acquire preferred shares in 4047974 Canada Inc., a
          wholly-owned subsidiary of BCH. 4047974 Canada Inc. then advanced
          $5 billion to BCH through an interest-free subordinated demand
          loan.      The
          principal amounts outstanding under this tax loss consolidation savings
          strategy were reduced to $2.5 billion in the first quarter of 2003,
          to $1.2 billion in the third quarter of 2003 and to $600 million
          in the fourth quarter of 2003.      For 2004,
          the interest rate on the loan was equal to 4.5%, which is essentially
          the same as the dividend rate on the preferred shares. The interest
          rate and the dividend rate are reset at the beginning of every year.      We
          have the legal right to offset the demand loan payable to BCH and the
          investment in preferred shares of 4047974 Canada Inc. Because we
          intend to do this, we have presented these items, and the related interest
          expense and dividend income, on a net basis. The tax savings resulting
          from the interest expense is presented as a reduction of the income
          tax expense. 69    Bell Canada 2004
    Financial information  Notes
          to consolidated financial statements
        Note 23  Commitments and
          contingencies
        Contractual obligationsThe table below is a summary of
          our contractual obligations at December 31, 2004 that are
          due in each of the next five years and after 2009.2005
      
      2006
      
      2007
      
      2008
      
      2009
      
      AFTER
        2009
      
      TOTALLong-term
          debt (excluding capital
          leases)
      1,050
      
      512
      
      662
      
      958
      
      1,023
      
      5,715
      
      9,920Notes payable and bank advances
      201
      
      
      
      
      
      
      
      
      
      
      
      201Capital leases
      101
      
      68
      
      57
      
      45
      
      31
      
      95
      
      397Operating leases
      334
      
      244
      
      220
      
      207
      
      192
      
      1,290
      
      2,487Commitments for capital expenditures
      59
      
      51
      
      42
      
      
      
      
      
      
      
      152Other purchase obligations
      536
      
      361
      
      220
      
      179
      
      168
      
      392
      
      1,856Other long-term liabilities (including
          current portion)
      47
      
      55
      
      64
      
      61
      
      74
      
      
      
      301TOTAL
      2,328
      
      1,291
      
      1,265
      
      1,450
      
      1,488
      
      7,492
      
      15,314 Long-term debt and notes payable and bank advances include $29 million
          drawn under our committed credit facilities. They do not include $295 million
          of letters of credit. The total amount available under these committed
          credit facilities and under our commercial paper programs, including
          the amount currently drawn, is $1,331 million.     The
          imputed interest to be paid on capital leases is $105 million.
          Rental expense relating to operating leases was $353 million in 2004
          and $315 million in 2003.     Our
          commitments for capital expenditures include investments to expand and
          update our networks and to meet customer demand. Other purchase obligations
          consist mainly of contractual obligations under service contracts.     Other
          long-term liabilities included in the table relate to Bell Canada’s
          future payments over the remaining life of its contract with Certen
          for the development of Bell Canada’s billing system. The
          total amount was $301 million at December 31, 2004.     At
          December 31, 2004, we had other long-term liabilities that
          are not included in the table. They consisted of an accrued employee
          benefit liability, future income tax liabilities, deferred revenue and
          gains on assets, and various other long-term liabilities.     We
          did not include the accrued employee benefit liability and future income
          tax liabilities because we cannot accurately determine the timing and
          amount of cash needed for them. This is because:
        future contributions to the
            pension plans depend largely on the results of actuarial valuations
            that are performed periodically and on the investment performance
            of the pension fund assets.
          future payments of income taxes
            depend on the amount of taxable earnings and on whether there are
            tax loss carryforwards available to reduce income tax liabilities.We did not include deferred revenue
          and gains on assets because they do not represent future cash payments.
        Commitment under the deferral accountThe deferral account is a mechanism
          resulting from the CRTC’s second price cap decision of May 2002,
          which requires us to fund initiatives such as service improvements,
          reduced customer rates and/or customer rebates. We estimate our commitment
          under the deferral account to be approximately $202 million at
          December 31, 2004. We expect to clear most of this amount
          in 2005 by implementing various initiatives.
        LitigationWe
          become involved in various claims and litigation as a part of our business.     While
          we cannot predict the final outcome of claims and litigation that were
          pending at December 31, 2004, based on information currently
          available, management believes that the resolution of these claims and
          litigation will not have a material and negative effect on our consolidated
          financial position or results of operations. 70    Bell Canada 2004
    Financial information  Note 24 
        GuaranteesAs a regular
          part of our business, we enter into agreements that provide for indemnifications
          and guarantees to counterparties that may require us to pay for costs
          and losses incurred in various types of transactions. We cannot reasonably
          estimate the maximum potential amount we could be required to pay counterparties.
          While some of the agreements specify a maximum potential exposure, many
          do not specify a maximum amount or limited period. The amount also depends
          on the outcome of future events and conditions, which cannot be predicted.
          Historically, we have not made any significant payments under these
          indemnifications or guarantees.
        Sales of assets and businessesIn transactions involving business
          dispositions and sales of assets, we may be required to pay counterparties
          for costs and losses incurred as a result of various events. These could
          include:
        breaches of representations
            and warranties
          intellectual property rights
            infringement
          loss or damages to property
          environmental liabilities
          changes in, or in the interpretation
            of, laws and regulations (including tax legislation)
          valuation differences
          litigation against the counterparties
          earn-out guarantees if the
            disposed business does not meet specific targets
          contingent liabilities of a
            disposed business, or
          reassessments of previous tax
            filings of the corporation that carries on the business.Some of the agreements specify
          a maximum potential exposure of $2 billion, but many do not specify
          a maximum amount or limited period. A total of $18 million has
          been accrued in the consolidated balance sheet relating to this type
          of indemnification or guarantee at December 31, 2004.
        Sales of servicesIn
          transactions involving sales of services, we may be required to pay
          counterparties for costs and losses incurred as a result of:
        breaches of representations
            and warranties
          changes in, or in the interpretation
            of, laws and regulations (including tax legislation), or
          litigation against the counterparties.Some of the agreements specify
          a maximum potential exposure of $263 million, but many do not specify
          a maximum amount or limited period. No amount has been accrued in the
          consolidated balance sheet relating to this type of indemnification
          or guarantee at December 31, 2004.
        Purchases and development of assetsIn transactions involving purchases
          and development of assets, we may be required to pay counterparties
          for costs and losses incurred as a result of breaches of:
        representations and warranties
          loss or damages to property
          changes in, or in the interpretation
            of, laws and regulations (including tax legislation), or
          litigation against the counterparties.Some of the agreements specify
          a maximum potential exposure of $42 million, but many do not specify
          a maximum amount or limited period. No amount has been accrued in the
          consolidated balance sheet relating to this type of indemnification
          or guarantee at December 31, 2004. 71    Bell Canada 2004
    Financial information   Notes
          to consolidated financial statements
        Note 24  Guarantees (contd)
        Other transactions
        As part of other transactions,
          such as securitization agreements and operating leases, we may be required
          to pay counterparties for costs and losses incurred as a result of:
        breaches of representations
            and warranties
          loss or damages to property
          changes in, or in the interpretation
            of, laws and regulations (including tax legislation), or
          litigation against the counterparties.Some of the agreements specify
          a maximum potential exposure of $26 million, but many do not specify
          a maximum amount or limited period. No amount has been accrued in the
          consolidated balance sheet relating to this type of indemnification
          or guarantee at December 31, 2004. Note 25
         Supplemental disclosure for statements of cash flows2004
      
