##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




---

FORM 20-F

(Mark One)

|  |  |                                                                                               
|- |  | ----------------------------------------------------------------------------------------------
|o |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | OR                                                                                            
| 
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934          
| 
|  |  | For the fiscal year ended: December 31, 2002                                                  
| 
|  |  | OR                                                                                            
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934      
| 
|  |  | For the transition period from                      to                                        

Commission File Number 000-29502

MICROCELL TELECOMMUNICATIONS INC/
MICROCELL TÉLÉCOMMUNICATIONS INC.

(Exact name of Registrant as specified in its charter)


(Translation of Registrants name into English)


CANADA(Jurisdiction of incorporation or organization)

800 de La Gauchetière Street West, Suite 4000, Montreal, Quebec, Canada, H5A 1K3(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|None                |  | None                                     

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Class B Non-Voting Shares
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.

Series B Senior Discount Notes due 2006
Series B Senior Discount Notes due 2007
Series B Senior Discount Notes due 2009
(Title of Class)

Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report.

27,631,537 Common Shares
9,590,000 Class A Non-Voting Shares
202,994,911 Class B Non-Voting Shares

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

[X] Yes     [  ] No

Indicate by check mark which financial statement item the registrant has
elected to follow.

[   ] Item 17        [X] Item 18





---

TABLE OF CONTENTS



|          |                                                                                        |  |  |  |  |  |  | 
|--------- | -------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I   
|          | ITEM 1  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        
|          | ITEM 2  OFFER STATISTICS AND EXPECTED TIMETABLE                                      
|          | ITEM 3  KEY INFORMATION                                                              
|          | ITEM 4  INFORMATION ABOUT THE COMPANY                                                
|          | ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 
|          | ITEM 6  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   
|          | ITEM 7  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            
|          | ITEM 8  FINANCIAL INFORMATION                                                        
|          | ITEM 9  THE OFFER AND LISTING                                                        
|          | ITEM 10  ADDITIONAL INFORMATION                                                      
|          | ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                   
|          | ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                      
|PART II  
|          | ITEM 13  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                             
|          | ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|          | ITEM 15  CONTROLS AND PROCEDURES                                                     
|          | ITEM 16. A.  AUDIT COMMITTEE FINANCIAL EXPERT                                        
|          | ITEM 16. B.  CODE OF ETHICS                                                          
|          | ITEM 16. C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                                  
|PART III 
|          | ITEM 17  FINANCIAL STATEMENTS                                                        
|          | ITEM 18  FINANCIAL STATEMENTS                                                        
|          | ITEM 19  EXHIBITS                                                                    
|SIGNATURE
|ex-1.1   
|ex-1.2   
|ex-2.1   
|ex-2.2   
|ex-2.3   
|ex-2.4   
|ex-2.5   
|ex-4.1   
|ex-4.2   
|ex-4.3   
|ex-4.4   
|ex-4.5   
|ex-4.6   
|ex-4.7   
|ex-4.8   
|ex-8.1   
|ex-11.1  
|ex-11.2  
|ex-11.3  
|ex-11.4  



---



##### Table of Contents



TABLE OF CONTENTS

EXPLANATORY NOTES
FORWARD LOOKING STATEMENTS
NON-GAAP MEASURES

|         |                                                                                        |  |    |     | 
|-------- | -------------------------------------------------------------------------------------- |  | -- | --- | 
|PART I   |                                                                                        |  | 5  |    
|         | ITEM 1  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                         |  |    | 5   | 
|         | ITEM 2  OFFER STATISTICS AND EXPECTED TIMETABLE                                       |  |    | 5   | 
|         | ITEM 3  KEY INFORMATION                                                               |  |    | 5   | 
|         | ITEM 4  INFORMATION ABOUT THE COMPANY                                                 |  |    | 13  | 
|         | ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  |  |    | 30  | 
|         | ITEM 6  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    |  |    | 48  | 
|         | ITEM 7  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             |  |    | 59  | 
|         | ITEM 9  THE OFFER AND LISTING                                                         |  |    | 61  | 
|         | ITEM 10  ADDITIONAL INFORMATION                                                       |  |    | 64  | 
|         | ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                    |  |    | 80  | 
|         | ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  |    | 83  | 
|PART II  |                                                                                        |  | 83 |    
|         | ITEM 13  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  |    | 83  | 
|         | ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS |  |    | 83  | 
|         | ITEM 15  CONTROLS AND PROCEDURES                                                      |  |    | 83  | 
|         | ITEM 16. A.  AUDIT COMMITTEE FINANCIAL EXPERT                                         |  |    | 84  | 
|         | ITEM 16. B.  CODE OF ETHICS                                                           |  |    | 84  | 
|         | ITEM 16. C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                                   |  |    | 84  | 
|PART III |                                                                                        |  | 84 |    
|         | ITEM 17  FINANCIAL STATEMENTS                                                         |  |    | 84  | 
|         | ITEM 18  FINANCIAL STATEMENTS                                                         |  |    | 84  | 
|         | ITEM 19  EXHIBITS                                                                     |  |    | 116 | 

EXPLANATORY NOTES

On May 1, 2003, Microcell Telecommunications Inc. (Microcell)s
predecessor company, that was also named Microcell Telecommunications Inc. and
is now named 2861399 Canada Inc. (Old Microcell), and certain subsidiaries of
Old Microcell, emerged from a restructuring plan initiated on January 3, 2003
under the Companies Creditors Arrangement Act(CCAA) and Canada Business
Corporations Act(CBCA). The terms of Old Microcells restructuring plan are
set out in Old Microcells plan of reorganization and of compromise and
arrangement (the Plan), a copy of which is contained in the Information
Circular and Proxy Statement dated February 17, 2003, (the Circular) filed
with the U.S. Securities and Exchange Commission (SEC) on Form 6-K on
February 20, 2003.

2



---



##### Table of Contents



Before May 1, 2003, Old Microcell carried on its operations through a
number of directly and indirectly wholly owned subsidiaries, including; (1)
Microcell Connexions Inc. (Connexions) which was the holder of the national
30 MHz personal communications services (PCS) authorization (the PCS
License) issued by the Canadian Minister for the Department of Industry
(Industry Canada or the Minister); (2) Microcell Solutions Inc.
(Solutions) who operated the Companys retail PCS business under the Fido®
brand name; (3) Microcell Capital II Inc. (Microcell Capital) who invested in
GSM Capital Limited Partnership (GSM Capital), Argo II  The Wireless
Internet Fund Limited Partnership (Argo II), and Inukshuk Internet Inc.
(Inukshuk) a company awarded by Industry Canada twelve regional multipoint
communications systems (MCS) licenses; and (4) Microcell Labs Inc.
(Microcell Labs) who operated as a for-profit laboratory.

On May 1, 2003, pursuant to the Plan: (1) Microcell became a holding
company for Old Microcell; (2) Connexions, Solutions, Microcell Capital,
Microcell Labs and other subsidiaries amalgamated to form Solutions, the
surviving entity of the amalgamation of the amalgamated companies; and (3) the
board of directors of Old Microcell (the Old Board) has been replaced by a
new board of directors for Microcell (the New Board).

Prior to May 1, 2003, Old Microcells Class B Non-Voting Shares were
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934
(the Exchange Act). Under the terms of the Plan, Microcell issued First
Preferred Voting Shares, First Preferred Non-Voting Shares, Second Preferred
Voting Shares, Second Preferred Non-Voting Shares, Class A Restricted Voting
Shares, new Class B Non-Voting Shares and warrants. Two series of warrants
(collectively the Warrants) were issued pursuant to the Plan: (1) 2-year
warrants entitling the holders thereof to subscribe, until May 1, 2005, for
Class A Restricted Voting Shares or Class B Non-Voting Shares of Microcell, as
the case may be, at an exercise price of $19.91 per share (the Warrants
2005); and (2) 5-year warrants entitling the holders thereof to subscribe,
until May 1, 2008, for Class A Restricted Voting Shares or Class B Non-Voting
Shares of Microcell, as the case may be, at an exercise price of $20.69 per
share (the Warrants 2008). Each of these classes of shares were deemed to be
registered pursuant to Section 12(g) of the Exchange Act and Rule 12g-3(a)
promulgated thereunder. A report on Form 6-K has been filed on May 22, 2003 to
fulfill the requirements of Rule 12g-3(f), because, as a foreign private
issuer, Microcell is not required to file current reports on Form 8-K. In
November 2003, the Company plans to file with the SEC a Registration Statement
with respect to the shares issuable upon the exercise of the Warrants.

For a more detailed description of the transactions related to the Plan,
readers are referred to the Plan.

Unless references herein are made specifically to Old Microcell, the
references to Microcell, Company, we, us or our refer, depending on
the situation of the context to (1) Microcell and all or only part of its
subsidiaries collectively, or one or several of its subsidiaries; and (2) Old
Microcell and all or only part of its subsidiaries collectively, or one or
several of its subsidiaries.

FORWARD LOOKING STATEMENTS

This annual report includes forward-looking statements that involve risks
and uncertainties. These statements relate to analyses and other information
that are based on forecasts of future results and estimates of amounts not yet
determinable. These statements also relate to the Companys future prospects,
developments and business strategies.

These forward-looking statements are identified by the use of terms and
phrases such as anticipate, believe, could, estimate, expect,
intend, may, plan, predict, project, will, would, and similar
terms and phrases, including references to assumptions. These forward-looking
statements involve risks and uncertainties that may cause the Companys actual
future activities and results of operations to be materially different from
those suggested or described in this annual report. These risks include the
risks that are identified in this annual report which are primarily listed in
the Risk Factorsin item 3 and Operating and Financial Review and Prospects
in item 5. If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, the Companys actual results may vary
materially from those expected, estimated or projected.

Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Act of 1995

This annual report contains forward-looking statements, as defined in
the Private Securities Litigation Reform Act of 1995, that are based on current
expectations and estimates. Statements that are not historical facts, including
statements about the Companys beliefs and expectations, are forward- looking
statements. These statements contain potential risks and uncertainties, and
actual results may therefore differ materially.

Important factors that may affect these expectations include, but are not
limited to: changes in the Canadian economy and in Canadian and U.S. capital
markets; changes in competition in the Companys markets; advances in
telecommunications technology; changes in the telecommunications regulatory
environment; the possibility of future litigation; future availability of
financing; unanticipated changes in the number of subscribers; radiofrequency
emission concerns; exchange rate fluctuations; penetration and churn rates; and
the mix of products and services offered in the Companys markets. Readers
should evaluate any statements in light of these important factors.

3



---



##### Table of Contents



NON-GAAP MEASURES

The term EBITDA (Operating income (loss) excluding restructuring charges,
impairment of intangible assets, depreciation and amortization) is used
throughout this annual report. Microcell also uses the terms ARPU (average
revenue per user per month), COA (cost of acquisition of a retail subscriber),
net retail subscriber additions, churn rate and cumulative CAPEX (capital
expenditures) per population covered. All of these aforementioned terms may
not be identical to similarly titled measures reported by other companies.
Furthermore, they should not be considered in isolation or as alternative
measurements of operating performance or liquidity to net loss, operating loss,
cash flows from operating activities or any other measures of performance under
the generally accepted accounting principles in Canada (Canadian GAAP).
Microcell believes that EBITDA, ARPU, COA, net retail subscriber additions,
churn rate and cumulative CAPEX per population covered are viewed as
relevant supplemental measures of performance in the wireless
telecommunications industry.

EXCHANGE RATE INFORMATION

Microcell publishes its consolidated financial statements in Canadian
dollars. All dollar amounts set forth in this annual report are expressed in
Canadian dollars except where otherwise indicated. References to $ or
Cdn.$ are to Canadian dollars and references to U.S.$ or U.S. dollars are
to United States dollars. See Item 3 of this annual report for exchange rates
data.

4



---



##### Table of Contents






PART I




ITEM 1  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable




ITEM 2  OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable




ITEM 3  KEY INFORMATION

SELECTED FINANCIAL DATA

The selected consolidated financial data for the Company set forth below
for the fiscal years ended December 31, 2002, 2001, 2000, 1999 and 1998 have
been derived from the consolidated financial statements of the Company, which
have been audited by Ernst & Young LLP. The information set forth below should
be read in conjunction with item 5 of this Form 20-F and the consolidated
financial statements of the Company, and the notes thereto, included in item 18
of this Form 20-F. The consolidated financial statements have been prepared in
accordance with Canadian GAAP. For a discussion of the principal differences
between Canadian GAAP and the accounting principles generally accepted in the
United States (U.S. GAAP), see Note 20 to the consolidated financial
statements of the Company, which reconciliation is incorporated herewith by
reference.

|                                                   |  |      |          |      |  |      |          |                          |  |      |          |   |  |   |          |   |  |   |          |  
|-------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | ------------------------ |  | ---- | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                                   |  |      |          |      |  |      |          | Years ended December 31, |  |      |          |   |  |  
|                                                   |  |      |          |      |  |      |          |                          |  |      |          |   |  |  
|                                                   |  | 2002 |          | 2001 |  | 2000 |          | 1999                     |  | 1998
|                                                   |  |      |          |      |  |      |          |                          |  |     
|(in thousands of dollars,                          |  |      |          |      |  |      |          |                          |  |      |          |   |  |   |          |   |  |   |          |  
|except for the data relating to shares)            |  |      |          |      |  |      |          |                          |  |      |          |   |  |   |          |   |  |   |          |  
|Statement of Loss Data:                            |  |      |          |      |  |      |          |                          |  |      |          |   |  |   |          |   |  |   |          |  
|Revenues                                           |  |      | 591,062  |      |  |      | 541,490  |                          |  |      | 405,986  |   |  |   | 260,466  |   |  |   | 143,412  |  
|Operating loss                                     |  |      | (382,297 | )    |  |      | (193,019 | )                        |  |      | (243,636 | ) |  |   | (270,426 | ) |  |   | (294,626 | )
|Net loss                                           |  |      | (570,501 | )    |  |      | (498,485 | )                        |  |      | (268,427 | ) |  |   | (393,637 | ) |  |   | (408,920 | )
|Basic loss per share from operations               |  | $    | (1.59    | )    |  | $    | (1.77    | )                        |  | $    | (2.53    | ) |  | $ | (3.29    | ) |  | $ | (3.54    | )
|Diluted loss per share from operations             |  | $    | (1.59    | )    |  | $    | (1.77    | )                        |  | $    | (2.53    | ) |  | $ | (3.29    | ) |  | $ | (3.54    | )
|Basic loss per share                               |  | $    | (2.37    | )    |  | $    | (4.56    | )                        |  | $    | (2.79    | ) |  | $ | (4.78    | ) |  | $ | (4.92    | )
|Diluted loss per share                             |  | $    | (2.37    | )    |  | $    | (4.56    | )                        |  | $    | (2.79    | ) |  | $ | (4.78    | ) |  | $ | (4.92    | )
|Operating loss (U.S. GAAP)                         |  |      | (382,297 | )    |  |      | (196,521 | )                        |  |      | (246,242 | ) |  |   | (270,426 | ) |  |   | (294,626 | )
|Net loss (U.S. GAAP)                               |  |      | (584,914 | )    |  |      | (498,167 | )                        |  |      | (250,116 | ) |  |   | (396,166 | ) |  |   | (432,007 | )
|Comprehensive loss (U.S. GAAP)                     |  |      | (586,766 | )    |  |      | (495,270 | )                        |  |      | (251,016 | ) |  |   | (396,166 | ) |  |   | (432,007 | )
|Basic loss per share from operations (U.S. GAAP)   |  | $    | (1.59    | )    |  | $    | (1.80    | )                        |  | $    | (2.56    | ) |  | $ | (3.29    | ) |  | $ | (3.54    | )
|Diluted loss per share from operations (U.S. GAAP) |  | $    | (1.59    | )    |  | $    | (1.80    | )                        |  | $    | (2.56    | ) |  | $ | (3.29    | ) |  | $ | (3.54    | )
|Basic loss per share (U.S. GAAP)                   |  | $    | (2.43    | )    |  | $    | (4.56    | )                        |  | $    | (2.60    | ) |  | $ | (4.81    | ) |  | $ | (5.20    | )
|Diluted loss per share (U.S. GAAP)                 |  | $    | (2.43    | )    |  | $    | (4.56    | )                        |  | $    | (2.60    | ) |  | $ | (4.81    | ) |  | $ | (5.20    | )

5



---



##### Table of Contents



|                                                                         |  |      |             |      |  |      |             |      |                    |      |            |   |  |  |            |   |  |  |            |  
|------------------------------------------------------------------------ |  | ---- | ----------- | ---- |  | ---- | ----------- | ---- | ------------------ | ---- | ---------- | - |  |  | ---------- | - |  |  | ---------- | -
|                                                                         |  |      |             |      |  |      |             |      | As at December 31, |      |            |   |  |  |            |  
|                                                                         |  |      |             |      |  |      |             |      |                    |      |            |   |  |  |            |  
|                                                                         |  | 2002 |             | 2001 |  | 2000 |             | 1999 |                    | 1998
|                                                                         |  |      |             |      |  |      |             |      |                    |     
|(in thousands of dollars,                                                |  |      |             |      |  |      |             |      |                    |      |            |   |  |  |            |   |  |  |            |  
|except for the data relating to shares)                                  |  |      |             |      |  |      |             |      |                    |      |            |   |  |  |            |   |  |  |            |  
|                                                                         |  |      |             |      |  |      |             |      |                    |      |            |   |  |  |            |   |  |  |            |  
|Balance Sheet Data:                                                      |  |      |             |      |  |      |             |      |                    |      |            |   |  |  |            |   |  |  |            |  
|Total assets                                                             |  |      | 912,854     |      |  |      | 1,395,259   |      |                    |      | 1,209,226  |   |  |  | 817,850    |   |  |  | 684,676    |  
|Shareholders deficiency                                                 |  |      | (1,297,226  | )    |  |      | (726,725    | )    |                    |      | (667,561   | ) |  |  | (796,037   | ) |  |  | (402,981   | )
|Share capital                                                            |  |      | 1,167,678   |      |  |      | 1,167,371   |      |                    |      | 728,050    |   |  |  | 327,599    |   |  |  | 313,154    |  
|Warrants                                                                 |  |      | 1,770       |      |  |      | 2,077       |      |                    |      | 2,077      |   |  |  | 5,625      |   |  |  | 19,489     |  
|Deficit                                                                  |  |      | 2,466,674   |      |  |      | 1,896,173   |      |                    |      | 1,397,688  |   |  |  | 1,129,261  |   |  |  | 735,624    |  
|Total assets (U.S. GAAP)                                                 |  |      | 911,548     |      |  |      | 1,410,696   |      |                    |      | 1,220,970  |   |  |  | 812,183    |   |  |  | 681,358    |  
|Shareholders deficiency (U.S. GAAP)                                     |  |      | (1,298,677  | )    |  |      | (713,763    | )    |                    |      | (654,917   | ) |  |  | (801,704   | ) |  |  | (406,119   | )
|Share capital (U.S. GAAP)                                                |  |      | 1,228,401   |      |  |      | 1,228,094   |      |                    |      | 788,773    |   |  |  | 388,322    |   |  |  | 373,877    |  
|Warrants (U.S. GAAP)                                                     |  |      | 1,770       |      |  |      | 2,077       |      |                    |      | 2,077      |   |  |  | 5,625      |   |  |  | 19,489     |  
|Deficit (U.S. GAAP)                                                      |  |      | 2,528,848   |      |  |      | 1,943,934   |      |                    |      | 1,445,767  |   |  |  | 1,195,651  |   |  |  | 799,485    |  
|Accumulated other comprehensive income
(loss), end of period (U.S. GAAP) |  |      | 145         |      |  |      | 1,997       |      |                    |      | (900       | ) |  |  |           |   |  |  |           |  
|Other Data:                                                              |  |      |             |      |  |      |             |      |                    |      |            |   |  |  |            |   |  |  |            |  
|Common Shares                                                            |  |      | 27,631,537  |      |  |      | 27,631,537  |      |                    |      | 31,665,275 |   |  |  | 32,780,071 |   |  |  | 33,020,071 |  
|Class A Non-Voting Shares                                                |  |      | 9,590,000   |      |  |      | 9,590,000   |      |                    |      | 9,590,000  |   |  |  |           |   |  |  |           |  
|Class B Non-Voting Shares                                                |  |      | 202,994,911 |      |  |      | 202,951,539 |      |                    |      | 24,160,642 |   |  |  | 22,141,195 |   |  |  | 19,878,060 |  
|                                                                         |  |      |             |      |  |      |             |      |                    |      |            |   |  |  |            |   |  |  |            |  
|Number of shares outstanding at the
end of the period                    |  |      | 240,216,448 |      |  |      | 240,173,076 |      |                    |      | 65,415,917 |   |  |  | 54,921,266 |   |  |  | 52,898,131 |  
|                                                                         |  |      |             |      |  |      |             |      |                    |      |            |   |  |  |            |   |  |  |            |  