      2003Interest paid on long-term debt
      1,383
      
      1,873Income taxes paid (net of refunds)
      128
      
      205Note 26  Subsequent events
        Conversion of a portion of Cumulative
          Redeemable Class A Preferred Shares, Series 15
        On January 19, 2005, Bell Canada
          announced that 14,085,782 of its outstanding Series 15 preferred
          shares were tendered for conversion, on a one-for-one basis, into Cumulative
          Redeemable Class A Preferred Shares, Series 16 (Series 16
          shares). As a result, Bell Canada issued 14,085,782 new Series 16
          shares on February 1, 2005. 
                The 1,914,218 Series 15 preferred
          shares that were not converted into Series 16 preferred shares
          remain outstanding and holders are entitled to floating adjustable cumulative
          monthly dividends.
                The annual fixed dividend rate on the
          new Series 16 preferred shares, for the five-year period beginning
          on February 1, 2005, is 4.40%.      Bell Canada
          may redeem the Series 15 preferred shares at any time at $25.50
          per share. Bell Canada may redeem the new Series 16 shares
          on February 1, 2010 and every five years after that date at $25 per
          share.
        Acquisition of Nexxlink Technologies Inc.
          (Nexxlink)
        As of February 21, 2005, Bell Canada
          had bought 89% of all the outstanding shares of Nexxlink, a provider
          of integrated IT solutions, for $59 million in cash. Bell Canada
          intends to buy the remaining shares in a subsequent transaction by way
          of amalgamation, which is expected to be approved at a shareholders
          meeting on April 7, 2005.      The
          net assets acquired are approximately $11 million. The excess purchase
          price over the net assets acquired has been allocated to goodwill until
          we complete the purchase price allocation, which is expected within
          12 months of the acquisition date.
        Issuance of Series M-18 Debentures
        On February 11, 2005, Bell Canada
          issued $700 million in Series M-18 Medium Term Note Debentures
          having a maturity date of February 15, 2017 and a fixed interest rate
          of 5.00% . Following the issuance, Bell Canada swapped the fixed
          interest rate to a floating rate. The net proceeds from the issuance
          of the debentures will be used to repay maturing short-term debt and
          for general corporate purposes. 72    Bell Canada 2004
    Financial information   Statement of
          corporate governance practices
        The board and management believe
          that good corporate governance practices can help create and maintain
          shareholder value. As a result, we seek to attain high standards of
          corporate governance.
               Following the Corporate Governance Committee’s
          (CGC) careful review, the board has examined our corporate governance
          practices and concluded that we comply with, and in some cases exceed,
          the Toronto Stock Exchange (TSX) guidelines for corporate governance.
          The CGC and the board have also been reviewing our corporate governance
          practices against the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act),
          related rules and regulations of the U.S. Securities and Exchange Commission
          (related SEC rules), and the Canadian Securities Administrators’
          final rules relating to reporting issuers’ audit committees and
          certification of financial information and proposed changes to these
          rules in October 2004 (Canadian rules), as well as other initiatives
          in this area.
               In October 2004, the Canadian Securities Administrators
          re-published the proposed National Policy 58-201– Corporate Governance
          Guidelines (NP 58-201) for comments, which policy details best practices
          relating to corporate governance standards. It is anticipated that once
          the proposed policy is implemented, the TSX will withdraw its current
          corporate governance guidelines. Although they are not in effect, we
          already meet most of the best practices under the proposed policy and
          we will take additional action as required so that we meet all of them
          when they become final and effective.
               As new regulations come into effect, the CGC
          and the board will continue to review our corporate governance practices
          and make any appropriate changes.
        How we are meeting the TSX guidelines
        We fully align with all of the
          TSX guidelines. The table below lists the TSX guidelines and tells you
          how we are meeting each one. In some cases, it also lists certain requirements
          under the Sarbanes-Oxley Act, related SEC rules, Canadian rules and
          proposed NP 58-201, which may differ from the TSX guidelines. TSX GUIDELINE
      ALIGNED
      OUR CORPORATE
        GOVERNANCE PRACTICES1.
      The board should explicitly assume responsibility for
        our stewardship.
      