Exchange Rate Data

The following table sets forth the exchange rates for one U.S. dollar in
effect at the end of the periods noted and the average of the exchange rates on
the last day of each month during such periods. The exchange rates expressed in
Canadian dollars are based on the noon buying rate as reported by the Federal
Reserve Bank of New York. On June 17, 2003, the noon buying rate was $0.7467
per U.S. dollar and the inverse of the noon buying rate was $1.3393 per
Canadian dollar.

|                                    |  |     |        |       |  |       |        |          |  |         |        |          |  |  |        |  |  |  |        |      |  |  |        | 
|----------------------------------- |  | --- | ------ | ----- |  | ----- | ------ | -------- |  | ------- | ------ | -------- |  |  | ------ |  |  |  | ------ | ---- |  |  | ------ | 
|                                    |  |     |        |       |  |       |        |          |  | 2003    |        |          |  |  |        |  |  |  |        | 2002
|                                    |  |     |        |       |  |       |        |          |  |         |        |          |  |  |        |  |  |  |        |     
|                                    |  | May |        | April |  | March |        | February |  | January |        | December
|                                    |  |     |        |       |  |       |        |          |  |         |        |         
|Highest exchange rate during period |  |     | 0.7437 |       |  |       | 0.6975 |          |  |         | 0.6822 |          |  |  | 0.6720 |  |  |  | 0.6570 |      |  |  | 0.6461 | 
|Lowest exchange rate during period  |  |     | 0.7032 |       |  |       | 0.6737 |          |  |         | 0.6709 |          |  |  | 0.6530 |  |  |  | 0.6349 |      |  |  | 0.6329 | 

|                                        |  |      |        |      |  |      |        |                         |  |      |        |  |  |  |        |  |  |  |        | 
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ----------------------- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                        |  |      |        |      |  |      |        | Year ended December 31, |  |      |        |  |  | 
|                                        |  |      |        |      |  |      |        |                         |  |      |        |  |  | 
|                                        |  | 2002 |        | 2001 |  | 2000 |        | 1999                    |  | 1998
|                                        |  |      |        |      |  |      |        |                         |  |     
|Exchange rate at the end of period      |  |      | 0.6329 |      |  |      | 0.6279 |                         |  |      | 0.6669 |  |  |  | 0.6925 |  |  |  | 0.6504 | 
|Average exchange rate during period (1) |  |      | 0.6370 |      |  |      | 0.6446 |                         |  |      | 0.6726 |  |  |  | 0.6746 |  |  |  | 0.6722 | 



---

|(1) |  | The average of the exchange rates on the last day of each month during
the applicable period.
|--- |  | ---------------------------------------------------------------------------------------------

6



---



##### Table of Contents



RISK FACTORS

For a discussion of certain other possible risk factors, readers should
also refer to the sections titled Liquidity and Capital Resourcesand Risk
and Uncertaintiescontained in item 5 of this annual report.

Microcell will need to obtain financing in addition to its already substantial
debt, which may limit its financial flexibility and make it vulnerable to
economic downturns.

The current business plan of Microcell does not require additional
post-reorganization financing assuming it is implemented without material variances; however, if
actual results vary from the business plan and if the assumptions underlying
the business plan were to change, additional funds may be required. Actual
amounts of funds required may vary materially from these estimates and
additional funds may be required as a result.

Sources of funding for Microcells further financing requirements may
include, in addition to the credit facility of $25 million, which may be
increased up to $75 million, established in favor of Solutions (the Tranche A
Exit Facility), additional bank financing, vendor financing, public offerings
or private placements of equity or debt securities, capital contributions from
shareholders and disposition of assets. Pursuant to the Plan, the Company
entered into credit agreements (collectively the New Credit Facilities)
relating to (1) the Tranche A Exit Facility; (2) a term loan of Solutions
consisting of Canadian dollar series in the amount of Cdn.$100,000,000 and a
U.S. dollar series in the amount of the U.S. dollar equivalent of
Cdn.$200,000,000 (the Tranche B Debt); and (3) a term loan of Solutions in
the aggregate amount of $50,000,000 (the Tranche C Debt). There can be no
assurance that additional financing will be available to Microcell or, if
available, that it can be obtained on a timely basis and on terms acceptable to
Microcell and within the limitations contained in the New Credit Facilities.
Failure to maintain or increase the Tranche A Exit Facility or such additional
financing could result in the delay or modification of Microcells network
level of services or in the delay or failure to meet license conditions, which
could result in a loss of the PCS License and/or the MCS Licenses. Any of these
events could impair Microcells ability to meet its debt service requirements
and could have a material effect on its business.

The New Credit Facilities contain restrictive covenants which may affect,
and in some cases significantly limit or prohibit, among other things,
Microcells ability to incur indebtedness, make prepayments of certain
indebtedness, create liens, sell assets, make capital expenditures and engage
in acquisitions, mergers, amalgamations and consolidations. In addition, the
New Credit Facilities require Microcell to maintain certain financial ratios,
which may include EBITDA levels, ARPU levels, liquidity levels, subscriber or
revenue levels and maximum levels of capital expenditures. If Microcell fails
to comply with the various covenants of its indebtedness, it will be in default
under the terms thereof, which would permit holders of such indebtedness to
accelerate the maturity of such indebtedness and could cause defaults under
other indebtedness or agreements. In such circumstances, the lenders under the
New Credit Facilities could foreclose upon all or substantially all of the
assets of Microcell and its subsidiaries (excluding Inukshuk), which will be
pledged to secure the obligations of Microcell and Solutions.

The total long-term debt of Microcell as at May 1, 2003 is $350 million
under Canadian GAAP and under U.S. GAAP. Each of the New Credit Facilities
includes conditions and restrictions relating to the operations and activities
of Microcell and the ability to incur additional indebtedness. A portion of
Microcells interest costs on some of its indebtedness may be added to
principal and all or a portion of the accrued dividends on the dividend bearing
series of First Preferred Shares and the Second Preferred Shares may be added
to redemption prices therefor, thereby further increasing Microcells leverage.

The level of Microcells indebtedness could have consequences, including
on: (1) Microcells ability to obtain additional financing in the future for
capital expenditures, working capital, operating losses, debt service
requirements or other purposes; (2) Microcells flexibility in planning for, or
reacting to, changes to its business and market conditions; (3) Microcells
ability to compete; and (4) Microcells vulnerability in the event of a
downturn in its business.

Microcell may not be able to maintain its operations if the sources of funding
on which it is relying become unavailable

Microcells ability to meet its near term funding requirements is
dependent upon a number of factors, including the revenue generated by
Solutions, its existing cash balances, the continued availability of, and its
ability to obtain and to draw upon, the Tranche A Exit Facility or any
alternative financing.

Microcell expects to incur operating losses in the future, which may limit its
ability to service its debt

Microcell may experience growth-related capital requirements arising from
the funding of network capacity and maintenance and the cost of acquiring new
PCS customers. The ability to generate positive net income and cash flow from
operations in the future will be dependent upon various factors, including the
level of market acceptance of Microcells services, the degree of competition
encountered by Microcell, the cost of acquiring new customers, technology risks
and general economic conditions and regulatory

7



---



##### Table of Contents



requirements. There can be no assurance that Microcell will achieve or
sustain operating profitability or positive cash flow from operating
activities. If Microcell cannot achieve operating profitability or positive
cash flow from operating activities, it may not be able to meet its debt
service or working capital requirements or obtain additional capital required
to meet all of its cash requirements. In addition, Microcell is required to
make interest payments under the New Credit Facilities and will be required to
make payments of principal thereunder.