      The
        board has overall responsibility for managing and supervising our business
        in Bell Canadas best interests. In doing so,
        the board acts in accordance with:  theCanada
            Business Corporations Act, the Bell Canada Act, other
            laws that apply to telecommunications companies, as
            well as laws of general application
          Bell Canadas articles
            of incorporation and by-laws
          Bell Canadas administrative
            resolution
          the written charters of the
            board committees
          the Bell Canada Code of
            Business Conduct and other internal policies. The board approves all significant decisions, including:
          investments, expenditures and
            divestitures above certain dollar
            amounts
          upon recommendation of the
            Management Resources and Compensation
            Committee (MRCC), the appointment of officers. The board also has procedures
            for:
          delegating authority for day-to-day
            business
          reviewing managements
            performance. 73    Bell Canada 2004
    Financial information   Statement
          of corporate governance practicesTSX GUIDELINE
      ALIGNED
      OUR CORPORATE
        GOVERNANCE PRACTICESAnd,
        as part of its overall stewardship responsibility, the
        board should assume responsibility for:(a)
      the adoption of a strategic planning process
      
      The
        board approves our overall strategic direction and objectives during a
        key planning session. This session is held once a
        year, usually in November, at the same time that the business plan
        and budget are approved for the following year.
             The board also approves, on a yearly basis, our
        Business Plan, which includes
        the key objectives of our strategy and measurable
        financial and operating targets.      
        We will report any development that
        could affect our objectives and strategic direction to the board.(b)
      the identification of the principal risks of the business and ensuring
        implementation of appropriate systems
        to manage these risks
      
      The
        audit committee reviews, reports and makes recommendations to the board
        on the processes for identifying and managing
        Bell Canadas principal risks. These include risk management
        policies, internal control procedures and standards relating
        to risk management. The audit committee makes sure that
        these policies are implemented and reviewed regularly.(c)
      succession planning, including appointing, training and monitoring senior
        management
      
      As
        part of its responsibilities, the board focuses on the integrity, quality,
        and continuity of management needed to achieve our corporate
        goals. The MRCC regularly reviews and reports to the board
        on: succession planning
          the appointment and development
            of all officers
          the performance of officers
            against our Business Plan.  74    Bell Canada 2004
  Financial information   TSX GUIDELINE
      ALIGNED
      OUR CORPORATE
        GOVERNANCE PRACTICES(d)
      our communications policy
      
      The
        board periodically approves communications plans for communicating
        with shareholders, employees, financial analysts, governments and regulatory
        authorities, the media and the
        Canadian and international communities.      BCE has a disclosure policy that also applies to BCEs and Bell Canadas
        subsidiaries that are not publicly traded. This policy ensures that
        our communications to the investment community, the media and the
        general public are timely, factual, accurate and broadly distributed
        according to the laws that apply to us. You will find the complete
        BCE and Bell Canada Disclosure Policy in the governance section of
        BCE's website at www.bce.ca.     
        We have developed procedures for receiving
        feedback from the investment
        community and we have a toll-free number for shareholder
        inquiries (1-888-932-6666) and for investor and general
        inquiries (1-800-339-6353). In addition, the investment community and
        other interested parties may communicate
        with the board by contacting the Corporate Secretarys
        Office at corporate.secretariat@bell.ca or 514-786-3891. All communications
        received are carefully reviewed and forwarded
        to appropriate board members. We also have detailed
        information about BCEs and Bell Canadas business on
        BCEs website at www.bce.ca.      
        Finally, there is regular communication
        with the investment community and the media to explain our results and to
        answer questions. This includes meetings, conferences, press
        releases and quarterly conference calls. Our quarterly financial
        results conference calls are broadcast live on BCEs website
        at www.bce.ca. 75    Bell Canada 2004
    Financial information   Statement
        of corporate governance practicesTSX GUIDELINE
      ALIGNED
      OUR CORPORATE
        GOVERNANCE PRACTICES(e)
      the integrity of our internal control and management information systems.
      
      As
        a public company, we are required to have an audit committee. The audit
        committee assesses whether our internal controls
        are adequate and effective by:  reviewing Bell Canadas
            policies
          monitoring compliance
          approving recommendations for
            changes.It also makes
        sure that we have processes for identifying and managing
        risks. This includes making sure that we comply with
        our conflict of interest policy.      The
        audit committees responsibilities have increased over the
        last few years as a result of the enactment of the Sarbanes-Oxley Act,
        related SEC rules and Canadian rules. The new regulations
        require the President and Chief Executive Officer and
        the Chief Financial Officer to certify each year that they have
        disclosed the following to the external auditor and to the
        audit committee:  all significant deficiencies
            and material weaknesses in the design
            or operation of internal controls over financial reporting
            that could negatively affect our ability to record, process,
            summarize and report financial information
          any fraud involving management
            or other employees who have
            a significant role in our internal control over financial reporting.We established
        a financial controls project to make sure that
        we comply with these new regulations.     
        Finally, we have also developed procedures
        for receiving, filing
        and treating complaints regarding accounting, internal controls,
        auditing matters or evidence of an activity that may constitute
        corporate fraud or violation of applicable law and for
        the confidential and anonymous submission by employees of concerns regarding
        questionable accounting or auditing matters.
        Our procedures for filing a complaint on accounting or
        auditing matters is available in the governance section of BCEs
        website at www.bce.ca.SEC RULES The SEC rules require disclosure
        on whether or not and, if not,
        the reasons why, a company has adopted a code of ethics
        for the principal executive officer and senior financial officers, applicable
        to the Chief Executive Officer, Chief Financial
        Officer, Controller and Treasurer.
      
      All of our employees, directors and officers must follow the Bell Canada
        Code of Business Conduct, which provides guidelines for ethical behaviour.
        The Bell Canada Code of Business Conduct
        includes additional guidelines for the Chief Executive
        Officer, the Chief Financial Officer, the Controller and the
        Treasurer. 76    Bell Canada 2004
    Financial information   TSX GUIDELINE
      ALIGNED
      OUR CORPORATE
        GOVERNANCE PRACTICES2.
      A majority of directors should be unrelated (independent
          of management and free from any interest and
          any business or other relationship which could,
          or could reasonably be perceived to, materially interfere with the directors
          ability to act with a
          view to our best interests). 
               The application
          of the definition of unrelated director
          is the responsibility of the board which will
          be required to disclose on an annual basis whether
          it has a majority of unrelated directors and
          the analysis of the application of the principles supporting
          this conclusion. 
               If the
          corporation has a significant shareholder, in
          addition to a majority of unrelated directors, the
          board should include a number of directors who
          do not have interests in or relationships with either
          the corporation or the significant shareholder and which fairly reflects
          the investment in the
          corporation by shareholders other than the significant
          shareholder. A significant shareholder is
          a shareholder with the ability to exercise a majority of the votes for
          the election of the board of directors.
      
      The
        board, on the recommendation of the CGC, is responsible for
        determining whether or not each director is unrelated and independent.
        To achieve this, the board analyses all of the relationships each director
        has with BCE, Bell Canada and their subsidiaries.
        To assist in this analysis, the board adopted director independence standards.
        These standards are available in the governance
        section of BCEs website at www.bce.ca. In general, a director who
        meets these standards and who does not otherwise
        have a material relationship with BCE or Bell Canada would
        be considered unrelated under the TSX guidelines. Based on the information provided by each director,
        reviewing the independence standards discussed above, the board determined
        that 11 of its 14 directors do not have a material relationship
        with BCE or Bell Canada and are considered to be unrelated and independent
        under the TSX guidelines and our standards.      
        The following describes the boards
        determinations with respect
        to the other three directors:    Mr. Michael J. Sabia,
            Chief Executive Officer, is considered as
            such to be a related director under the TSX guidelines and
            not independent under our standards
          Mr. Levitt, a partner
            with Osler, Hoskin & Harcourt LLP, a law
            firm that provides legal services to BCE, Bell Canada and
            their subsidiaries, is considered unrelated under the TSX
            guidelines but not independent under our standards since
            legal fees paid to his firm in 2002 exceeded the threshold amount
            set forth in the independence standards adopted
            by the board
          Mr. Tellier is considered
            unrelated under the TSX guidelines but
            not independent under our standards because his son was
            President and Chief Executive Officer of Bell Actimedia Inc.,
            which was an indirect wholly-owned subsidiary of
            BCE until November 2002.Mr. Levitt
        and Mr. Tellier, who both make valuable contributions to the board,
        may again qualify as independent directors under
        our standards beginning in 2006. At all times, a majority of
        the board will be unrelated under the TSX guidelines.PROPOSED
          NP 58-201 The proposed NP 58-201 recommends
          that the majority of directors
          be independent. No director qualifies as independent
          unless the board determines that he or she has no material
          relationship with the company (either directly or as
          a partner, shareholder or officer of an organization that has
          a relationship with the company). Companies must disclose
          these determinations. However, certain prescribed relationships
          are deemed to be material. 77    Bell Canada 2004
    Financial information   Statement
        of corporate governance practicesTSX
        GUIDELINE
      ALIGNED
      OUR CORPORATE
        GOVERNANCE PRACTICES3.
      The
          board should appoint a committee of directors composed
          exclusively of non-management directors, a majority of whom are unrelated
          directors, with responsibility
          for proposing new nominees to the
          board and for assessing directors on an ongoing basis.
      