Microcells future performance will depend on its ability to succeed in
intensely competitive markets

Competition in the wireless communications industry is intense. The
success of Microcells PCS business depends upon its ability to compete with
other wireless telecommunications service providers in Canada with respect to
services, features and devices offered, the technical quality of the wireless
system, customer service, system coverage, capacity and price. Microcell
competes with other cellular, enhanced specialized mobile radio (ESMR) and
PCS providers, such as Rogers Wireless Communications Inc. and its affiliated
entities (Rogers), Telus Corporation and its affiliated entities (Telus)
and Bell Mobility Inc. and its former Mobility Canada Partners (excluding
Telus) (the Bell Mobility Partners). In addition, the number of competitors
could increase through the licensing to new competitors of additional spectrum,
through reselling or wholesaling, such as offered by Microcell, or through a
relaxation on the restrictions to foreign participation in the Canadian
telecommunications sector. See Risk Factors  Government Regulationin this
item 3.

There can be no assurance that Microcell will be able to compete
successfully in this environment or that other technologies and products that
are more commercially effective than Microcells technologies and products will
not be developed.

In addition, in order to compete effectively, Microcell subsidizes the
sale of its handsets. There can be no assurance as to the amount of such
subsidy or that the appropriate subsidy would not materially adversely affect
Microcells future capital requirements or results of operations. Microcell
cannot predict what impact competition and the introduction of new
technologies, products and services will have on the growth of its subscriber
base or on the pricing of its current services.

Competition in the broadband access sector in Canada is also intense. The
incumbent local exchange carriers (ILECs) and licensed cable operators are
currently the dominant players in the provision of broadband access to the
Internet in Canada. There can be no assurance that Inukshuk, with its planned
MCS services, will be able to compete successfully in this environment or that
other technologies and products that are more commercially effective than MCS
technologies and products will not be developed.

Microcells choice of technology for its PCS and MCS networks presents certain
technological and market risks for the Company

Industry Canada has not mandated any technology protocols for PCS or MCS
operators, leaving each licensee free to select among several competing
technologies that have sufficient technological differences to preclude their
interoperability. Although Microcell has chosen Global System for Mobile
Communications (GSM) technology for deployment in its PCS network, and
believes that GSM offers Microcell significant advantages over other principal
competing technologies, there are certain technological and market risks with
respect to deployment of GSM.

MCS technology and equipment suppliers have yet to be selected for
Inukshuks MCS network deployment. However, many of the technologies being
considered are still in an early stage of development, which places certain
technological and market risks with respect to their deployment, performance
and ongoing availability.

Rapid changes to the technology used in Microcells business may make its
technology obsolete or require it to make large capital expenditures

The wireless telecommunications industry is experiencing significant
technological change, as evidenced by evolving industry standards, ongoing
improvements in the capacity and quality of digital technology, shorter
development cycles for new products and enhancements and changes in end-user
requirements and preferences. Such continuing technological advances make it
difficult to predict the extent of future competition with cellular, PCS,
paging and other services. As a result, there can be no assurance that
existing, proposed or as yet undeveloped technologies will not become dominant
in the future and render PCS less profitable or even obsolete.

Microcell may be required to make more capital expenditures than are
currently expected if suppliers fail to meet anticipated schedules, a
technologys performance falls short of expectations or commercial success is
not achieved.

The actual or perceived health risks of wireless communications devices could
have a material adverse effect on Microcells business

Reports have suggested that certain radio frequency emissions from
wireless communications transmission equipment and handsets may be linked to
certain medical conditions, such as cancer. Scientific investigations are
ongoing to review whether radio emissions from wireless handsets and radio
transmitters used in connection with wireless technologies pose health
concerns, including

8



---



##### Table of Contents



interference with hearing aids, pacemakers and other medical equipment and
devices. There can be no assurance that the findings from such studies will not
have a material adverse effect on Microcells business or will not lead to
changes in government regulation. The actual or perceived health risks of
wireless communications devices could adversely affect wireless communications
service providers, including Microcell, through reduced subscriber growth,
reduced network usage per subscriber, the threat of product liability lawsuits
or reduced availability of financing to the wireless communications industry.

Microcell is subject to governmental regulation and licensing requirements,
which may increase its operating costs and affect its ownership structure

The use of radio spectrum is regulated by Industry Canada pursuant to the
Radiocommunication Act (Canada) (the Radiocommunication Act). Radio and
spectrum licenses are issued for a term and may be renewed at Industry Canadas
discretion. They may be suspended or revoked for cause, including failure to
comply with the conditions of license, although revocation is rare, and
licenses are usually renewed upon expiration. Industry Canada regulation,
described further under the headings Regulation Frameworkin item 4, and
Risk Factors  PCS License Conditions and Feesand Risk Factors  MCS
Licenses Conditions and Feesin this item 3, can materially affect the
Companys costs and operations.

As the owner and operator of Microcells PCS network and therefore a
facilities-based telecommunications carrier, Solutions is a Canadian carrier
pursuant to the Telecommunications Act (Canada) (the Telecommunications Act),
and therefore subject to regulation by the Canadian Radio-television and
Telecommunications Commission (CRTC). Inukshuk is expected to be a Canadian
carrier. CRTC regulation, described further under the heading Regulationsin
item 4 can materially affect Microcells services and activities.

Solutions and Inukshuk are required, as radiocommunication carriers and by
the conditions of their respective licenses, to comply with the Canadian
ownership and control provisions established in the Telecommunications Act and
the Radiocommunication Act (the Canadian Ownership and Control Provisions).
The Canadian Ownership and Control Provisions must also be respected by
Solutions and Inukshuk to maintain their eligibility as Canadian carriers under
the Telecommunications Act. Microcell, as the parent corporation of Solutions
and Inukshuk, must also comply with the Canadian Ownership and Control
Provisions, and failure to do so may affect the ability of Solutions and
Inukshuk to operate as Canadian carriers and to hold and renew the PCS License
and the MCS Licenses. Microcell believes that it and its subsidiaries currently
comply with the Canadian Ownership and Control Provisions.

In November of 2002, Industry Canada initiated a review of the Canadian
Ownership and Control Provisions. The review is described further under the
heading Foreign Ownership Restrictionsin item 4. If greater foreign
participation is allowed in the Canadian telecommunications sector following
the review, this could lead to the opportunity for further foreign investment
in Microcell, as well as more and stronger competitors to Microcell.

Ongoing CRTC proceedings and future proceedings, as well as policies and
regulations of Industry Canada and other governmental departments and agencies
may have an influence on Microcells strategies, and may have a material impact
on the Company.

Microcells PCS License imposes fees and significant conditions on Microcells
continued operations, and may not be renewed in the future

In March of 2001, Industry Canada renewed the Companys PCS License for a
term of five years expiring on March 31, 2006, with conditions unchanged from
the initial license term. The principal PCS License conditions are described
under the heading Regulation Framework  PCS License Conditions and Feesin
item 4.

Industry Canada has the authority at any time to modify a license to
ensure the efficient and orderly development of radiocommunications facilities
and services in Canada. Industry Canada also has the authority to suspend or
revoke a license if the license holder has contravened the Radiocommunication
Act or terms and conditions of its license after giving the holder of the
license a reasonable opportunity to make representations. There can be no
assurance that the PCS License will be renewed, or if renewed, that such
renewal will be on the same terms and conditions, or with the same fee
structure.

In this regard, in March 2001, Industry Canada announced its intention to
initiate a public consultation process to review the cellular and PCS license
conditions, terms and fees. This consultation was launched on December 21,
2002, with the release of Canada Gazette Notice DGRB-004-02, Consultation on a
New Fee and Licensing Regime for Cellular and Incumbent Personal Communications
Services (PCS) Licensees. Issues raised for consultation include the
following:



| |  |  | To extend the cellular and PCS licenses to ten-year terms from the current five, meaning the PCS License term would be
extended to 2011 from the current 2006 expiry date;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9



---



##### Table of Contents





| |  |  | To allow the cellular and PCS licensees to benefit from more liberal spectrum disposition rights, including the ability to
transfer in whole or in part the assigned spectrum in both the geographic and spectral domains;                                                                                                                                                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | To modify the current cellular and PCS license fee regime from one requiring payment on a site by site basis to a spectrum
license, whereby a licensee pays for total spectrum assigned;                                                                                                                                                                                        
|
| |  |  | That there be no fee distinction between PCS and cellular spectrum; that is, for each assigned MHz, cellular and PCS
licensees will be charged the same fee. Based on the transitional figures proposed in the Licensing Review document, 30 MHz
of national PCS spectrum, such as Solutions holds today, would attract annual spectrum license fees of $45 million in
2011; and
|
| |  |  | To maintain the obligation that analog roaming and resale be offered by cellular licensees to PCS licensees.                                                                                                                                                                                                                                                                      

While the changes to the cellular and PCS license conditions and fees
proposed in the consultation process have not been adopted, Industry Canada has
stated an intention for any revisions eventually adopted following the
consultation to be in effect by April of 2004. There can be no assurance, if
there are any changes to the PCS license terms, conditions or fee structure
eventually introduced, that these will not materially impact Microcell and
Solutions.

Inukshuk may have difficulty meeting the requirements of the MCS Licenses,
which could result in penalties, including the modification or revocation of
the MCS Licenses

On December 21, 2001, Industry Canada issued to Inukshuk ten-year MCS
Licenses running to March 31, 2011, for twelve license service areas across
Canada. The MCS licenses fee structure and conditions attaching to the MCS
Licenses are described under the heading Regulation  MCS Licenses Conditions
and Feesin item 4 of this annual report.

Among the MCS Licenses conditions, Inukshuk must obtain prior Ministerial
approval, following full review by Industry Canada, for any application to
transfer or assign the MCS Licenses, including any disposition of the rights
and obligations of the licenses and any change, which would have a material
effect on the ownership or control in fact of the licensee. The transactions
described in the Plan,which have led to a change of control of Inukshuk,
received interim approval by Industry Canada on April 7, 2003. Industry
Canadas final approval is subject to completion of a review demonstrating
compliance with the Canada Ownership and Control Provisions.

Industry Canada has the authority at any time to modify a license to
ensure the efficient and orderly development of radiocommunications facilities
and services in Canada. Industry Canada also has the authority to suspend or
revoke a license if the license holder has contravened the Radiocommunication
Act or the terms and conditions of its license after giving the holder of the
license a reasonable opportunity to make representations.

In this regard, the difficulties Inukshuk has had to raise adequate
financing, described further in the section Broadband Wireless Businessin
item 4, have led to delays in Inukshuks initial MCS deployment commitments,
and have led to Inukshuk suspending further payments to fund learning
activities committed to in the initial MCS license application to Industry
Canada. Recognizing extenuating circumstances, on April 2, 2003, Industry
Canada extended the timeline on license conditions relating to system
deployment and the learning activities to March 31, 2004. There can be no
assurance that failure to meet conditions of the MCS Licenses will not result
in the application of penalties pursuant to the Radiocommunication Act or other
applicable legislation or regulations, including suspension or revocation of
the MCS Licenses.

On November 16, 2001, Industry Canada announced, consistent with an
earlier decision by the Federal Communications Commission of the United States,
that Canada would henceforth allow both fixed and mobile services in the MCS
frequency band. At the same time, Industry Canada announced its intention to
initiate a consultation process on licensing considerations arising from such
change. There can also be no assurance that the MCS Licenses terms, conditions
or fee structure will not change following the announced consultation, which
could materially affect Inukshuks operations or costs.

The buildout of Inukshuks network will require significant capital, and
Microcell could lose its entire investment in Inukshuk

Inukshuk intends to build across Canada a broadband wireless access
network using MCS technology. The building of the data network will require
significant capital investment. Inukshuk is a start-up operation with nominal
capital resources. The New Credit Facilities limit the amount that Microcell
can invest in Inukshuk. The cash requirements of Inukshuk may exceed such
limits. In such an event, Inukshuk may not be able to raise sufficient capital
to fund its operations. There can be no assurance that Inukshuk will be
successful in building the data network or that Inukshuk will be profitable. If
Inukshuk is not successful, Microcell may lose its entire investment in
Inukshuk.

10



---



##### Table of Contents



Microcell may not be able to retain a significant portion of its existing
customer base, which could impair its future performance

The future success of Microcell will depend, in large part, on its ability
to retain a significant portion of Microcells existing customer base, expand
the business relationships with such customers, and attract and retain new
customers. There can be no assurance that Microcell will be able to maintain a
significant portion of the current customer base, increase the amount of
business done with some or all these customers, or grow the existing customer
base. Failure by Microcell to maintain a significant portion of its existing
customer base and to grow that base would have a material adverse effect on
future performance.

If Microcell cannot limit customer churn, it would be forced to incur
additional expenses to recruit new customers

Microcell has experienced rapid growth and development in a relatively
short period. One of its biggest challenges, as it has grown and more recently,
has been to limit customer churn. The results of operations of
telecommunications service providers can be significantly affected by
subscriber cancellations. The sales and marketing costs associated with
attracting new subscribers are substantial relative to the costs of providing
service to existing customers. Because the telecommunications business is
characterized by high fixed costs, disconnections directly and adversely affect
EBITDA. An increase in the subscriber cancellation rate could have a material
adverse effect on Microcell.

Factors contributing to the increase in customer churn experienced during
2002 included the negative publicity surrounding Microcell and its financial
condition, and the decision to disconnect some of its delinquent customers. The
successful implementation of Microcells business plan depends, among other
things, upon a reduction in the recent rate of customer churn. There can be no
assurance, however, that Microcell will successfully accomplish this or that
churn will not increase.

Microcell is subject to currency exchange risks, which may negatively impact
its financial results and may increase its costs to repay its debts

As most of Microcells revenues are expected to be received in Canadian
dollars, Microcell is exposed to foreign exchange risk on payments of interest
and repayment of principal under any U.S. dollar denominated portion of its
indebtedness.

Although Microcell may enter into transactions to hedge, up to a certain
limit, the exchange rate risk with respect to its other U.S. dollar-denominated
debt and transactions, there can be no assurance that Microcell will engage in
such transactions or, if Microcell decides to engage in any such transaction,
that it will be successful and that changes in exchange rates will not have a
material adverse effect on Microcells ability to make payments in respect of
its U.S. dollar-denominated debt. Such transactions may require that Microcell
provide cash or other collateral to secure its obligations.

For the purposes of financial reporting, any change in the value of the
Canadian dollar against the U.S. dollar during a given financial reporting
period would result in a foreign exchange loss or gain on the translation of
any U.S. cash and cash equivalents or U.S. dollar-denominated debt into
Canadian currency. Such foreign exchange gain or loss on the translation of
U.S. dollar-denominated long-term debt is included in income as it arises.
Consequently, Microcells reported earnings could fluctuate materially as a
result of foreign exchange translation gains or losses. There can be no
assurance that changes in the exchange rate will not have a material adverse
effect on Microcell or on its ability to make payments in respect of its U.S.
dollar-denominated debt.

Microcells holding company structure may make it difficult to access cash flow
from the operating companies and may result in structural subordination of
certain of its outstanding securities

Microcell is a holding company with no material external sources of
income. Substantially all of Microcells operations are conducted through
Solutions. Microcells cash flow and, consequently, its ability to meet its
dividend payment obligations or interest payment obligations, as the case may
be, will be dependent upon the cash flow of Solutions and the payment of funds
by Solutions to Microcell in the form of payment of management fees,
reimbursement of loans, interest, dividends, advances or otherwise. Microcells
subsidiaries, including Solutions, will be separate and distinct legal entities
and will have no obligation, contingent or otherwise, to make any funds
available to Microcell, whether in the form of loans, dividends or otherwise
except for their obligation to pay for the services rendered by Microcell, and
to reimburse the loans made to them by Microcell, if any, and the interest
thereon. Any right of Microcell to receive assets of its subsidiaries upon
their liquidation or reorganization will be structurally subordinated to the
claims of such subsidiaries creditors (including tax authorities, trade
creditors and lenders).

Microcell may not be able to attract and retain key personnel and adequately
staff its operations, which could impair the execution of its business plan

Microcells successful transition following the implementation of the Plan
is dependent in part on its ability to retain and motivate its executive
officers and key personnel. There can be no assurance that Microcell will be
able to retain or employ qualified management and technical personnel. While
Microcell will enter into employment agreements with certain members of its
senior management, should any of these persons be unable or unwilling to
continue their employment with Microcell, business aspects of

11



---



##### Table of Contents



Microcell could be materially and adversely affected. Deterioration of
Microcells business or loss of a significant number of key personnel could
have a material adverse effect on Microcell and may threaten its ability to
survive as a going concern.

Any development or growth on Microcells part could increase its indebtedness
and its expenses

Microcell expects to experience growth and development under the new
business strategy described under the heading PCS Business Strategyin item
4. Any future growth of the business would require, among other things, the
development and introduction of new products, control of expenses related to
the expansion of its telecommunication network and customer base and the
management of additional demands on its customer support, sales and marketing,
administrative resources and network infrastructure. If Microcell is unable to
satisfy these requirements, or if it is otherwise unable to manage growth
effectively, Microcells operations and financial condition could be materially
adversely affected.

If the companies in which Microcell holds a minority interest require
additional financing, the value of Microcells investment in these companies
could be reduced or its ownership interest could be diluted

Microcell has minority or non-controlling investments in certain entities.
Some of these investee companies may require substantial amounts of additional
capital, and their ability to obtain that financing will depend, in part, on
their ability to access the capital or lending markets, which will be subject
not only to the performance of their business and prospects, but to conditions
in the capital markets generally. If such capital is not available or is not
forthcoming on acceptable terms, the value of Microcells investments in those
companies could decrease. Further, if such companies were to issue additional
equity securities, it is likely that Microcell will not be able to participate
in such issuance, which could lead to substantial dilution of the value of its
investments.

Microcell is subject to change of control provisions which could limit its
ability to enter into transactions which could benefit its shareholders

Certain provisions of the New Credit Facilities require repayment or give
the lenders or holders thereunder the option to require repayment upon certain
change of control transactions, could have the effect of delaying or preventing
transactions involving a change of control of Microcell and its subsidiaries,
including transactions in which shareholders might otherwise receive a
substantial premium for their shares over the then current market prices, and
may limit the ability of shareholders of Microcell to approve transactions that
they may deem to be in their best interest.

The Articles of Incorporation of Microcell contain provisions to reflect
the restrictions referred to under the heading Corporate Stability Provisions
in item 10 which may have the effect of preventing or making transactions
involving a change of control of Microcell more difficult. The Articles of
Incorporation of Microcell also contain provisions to reflect the powers of
Microcell referred to under the heading Regulation  Foreign Ownership
Restrictionsin item 4 to ensure that Microcell and its subsidiaries remain
compliant with the Canadian Ownership and Control Provisions.

The shareholders rights plan of Microcell implemented pursuant to the
Plan (the Rights Plan), may have a significant anti-takeover effect. The
Rights Plan has the potential to significantly dilute the ownership interests
of an acquiror of shares of Microcell, and therefore may have the effect of
delaying, deterring or preventing a change in control of Microcell.

Microcell may not be able to pay dividends on or redeem its Preferred Shares

Under the CBCA, Microcells governing law, unless a corporation meets
certain financial tests it cannot pay dividends on or redeem its capital stock,
including its preferred shares issued May 1, 2003. Microcell may not meet such tests as determined
under the CBCA unless it generates sufficient earnings and otherwise satisfies
the relevant tests, and may be unable to pay dividends on or redeem any of the
shares of its share capital, including the dividend bearing series of Preferred
Shares, if issued, unless and until such time as the New Board is satisfied it
meets such tests.