      Members
        of the CGC are all unrelated and independent directors. The CGC proposes
        new candidates to be nominated for election
        or appointment to the board, and has developed qualifications and criteria
        to assist in the selection process. The CGC monitors the effectiveness of the Chair of the board,
        the board, its committees, including each committee Chair,
        and each individual director by conducting annual surveys of all directors
        and reviewing the results of one-on-one meetings
        between the board Chair and the Chair of the CGC, as
        the case may be, and each director.PROPOSED
        NP 58-201
      
      The CGC performs the functions of a nominating committee. The
        CGCs written charter addresses some of our additional corporate governance
        practices and certain recommendations of the proposed NP
        58-201.The proposed NP 58-201 recommends
          that a nominating committee be composed only of independent
          directors. The proposed NP58-201 also provides that the nominating committee
          must have a written
          charter that addresses the committees purpose and responsibilities,
          including:
        identify
              individuals qualified to become board members
          recommend
              to the board director nominees for the next annual
              meeting of shareholders.
      4.
      The
        board should implement a process, to be carried out by an appropriate
        committee, for assessing the
        effectiveness of the board, its committees and the
        contribution of individual directors.
      
      As
        part of its charter, the CGC is required to conduct a survey every
        year of all directors on the effectiveness and performance of
        the board Chair, the board and the boards committees (including
        their respective Chair), as well as individual directors. This includes
        distributing a set of questionnaires to each director
        and usually includes individual interviews with the board
        Chair and the Chair of the CGC. The CGC is also responsible for administering our policy on
        directors attendance at meetings of the board and its committees.
        Under the policy, the Corporate Secretary must report to
        the CGC any director who did not attend at least 75% of the board
        and committee meetings. The CGC reviews each directors attendance record and takes
        this into consideration when it proposes the list of nominated directors
        for election to the board at the next annual shareholder
        meeting. 78    Bell Canada 2004
    Financial information  TSX
        GUIDELINE
      ALIGNED
      OUR CORPORATE
        GOVERNANCE PRACTICES5.
      We
        should provide, as an integral element of the process
        for appointing new directors, an orientation and education program for
        new directors.
      
      New
        directors are given the opportunity to individually meet with
        members of senior management to improve their understanding of our business.
        All directors have regular access to senior
        management to discuss board presentations and other matters
        of interest.
             We also give directors a reference manual, which
        contains information about
        our history and current status, special legislation affecting us, our
        investments and our shareholders. This
        reference manual is updated regularly. It includes the Bell Canada
        Code of Business Conduct, which also applies to the directors,
        as well as governance and responsibilities of the board
        and its committees, and a description of the duties and liabilities
        of directors. As part of its mandate, the CGC is also responsible
        for providing orientation and continuing education for all board members,
        including reimbursing costs of attending
        certain outside director education programs. During their
        regularly scheduled board meetings, directors are given presentations
        on various aspects of our business.6.
      The
        board should examine its size and, with a view to
        determining the impact of number upon effectiveness, undertake where appropriate,
        a program to establish
        a board size which facilitates more effective
        decision-making.
      
      The
        board aims to have a sufficient range of skills, expertise and experience
        to ensure that it can carry out its responsibilities effectively. Directors
        are chosen for their ability to contribute to the broad
        range of issues that the board must deal with. The board reviews
        each directors contribution through the CGC and determines
        whether the boards size allows it to function efficiently and effectively. 
             The board
        believes that its current size and range of skills promote
        effectiveness and efficiency.PROPOSED
        NP 58-201The board should consider
        the appropriate size of the board, with
        a view to facilitating effective decision-making. In carrying
        out each of these functions, the board should consider the advice and
        input of the nominating committee.7.
      The
        board should review the adequacy and form of compensation
        of directors in light of the risks and responsibilities
        involved in being an effective director.
      