The market for Microcells securities may be more volatile than in the past
as a result of the Plan

With the implementation of the Plan, holders of Microcells securities may
prefer to liquidate their investment rather than hold such securities on a
long-term basis. Accordingly, the market, if any, for Microcells securities
may be volatile, at least for an initial period, and indeed may be depressed
for a period of time immediately following the implementation of the Plan until
the market has had time to absorb these sales and to observe the performance of
Microcell. In the case of shares in the capital of Microcell, other factors,
such as statutory restrictions on transferability and the likelihood that
Microcell will not declare dividends other than dividends on the Preferred
Shares for the foreseeable future, may further depress the market for such
shares.

The Class A Restricted Voting Shares and Class B Non-Voting Shares may be
diluted by further issuances

The issuance of additional shares of Class A Restricted Voting Shares and
Class B Non-Voting Shares upon exercise of the Warrants will dilute the holders
of equity of Microcell. In addition, issuance of shares of Class A Restricted
Voting Shares or Class B

12



---



##### Table of Contents



Non-Voting Shares to management and employees of Microcell and its
subsidiaries pursuant to the Stock Option Plan and equity issuances under the
Stock Purchase Plan and will result in further dilution to holders of equity of
Microcell.




ITEM 4  INFORMATION ABOUT THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

Corporate Information

The Company was incorporated in Canada pursuant to the CBCA on April 28,
2003 under the name 4130910 Canada Inc. and changed its name on May 1, 2003 to
Microcell Telecommunications Inc./Microcell Télécommunications Inc. The
Company, which is the successor corporation of Old Microcell, was formed as a
holding company for Old Microcell pursuant to the Plan. A copy of the Plan is
annexed to the Circular filed on Form 6-K on February 20, 2003. Old Microcell
was incorporated pursuant to the CBCA on October 16, 1992.

The Companys principal place of business is located at 800 de La
Gauchetière Street West, Suite 4000, Montreal, Quebec, Canada H5A 1K3 and its
registered office is located at 1250 René-Lévesque blvd. West, 38th floor,
Montreal, Quebec, Canada H3B 4W8. Our telephone number is (514) 937-2121. CT
Corporation System, located at 111 Eighth Avenue, New York, NY 10011, (212)
894-8940, acts as our agent for service of process in the United States.

Capital Restructuring

At the time of the release of its second quarter 2002 results on August 9,
2002, the Company announced that there was significant uncertainty regarding
its ability to continue as a going concern, such ability being dependent, among
other factors, on the Companys ability to reduce its financing costs and
improve its liquidity and operating performance. The Company also announced on
that date that it had retained the services of Rothschild Inc. and NM
Rothschild & Sons Canada Limited (collectively referred to as Rothschild) as
financial advisor and formed, in August 2002, a special committee of the Old
Board composed of three independent directors (the Special Committee) with a
view to evaluating various strategic options in the circumstances. In light of
the going concern uncertainty, the mandate of the Special Committee was to
review and evaluate the alternatives of the Company with a view to reducing its
financing costs and improving its liquidity. To that end, the Special Committee
obtained the advice and recommendations of Rothschild. The significant
uncertainty resulted from the fact that the Company disclosed that it believed
it would be in default of certain covenants in its long-term debt agreements
within a twelve-month period, unless it could successfully renegotiate some of
these covenants. With such default, the senior secured lenders could have
chosen not to provide the Company with further access to funds under the senior
secured revolving credit facility and could also accelerate debt repayment.

On October 31, 2002, the Company entered into a forbearance and amending
agreement with its secured bank lenders in which the lenders agreed to forbear
until December 23, 2002, subject to certain conditions, the exercise of any
rights with respect to certain possible defaults. The covenants to which the
forbearance agreement applied related to the non-payment of interest on the 14%
Senior Discount Notes due June 1, 2006 of Microcell (the 2006 Notes) and the
possibility of the non-payment to a supplier under a material contract. On
December 2, 2002, the Company announced that it would not make its interest
payment on its 2006 Notes due on that day. Before the end of the forbearance
period, the Company reached an agreement with the supplier on the amount due
and settled such amount.

On December 23, 2002 the Company announced that its secured lenders,
holding approximately 74% of the outstanding secured debt, had agreed on the
terms of a recapitalization plan. In this regard, the Companys secured lenders
agreed to forbear until January 6, 2003 the exercise of any rights with respect
to a default resulting from the non-payment of interest on the 2006 Notes.
Microcell also continued to have constructive discussions regarding the plan
with the informal ad hoc committee of noteholders (the AHB Committee) formed
to pursue discussions with the Company regarding its proposed recapitalization.

On January 3, 2003, the Company announced that it had received signed
commitments from certain of its secured lenders and noteholders, representing
approximately 75% and 55% respectively of the estimated aggregate voting claims
that may be represented at the secured creditors meeting and the affected
unsecured creditors meeting. In view of its then current and anticipated
financial position, the status of its discussions with financial and strategic
investors, the non-payment of U.S.$29.3 million of interest due on the 2006
Notes in December 2002 and the options available to the Company under the
circumstances, the Company elected to restructure its operations under the
protection of the CCAA and filed for and received protection under the CCAA on
January 3, 2003 in the form of an initial order granted by the Superior Court
of the Province of Québec in the judicial district of Montreal (the Court) in
respect of the Company and certain of its subsidiaries on January 3, 2003 (the
Initial Order).

13



---



##### Table of Contents



On February 19, 2003, the Company filed its Circular with the Canadian
Securities Commissions, which included the Plan. Subsequently, on March 17,
2003 the Plan was voted upon and approved by 98% of the secured creditors and
100% of the affected unsecured creditors, representing 93% and 100%, respectively, of the total
value of the secured claims and affected unsecured claims that were voted. On
March 18, 2003, the Court issued a sanction order sanctioning the Plan (the
Sanction Order). The Plan became effective on May 1, 2003.

Disclosure of Confidential Information

At various times between October 2002 and December 2002, Microcell held
discussions with certain members of the AHB Committee and its advisors with
respect to the recapitalization of the Companys capital structure. Such
discussions were subject to the terms of confidentiality agreements. Such
confidentiality agreements required the Company to disclose to the public that
which, in its reasonable judgment, constituted a summary of previously
confidential and material non-public information.

On January 6, 2003, the Company filed on a Form 6-K a material change
report to disclose a summary of such previously confidential and material
non-public information in accordance with its obligations under such
confidentiality agreements.

Capital Expenditures

Microcells PCS network, based on the GSM technology, represents the main
capital expenditures for the company and covers approximately 19 million
people, or 61% of the Canadian population. Microcell has designed its PCS
network to operate exclusively in the 1900 MHz frequency range. With 30 MHz of
contiguous spectrum, Microcell has been able to design its PCS network so that
its base station sites are appropriately spaced and located to provide optimal
cost-effectiveness and continuous service throughout coverage areas. Microcell
believes that such design permits its PCS network to provide high quality
service even at cell edges. In addition, Microcell is using mini- and
micro-base stations, off-air repeaters and in building distributed repeaters to
cost-effectively improve the quality of outdoor and in-building coverage.

In 2001, Microcell upgraded its entire GSM network to offer General Packet
Radio Service (GPRS) technology, an over-the-air system for transmitting data
on GSM networks. GPRS is a wireless technology standard that supports data
communication through devices that enable always on Internet connectivity.
GPRS technology converts wireless data into standard Internet packets, enabling
interoperability between the Internet and a mobile wireless network. The GPRS
method of transporting data optimizes network capacity by using bandwidth only
when it is needed. In addition, several data transmissions from different users
can share the same channel. The end result is next-generation technology that
will allow end-users to cost-effectively remain constantly connected, and to
send and receive data much faster.

Microcell invested approximately $125 million, $277 million and $257
million in capital expenditures for the years ended December 31, 2002, 2001 and
2000 respectively. In addition, Microcell invested $130 million and $20 million
in 2001 and 2000 respectively for the total acquisition of Inukshuk. The
principal value in Inukshuk is represented by the MCS Licenses.

With effective implementation of its capital restructuring plan on May 1,
2003, Microcell has strengthened its financial position. Now that this process
is completed, Microcells goal is to re-establish itself as a strong competitor
in the Canadian wireless market, providing affordable and innovative PCS
services and positioning itself as a preferred access network for the mass
market. The Companys strategic direction is to focus primarily on its core PCS
operations within the retail consumer and individual business user market
segments.

With Microcells network buildout substantially completed, capital
expenditures for 2003 are projected to be between $80 and $90 million. The
expenditures will be concentrated on maintenance and capacity improvements to
allow for continued service quality, subscriber and usage growth, as well as on
enhancement of the PCS coverage and signal strength in markets already being
served.

BUSINESS OVERVIEW

From its inception, the Company has been involved in the design and
deployment of wireless communications services. In September 1994, the Company
was issued an experimental license from Industry Canada to test PCS
technologies operating in the 1900 MHz frequency range. The experimental
license was used to deploy a pilot network in Montreal. At the end of 1995,
Microcell was awarded the PCS License and began commercial deployment of its
PCS network across Canada in 1996. In 2001, the PCS License was renewed for a
second five-year term.

The Company was one of four entities awarded PCS licenses by Industry
Canada in 1995. In addition to the PCS License awarded to Microcell, a second
national license for 30 MHz of spectrum was awarded at that time to a new PCS
operator, Clearnet

14



---



##### Table of Contents



PCS Inc. (Clearnet), and two national licenses for 10 MHz
of PCS spectrum each were awarded to the incumbent cellular operators at that
time, Rogers and the former members of Mobility Personacom Canada Ltd.
(Mobility Canada).