      Each
        year, the CGC reviews how directors are compensated for serving
        on the board and its committees. It compares their compensation
        to that of similar companies and recommends any
        changes to the board.       Our
        directors are all directors of BCE. Since January 1, 2003, a
        “flat fee” compensation arrangement is in effect for non-management
        directors. This arrangement provides that BCE directors do not get
        additional compensation for sitting on the board of BCE’s subsidiaries
        whose common shares are not publicly traded, such as Bell Canada. 79    Bell Canada 2004
    Financial information  Statement
        of corporate governance practicesTSX
        GUIDELINE
      ALIGNED
      OUR
        CORPORATE GOVERNANCE PRACTICES8.
      Committees of the board should generally be composed of non-management
        directors, a majority of
        whom are unrelated.
      
      Each
        committee of the board consists only of non-management directors, all
        of whom are unrelated and independent with
        the exception of the members of the pension fund committee.CANADIAN
        RULES AND PROPOSED NP 58-201The
        Proposed NP 58-201 recommends that the compensation (the MRCC) and the
        nominating (the CGC) committees
        be composed only of independent directors. In
        addition, the Canadian rules require not only that the audit
        committee be composed only of independent directors, but also
        that audit committee members accept directly or
        indirectly no consulting, advisory or other compensatory fee (other than
        ordinary director fees) from BCE, Bell Canada
        or any of their subsidiaries.
      None
        of the members of the audit committee has directly or indirectly received
        any consulting, advisory or other compensatory fee (other than
        ordinary director fees) from BCE, Bell Canada or any of their subsidiaries.9.
      The board should assume responsibility for, or assign
        to a committee of directors responsibility for,
        developing the approach to corporate governance issues.    This
        committee would, among other things, be responsible for the response to
        the TSX Corporate Governance Guidelines.
      
      The
        CGC: makes recommendations to the
            board about how to respond to the corporate governance guidelines
            of the TSX and other securities regulatory authorities
          monitors existing and emerging
            best practices relating to corporate governance matters
          develops our approach for
            dealing with corporate governance issues.10.
      The board, together with the Chief Executive Officer, should develop
          position descriptions for the board
          and for the Chief Executive Officer, including the definition of the
          limits to managements responsibilities.     The
          board should approve or develop the corporate objectives which the Chief
          Executive Officer is
          responsible for meeting.
      
      The
        responsibilities of the board and of the Chief Executive Officer
        are set out in our policy on authorizations. It also lists the
        type and dollar limits of transactions that management may
        carry out without prior approval from the board. Any corporate
        action that is not specifically authorized, or that exceeds
        the dollar limits of authority under the schedule, requires
        approval from the board. The Chief Executive Officer is responsible for our corporate objectives,
        which are set out each year in our Business Plan. The board
        approves the Business Plan early each year. The board and the MRCC periodically review the Chief Executive
        Officers performance against the pre-set strategic business
        objectives and measurable financial and operating targets
        set out in our Business Plan. 80    Bell Canada 2004
    Financial information   TSX
        GUIDELINE
      ALIGNED
      OUR CORPORATE
        GOVERNANCE PRACTICES11.
      The board should have in place appropriate structures and procedures to
        ensure that it can function independently
        of management. An appropriate structure
        would be to:  appoint a chair of the board
            who is not a member
            of management with responsibility to
            ensure that the board discharges its responsibilities, or
          assign this responsibility to
            a non-management director, sometimes referred to as the lead director.
          Appropriate procedures may
            involve the board meeting
            on a regular basis without management present or may involve expressly assigning
            responsibility for administering the boards
            relationship to management to a committee of the board.
      
      The
        current Chair of the board is not an executive officer of BCE, 
        Bell Canada or of their subsidiaries,
        which we believe ensures that
        the board functions independently of management. At each regularly scheduled board meeting, the
        directors meet without
        management. Directors can add items to the agenda for board meetings. The
        agendas are distributed in advance of the meetings. Each committee
        Chair is responsible for the agendas of his or her committee
        meetings. There is a process in place for receiving feedback
        from directors on how the board can operate more effectively. This includes
        questionnaires that the CGC distributes to directors and
        one-on-one meetings with the board Chair and the Chair of
        the CGC.12.
      The audit committee should be composed only of non-management directors.
        The roles and responsibilities of the audit committee should be specifically
        defined so as to provide appropriate guidance
        to audit committee members as to their duties.
        The audit committee should have direct communication
        channels with the internal and external
        auditors to discuss and review specific issues
        as appropriate. The audit committee duties should
        include oversight responsibility for management reporting on internal
        controls. While it is
        managements responsibility to design and implement
        an effective system of internal controls, it is the audit committees
        responsibility to ensure
        that management has done so.
      
      The
        audit committee consists only of unrelated and independent directors.
        Its roles and responsibilities are set out in its
        written charter. The purpose of the audit committee is to assist
        the board in overseeing:  the integrity of the financial
            statements and related information
          our compliance with the legal
            and regulatory requirements that
            apply to us
          the independence, qualifications
            and appointment of the external
            auditor
          the performance of the internal
            and external auditors
          managements responsibility
            for reporting on internal controls.CANADIAN
          RULESThe Canadian rules require
          that:
        audit committees must have
            a minimum of three directors
          each member of the audit
            committee has no relationship that may affect his or her independence
            from management
            and the company
          each member of the audit
            committee should be knowledgeable about financial matters.
      
      The
          audit committee and its members meet all of these requirements.RELATED
        SEC RULES The
        related SEC rules require disclosure as to whether or not, and
        if not the reasons why, the audit committee is comprised of
        at least one member who is a financial expert as defined
        in such related SEC rules.
      
      The
        board has determined that the audit committee includes at least
        one financial expert, its Chair, Mr. T.C. ONeill. 81    Bell Canada 2004
    Financial information   Statement
        of corporate governance practicesTSX
        GUIDELINE
      ALIGNED
      OUR
        CORPORATE GOVERNANCE PRACTICESSARBANES-OXLEY
        ACT, RELATED SEC RULES AND
        CANADIAN RULESThe Sarbanes-Oxley Act,
        the related SEC rules and the Canadian
        rules address the engagement of auditors as well as
        a pre-approval process for all non-audit services.
      
      BCEs
        auditor independence policy and the audit committees written charter
        govern all aspects of Bell Canadas relationship with the
        external auditor. The audit committee is responsible for setting the
        policy, approving recommendations for changes and making sure
        that management complies with it.      
        The auditor independence policy
        includes a process for:  determining whether various
            audit and other services provided by
            the external auditor affect its independence
          identifying the services
            that external auditors may and may not
            provide (such as prohibited vs permitted services)
          pre-approving all services
            to be provided by the external auditor
          establishing guidelines
            for engaging former employees of the external
            auditor (as a separate policy).13.
      The board
        should implement a system to enable an individual
        director to engage an outside advisor, at our
        expense, in appropriate circumstances. The engagement
        of the outside advisor should be subject to the approval of an appropriate
        committee of the board.
      
      The
        board and each committee may hire outside advisors at our expense.
        Individual directors may also hire outside advisors if it
        is appropriate and the CGC approves it. 82    Bell Canada 2004
    Financial information   Board
          of DirectorsRICHARD
            J. CURRIE, O.C.  Toronto, Ontario Chair of the board, BCE Inc. and Bell Canada. 
            A director since May 2002 and chair of the management  resources
            and compensation committee.
            Chairman of Telesat Canada.
          MICHAEL J. SABIA   Montréal, Québec President and Chief Executive Officer and a director, BCE Inc.
            Chief Executive Officer and a director, Bell Canada. 
            A director since July 2000. Chairman of the board of Bell Globemedia Inc.
            A director of Bell ExpressVu Inc., Bell Mobility Holdings Inc., 
            CGI Group Inc. and Telesat Canada.
          ANDRÉ BÉRARD,
            O.C.   Montréal, Québec Corporate Director.
            A director since January 2003 and a member of the audit committee.
            