Since May 1, 2003, the Company has carried on its operations through two
principals wholly owned subsidiaries:



| |  |  | Solutions which (1) is the holder of the PCS License, owns the PCS
network and operates Microcells wholesale PCS business and (2)
operates Microcells retail PCS business under the Fido® brand name,
serving both consumer and corporate customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Inukshuk, a company selected to be awarded MCS Licenses by Industry
Canada in the spring of 2000 that cover some 30 million people in
Canada; MCS spectrum allows for the deployment and operation of
broadband wireless access networks.             

PCS Business

PCS Business Strategy

PCS is a generation of wireless telecommunications services based on
advanced, secure, digital technology. Microcell currently offers a range of
simply priced, affordable packages of feature-rich PCS, including secure
digital voice transmission, prepaid services and enhanced customized
value-added data services. Since its inception, Microcell has been pursuing a
mass-market strategy to position itself as the customers preferred source of
access for everyday communications needs.

Microcell commercially launched its PCS services in the Greater Montreal
area in November 1996 under the Fido brand name. The Company currently provides
PCS coverage in a number of other census metropolitan areas and other
communities and regions in Canada, including: St. Johns, Halifax, Québec City,
Trois-Rivières, Sherbrooke, Ottawa-Hull, Oshawa, Toronto, Hamilton, St.
Catharines-Niagara, Kitchener, London, Windsor, Winnipeg, Regina, Saskatoon,
Edmonton, Calgary, Vancouver and Victoria. In addition, Microcells PCS network
provides digital network coverage along certain Canadian highway corridors
between urban areas and weekend destinations. Microcell estimates that its PCS
network covers some 19 million people, or 61% of the Canadian population.

Microcell is using GSM technology for its PCS network. It believes that
GSM has significant advantages over other digital technologies, being a well
developed technology. Having operated successfully for approximately twelve
years, GSM has achieved substantial market acceptance. It is the most widely
deployed digital wireless voice and data technology in the world and is
currently used by 464 on-air networks in 168 countries and territories,
providing commercial service to more than 763 million customers, including over
16 million GSM customers in North America. Microcell also believes that GSM
network equipment prices and GSM handset prices benefit from greater economies
of scale than other digital technologies. Microcell also benefits when GSM
subscribers from other networks roam onto Microcells PCS network. Similarly,
Microcells customers enjoy the benefits of global roaming on the networks of
Microcells GSM roaming partners around the world. The Company has operational
roaming agreements with almost all of the GSM operators in the United States
and with 220 GSM operators worldwide in 116 countries.

Beyond its PCS network coverage, Microcell provides analog roaming
capabilities across the networks of other wireless operators in Canada. This
increases the effective wireless coverage area available to its customers to
some 94% of the Canadian population. Access to analog cellular coverage
requires the use of dual-mode (analog-GSM) handsets.

Microcell had 1,124,586 customers as at March 31, 2003, consisting of
513,985 Fido postpaid service subscribers and 610,601 Fido prepaid service
subscribers.

In order to strengthen its competitive position in the Canadian wireless
industry, the Company underwent a thorough revision of its business plan in
response to difficult financial market conditions and certain operating
realities, primarily the slower-than-expected emergence and adoption of
data-related services, and the competitive and operating challenges faced by
the Company to acquire and support business accounts. Accordingly, the Company
adjusted its strategic direction to focus primarily on core PCS voice
operations within the retail consumer and individual business users market
segments. In order to position its wireless service as a preferred means of
communication for the mass market, the Company designed its postpaid service
marketing strategy based on specific product attributes, such as big-minute
bundles, per-second billing, no contract, worldwide roaming and competitive
long-distance rates, while its prepaid service marketing strategy is centered
on product features such as flexibility, spending control, simple, convenient
and mobile airtime replenishment, postpaid-type rates per-minute pricing and
bundled value-added services. This market positioning should enable the Company
to acquire its fair share of new subscribers and to maximize its cash flow
through focusing on certain higher-growth market segments and leveraging
existing network infrastructure to offer enhanced voice and certain short
messaging services (SMS)-based data services.

Some key elements of the proposed business strategy of the Company,
already or in the process of being implemented, include the following:

15



---



##### Table of Contents





| | (1)  |  | scale back activities not related to the retail consumer and
individual business users market segments;                                                                                                                                                                                                                                                                                          
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2)  |  | allocate resources primarily to PCS activities with a high
impact on the customer base; the allocation of resources to non-PCS
operations will be kept to a minimum, unless these activities can be
self-financed;                                                                                                                                                                               
|
| | (3)  |  | target mass-market retail consumer segments with the highest
growth potential, such as the youth, young adult and urban
professional markets, as well as individual/business users/small
office/home office business users located in major metropolitan areas
using direct-to-consumer distribution channels, including
corporate-owned stores, third-party retailers, and a direct sales
force;
|
| | (4)  |  | offer simple, affordable and relevant PCS products, services
and devices that meet the everyday personal and business needs of
customers, while minimizing operating costs;                                                                                                                                                                                                                      
|
| | (5)  |  | decrease the emphasis on data by adopting a fast-follower
approach to reduce the costs and business risks associated with new
product and service development;                                                                                                                                                                                                                                 
|
| | (6)  |  | leverage the existing customer base by offering a variety of
enhanced value-added voice-related and SMS-based data services to
encourage incremental usage and to maintain current levels of ARPU;                                                                                                                                                                                               
|
| | (7)  |  | provide a superior level of customer service, invest in
customer retention programs, and ensure customers are matched to the
right payment method to optimize satisfaction and foster loyalty;                                                                                                                                                                                                   
|
| | (8)  |  | focus network improvements primarily on capacity and
maintenance, rather than footprint expansion;                                                                                                                                                                                                                                                                                               
|
| | (9)  |  | increase network capacity on a timely basis to support customer
growth requirements and enhance existing network coverage through
improvements to signal strength in markets already being served; and                                                                                                                                                                                           
|
| | (10) |  | discontinue active solicitation of wholesale business, while
continuing to support existing third-party service providers and
consider wholesale proposals.                                                                                                                                                                                                                                      

Microcells goal is to remain a leading provider of affordable and
innovative PCS in Canada and to position itself as a preferred access network
for the mass market. Key elements of Microcells positioning are:



| |  |  | Build Awareness of PCS and the Fido Brand Name. Microcell is targeting
mass market consumers, individual business users and small  to
medium-sized businesses on a segmented basis. Microcell is marketing
Fido® as the wireless communications service which provides superior
customer value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Offer Superior Products and Services at Affordable Prices. Microcell
offers simple packages of affordable, innovative and value- added PCS
products and services that meet the everyday personal and business
needs of customers. These are made available on a postpaid basis and,
for customers seeking an alternative form of payment with added
flexibility, on a prepaid basis. Microcell currently offers secure
digital voice transmission, two-way e-mail and text messaging,
enhanced voice and fax messaging, and a range of call management
services. Microcell also offers higher-speed mobile data services
based on GPRS technology.                                                                                                                                               
|
| |  |  | Offer Enhanced and Customized Value-Added Services. Microcell believes
that it can improve future revenue growth by offering a wide range of
enhanced customized value-added voice-related services and
data-related services on any existing or future handheld device.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | Provide Superior Customer Service to Build Loyalty. In order to
enhance the level of customer service and to maintain a high level of
customer loyalty, Microcell has established its own internal customer
service and call center, available seven days a week, to handle
customer inquiries concerning activation, services, billing and
collections, and network performance. Microcell also offers on-line
activation and billing to its customers.                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | Network Enhancements. Microcell has built its PCS network in a
cost-effective manner. Microcells choice of the GSM standard allows
it to benefit from a proven technology that is currently commercially
available from multiple equipment vendors. Microcell has concentrated
its network build-out in Canadas densely populated urban areas,
popular weekend destinations and certain highway corridors between the
urban areas to ensure optimal network coverage for its target market
segments. Given that Microcells GSM network build-out is
substantially completed, future capital spending is expected to be
concentrated on ongoing maintenance, increasing capacity to support
increasing subscriber usage, as well as on improving signal strength
in the markets already served.
|
| |  |  | Wholesale PCS. In order to increase the utilization of its PCS
network, Microcell has entered into wholesale service arrangements
with non-affiliated companies to use its network to offer bundled
wireless services to their customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

16



---



##### Table of Contents



PCS Products and Services

Postpaid PCS Voice Service.Microcell offers the following monthly price
plans for its postpaid PCS service:

| |    |             |                                                                                                                                                                                                             
| | -- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Anytime:   
| |    |             |                                                                                                                                                                                                             
| |    |            | 200 minutes of airtime for a flat rate of $20; or                                                                                                                                                           
| |    |             |                                                                                                                                                                                                             
| |    |            | 400 minutes of airtime for a flat rate of $40; or                                                                                                                                                           
| |    |             |                                                                                                                                                                                                             
| |    |            | 700 minutes of airtime for a flat rate of $70; or                                                                                                                                                           
| |    |             |                                                                                                                                                                                                             
| |    |            | 1,000 minutes of airtime for a flat rate of $100.                                                                                                                                                           
| |    |             |                                                                                                                                                                                                             
| | b) | 1,000 Plus:
| |    |             |                                                                                                                                                                                                             
| |    |            | 1,000 minutes of airtime during evenings and
weekends, 150 weekday minutes of airtime and minute tracker
feature, for a flat rate of $30; or                                                                
| |    |             |                                                                                                                                                                                                             
| |    |            | 1,000 minutes of airtime during evenings and
weekends, 300 weekday minutes of airtime and minute tracker
feature for a flat rate of $45; or                                                                 
| |    |             |                                                                                                                                                                                                             
| |    |            | 1,000 weekday minutes of airtime, 150 minutes of
airtime during evenings and weekends and minute tracker feature,
for a flat rate of $50.                                                                   
| |    |             |                                                                                                                                                                                                             
| | c) | Bundles:   
| |    |             |                                                                                                                                                                                                             
| |    |            | 300 minutes of airtime, 100 text messages, voice
messaging and call display features, for a flat rate of $30; or                                                                                            
| |    |             |                                                                                                                                                                                                             
| |    |            | 400 minutes of airtime, 200 minutes of long distance
within Canada and to the U.S., 50% discount on the rates for
international calls, voice messaging and call display features,
for a flat rate of $45; or
| |    |             |                                                                                                                                                                                                             
| |    |            | 1,000 minutes of airtime, unlimited airtime during
evenings and weekends, minute tracker, voice messaging and call
display features, for a flat rate of $100; or                                            
| |    |             |                                                                                                                                                                                                             
| |    |            | 400 minutes of airtime, 5 Megabytes (MB) of mobile
internet access, voice messaging and call display, for a flat
rate of $45.                                                                             