            A director of BCE Inc. and Telesat Canada.
          RONALD A. BRENNEMAN 
             Calgary, Alberta President and Chief Executive Officer 
            and a director, Petro-Canada.
            A director since November 2003 and a member of the management resources
            and compensation committee. 
            A director of BCE Inc. and Telesat Canada.
          ANTHONY S. FELL, O.C. 
             Toronto, Ontario Chairman of the board, RBC Dominion Securities 
            Limited. 
            A director since January 2003 
            and a member of the management resources 
            and compensation committee and the 
            corporate governance committee. 
            A director of BCE Inc. and Telesat Canada.
          DONNA SOBLE KAUFMAN 
             Toronto, Ontario Lawyer and Corporate Director.
            A director since January 2003 and chair 
            of the corporate governance committee. 
            A director of BCE Inc. and Telesat Canada.
          THOMAS E. KIERANS, O.C. 
             Toronto, Ontario Chair, CSI Global Education Inc. 
            A director since January 2003 and a member 
            of the pension fund committee and 
            the corporate governance committee.
            A director of BCE Inc. and Telesat Canada.
        BRIAN
            M. LEVITT  Montréal, Québec Co-Chair, Osler, Hoskin & Harcourt LLP.
            A director since January 2003 and a member of the pension 
            fund committee. 
            A director of BCE Inc. and Telesat Canada.
          JUDITH MAXWELL, C.M. 
             Ottawa, Ontario President, Canadian Policy Research Networks Inc. 
            A director since December 2000 and a member of the audit 
            committee. A director of BCE Inc. and Telesat Canada.
          JOHN H. MCARTHUR   Wayland, Massachusetts Senior Advisor to the President, The World Bank Group. 
            A director since January 2003 and a member of the 
            management resources and compensation committee 
            and the corporate governance committee. 
            A director of BCE Inc. and Telesat Canada.
          THOMAS C. O’NEILL, F.C.A. 
             Don Mills, Ontario Chartered Accountant and Corporate Director.
            A director since January 2003 and chairman of the audit 
            committee. 
            A director of BCE Inc. and Telesat Canada.
          JAMES A. PATTISON, O.C., O.B.C. 
             Vancouver, British Columbia Chairman and Chief Executive Officer, 
            The Jim Pattison Group.
            A director since February 2005. 
            A director of BCE Inc. and Telesat Canada.
          PAUL M. TELLIER, P.C., C.C.,
            Q.C.   Montréal, Québec Corporate Director.
            A director since March 1996 and a member of the pension 
            fund committee. 
            A director of BCE Inc. and Telesat Canada.
          VICTOR L. YOUNG, O.C. 
             St. Johns, Newfoundland and Labrador Corporate Director.
            A director since January 2003 and a member of the audit 
            committee and the management resources and compensation 
            committee. 
            A director of Aliant Inc., BCE Inc. and 
            Telesat Canada.
 83    Bell Canada 2004
    Financial information   Corporate
        OfficersMICHAEL
        J. SABIAChief Executive
        Officer FRANK ANDERSON 
           Senior Vice-President  Enterprise Systems, Billing 
          and Infrastructure
        J. TREVOR ANDERSON   Senior Vice-President  Technology
        PIERRE J. BLOUIN   Group President  Consumer Markets
        MICHAEL T. BOYCHUK   Senior Vice-President and Treasurer
        KARYN A. BROOKS   Vice-President and Controller
        CHARLOTTE BURKE   Senior Vice-President  Consumer Internet Services
        ISABELLE COURVILLEPresident
         Enterprise PETER
          DANIEL   Executive Vice-President  Communications
          And Corporate Marketing
        RENATO J. DISCENZA   Senior Vice-President  Carrier Services Group
        SCOTT GARVEY   Senior Vice-President  Professional Services
        JOSÉE GOULETChief
         Special Projects LEO
          W. HOULEChief Talent Officer
        SALVATORE IACONO   Senior Vice-President  Marketing and Carrier Relations
        ALEK KRSTAJICPresident
         Bell Mobility
      ELLEN
          M. MALCOLMSON   Senior Vice-President  Operations
        KELLY L. MCDOUGALD   Senior Vice-President  Enterprise Sales, Ontario
        ROBERT T. MOSEYExecutive
        Vice-President ROBERT
          ODENDAAL   Chief Executive Officer  Bell Mobility and Video Services
        PATRICIA A. OLAH
        Corporate Secretary PATRICK
          PICHETTE
          President  Operations
        BARRY W. PICKFORD
          Senior Vice-President – Taxation
        EUGENE ROMANGroup President – Systems and Technology
        CLAUDE ROUSSEAU
          Senior Vice-President – Enterprise and Public Sector Sales, 
          Québec
        KAREN H. SHERIFFPresident – Small and Medium Business
        STEPHEN P. SKINNERSenior Vice-President – Finance
        GARY J. SMITH
          President – Bell ExpressVu
        IDA TEOLISenior Vice-President – National Markets
        MARTINE TURCOTTEChief Legal Officer
        SIIM A. VANASELJAChief Financial Officer
        STEPHEN G. WETMOREGroup President – National Markets 84     Bell Canada 2004
    Financial information   Committees of
        the BoardAudit CommitteeT.C. O’NEILL
        –ChairA. Bérard 
        J. Maxwell 
        V.L. YoungCorporate
          Governance CommitteeD. SOBLE
        KAUFMAN–
        ChairA.S. Fell 
        T.E. Kierans 
        J.H. McArthurManagement Resources and 
          Compensation CommitteeR.J. CURRIE– ChairR.A. Brenneman 
        A.S. Fell 
        J.H. McArthur 
        V.L. YoungPension Fund CommitteeT.E. Kierans 
        B.M. Levitt 
        P.M. Tellier  TRADEMARKS The following
          is a list of all our trademarks referred to and used as
          such in this annual report. BCE is a trademark of BCE Inc. The rings
          and head design, Bell, Sympatico, Sympatico.ca, Bell Mobility,
          ProConnect are trademarks of Bell Canada. Mobile Browser is a trademark
          of Bell Mobility. Nimiq, Anik, Telesat are trademarks of Telesat
          Canada. Any other trademarks, or corporate, trade or domain names
          used in this report are the property of their owners. We believe that
          our
          trademarks and domain names are very important to our success.
          Our exclusive trademark rights are perpetual provided that their
          registrations are timely renewed and that the trademarks are used in
          commerce by us or our licensees. We take appropriate measures to
          protect, renew and defend our trademarks. We also spend considerable
          time and resources overseeing, registering, renewing, licensing and
          protecting our trademarks and prosecuting those who infringe on
          them. We take great care not to infringe on the intellectual property
          and trademarks of others.  85    Bell Canada 2004
    Financial information       www.bell.ca PRINTED IN CANADA