Customers can add to their Anytime or Bundles monthly package (where
applicable) the following options (1) unlimited airtime during evenings and
weekends for $25 per month; (2) unlimited airtime during weekends for $15 per
month; (3) 200 minutes of long distance within Canada and to the U.S. for $15
per month; and (4) a 50% discount on the rates on international calls for $5
per month. Monthly airtime includes call waiting, call forwarding, conference
call features, minute tracker feature upon request (unless specifically
included). Pay per usage services are also available: text and e-mail messaging
at $0.10 per message sent and received, information and entertainment messaging
and mobile internet.

Microcell also offers, from time to time, promotional monthly airtime
packages. As of May 31, 2003, the following promotional monthly airtime package
was offered:



| |  |  | 250 minutes of airtime, one free-day of local airtime per week for a flat rate of $25.
| | - |  | --------------------------------------------------------------------------------------

Postpaid PCS voice service is billed on a per second basis.

Beyond the bundled minutes, additional airtime is charged at the rate of
$0.20 per minute for all monthly price plans, except for the Anytime and
Bundles 1,000 minutes price plans where additional airtime is charged at a rate
of $0.10 per minute. Long distance calls made from Canada to anywhere in Canada
and the United States are billed at $0.10 per minute, while overseas rates are
priced competitively with those of incumbent wireline telephone and alternative
long-distance carriers. Microcell charges a single roaming rate of U.S.$0.20
per minute for its customers roaming in the United States. Microcell regularly
bundles its airtime packages with selected service options to deliver superior
value to its targeted customer segments.

Prepaid PCS Voice Service.In 1998, Microcell introduced a prepaid
wireless service whereby customers can purchase in advance of their usage
airtime vouchers for a fixed validity period. Microcell currently offers
various airtime vouchers:



| |  |  | $15 with a 15 day validity period and a per minute rate of 15 cents;
| | - |  | --------------------------------------------------------------------

17



---



##### Table of Contents





| |  |  | $20 with a 20 day validity period and a per minute rate of 5 cents
during evenings and weekends and 40 cents weekdays;    
| | - |  | --------------------------------------------------------------------------------------------------------------------------
|
| |  |  | $30 with a 30 day validity period and a per minute rate of 15 cents;                                                      
|
| |  |  | $10 with a 30 day validity period and a per minute rate of 30 cents;                                                      
|
| |  |  | $40 with a 40 day validity period and a per minute rate of 5 cents
during evenings and weekends and 40 cents weekdays; and
|
| |  |  | $25 with a 60 day validity period and a per minute rate of 30 cents.                                                      

All prepaid airtime is usable any time of the day or week, and has been
charged on a per-minute basis since September 16, 2002. Prepaid service
includes call waiting, call forwarding, standard voice messaging and call
display as well as text and e-mail messaging at $0.10 per message sent and
received. Information and entertainment messaging are also available on a pay
per use basis. The flexible nature of the Companys prepaid pricing options
have been designed to enable the two main prepaid customer target segments, the
youth and young adults, to better control their monthly expenditures and
benefit from greater perceived value.

In recognition of the prepaid customers need for simple, convenient, and
mobile airtime replenishment, the Company introduced a new service in October
2002 called InstantRefill. This is an SMS text message-based payment service
that alerts Fido prepaid customers when their account balance is low and allows
them to use their wireless handset to purchase additional airtime instantly by
a pre-authorized bank account debit or by credit card. Customers can also
purchase additional prepaid airtime at any of the Companys retail points of
purchase by credit card directly through the customer service center, or
through most Canadian Imperial Bank of Commerce banking machines. Long-distance
calls made by prepaid customers are charged at the same rate as for monthly
postpaid price plans.

PCS Data Service.Microcell completed deployment of its GPRS network in
2001. Once fully optimized, according to the Companys GPRS suppliers, the
technology is expected to allow for throughput data rates of up to 115
Kilobytes (KB) per second. As a result, Microcell has defined a host of new
services and products that enable customers to gain access to wireless data
applications. In September 2001, Microcell became the first Canadian wireless
provider to provide the next generation of mobile data services based on GPRS
wireless technology, and the first to introduce, in conjunction with
VoiceStream Wireless Corporation, now known as T-Mobile USA Inc. (T-Mobile),
data roaming capabilities in the North American market. The Companys
data-capable devices enable mobile access to the Internet, e-mail, and personal
information management tools at various speeds. The following data-only GPRS
monthly usage plans are currently available: $50 for unlimited usage for twelve
months, $25 for 5 MB (each additional MB at $10) and $5 for 500 KB. GPRS-based
data services are also available on a pay-per-use basis charged at 3¢ per KB.
In addition, Microcell has identified a number of market-specific mobile data
applications beyond the basic offering of always on Internet connectivity.
The focus for business users is e-mail access and personal information
management tools, while interactive services such as gaming and instant
messaging are projected to be attractive to the consumer market.

Microcell believes that, as data transmission technologies develop, a
number of additional potential uses for such services will emerge.

GSM Technology Features.Microcells choice of GSM digital technology
enables Microcell to offer the following services and features:



| |  |  | Secure Communications. Sophisticated GSM encryption algorithms that
vary with each call provide increased call security to protect users
against eavesdropping and significantly reduce the risk of cloning of
subscriber information.                                                                                                                                                                                                                                                                                                                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Call Management. Microcells PCS network offers call management
services including call display, call waiting, call forwarding, call
blocking, caller identification blocking and call conferencing.                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | Enhanced Battery Performance. GSM handsets consume, on average, less
power than analog handsets. In contrast to analog handsets, which
transmit at a constant rate of power, GSM handsets are able, for
example, to determine the distance between a handset and a cell site
and vary the wattage of the handset accordingly. This extends the
amount of time a battery can be used on GSM networks without having to
be recharged. According to manufacturers, some GSM handsets can
deliver up to four hours of talk time and six days of standby time
without recharging.
|
| |  |  | Enhanced Wireless Data Transmission. Digital networks are capable of
simultaneous voice and data communications. Microcell currently offers
basic enhanced wireless data transmission services, such as two-way
alphanumeric short messaging service, GPRS and fax messaging.                                                                                                                                                                                                                                                                                               

18



---



##### Table of Contents





| |  |  | Subscriber identification module. Microcells GSM handsets hold a
Subscriber Identification Module (SIM) that contains a
microprocessor which protects against fraudulent use by identifying
and authenticating each subscriber. The SIM card can also store
details of the users services subscribed, telephone number,
personalized directory and notifications of voice and data messages
received. In addition, the SIM card will enable a subscriber roaming
on another GSM network and to have access to comparable services.
However, certain of these features are not available while customers
are roaming on other GSM networks or on an analog cellular network.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Ease of Use. Microcell provides easy to use, intuitive, menu-driven
handsets from different manufacturers, such as Sony Ericsson Mobile
Communications AB (Sony Ericsson), Nokia Products Limited (Nokia),
VTech Telecommunications Canada Ltd. (Vtech) and Motorola Canada
Limited (Motorola), that enable customers to make full use of the
features available on GSM. Microcell also provides over-the-air
service activation or subscriber profile management by transmitting
changes in a subscribers feature package of services, including
mobile number assignment, directly to the SIM card in the subscribers
handset.                                     
|
| |  |  | Worldwide Roaming. Microcells subscribers are able to roam on to
other GSM networks, operating either at the same 1900 MHz frequency,
or on a different frequency through the use of a multi-band GSM
handset. This roaming capability gives subscribers access to PCS
service when traveling around the world. Access to roaming service
requires Microcell to enter into roaming agreements with other GSM
operators. Microcell has operational roaming agreements in place with
almost all of the GSM operators in the United States and with more
than 220 GSM operators in 116 countries worldwide.                                                                      

Subscriber Base

The chart below provides an annual summary of Microcells PCS subscribers
and annual subscriber growth since 1997:

|                         |  |             |           |              |  |            |         |      |  |  |         |     
|------------------------ |  | ----------- | --------- | ------------ |  | ---------- | ------- | ---- |  |  | ------- | ----
|Year Ended December 31st |  | Subscribers |           | Net Increase |  | % Increase
|                         |  |             |           |              |  |           
|1997                     |  |             | 65,667    |              |  |            | 63,637  |      |  |  | 3,134.8 | %   
|1998                     |  |             | 282,174   |              |  |            | 216,507 |      |  |  | 329.7   | %   
|1999                     |  |             | 584,487   |              |  |            | 302,313 |      |  |  | 107.1   | %   
|2000                     |  |             | 922,527   |              |  |            | 338,040 |      |  |  | 57.8    | %   
|2001                     |  |             | 1,209,210 |              |  |            | 286,683 |      |  |  | 31.1    | %   
|2002                     |  |             | 1,164,521 | (1)          |  |            | (44,689 | )(1) |  |  | (3.7%   | )(1)



---

|(1) |  | During the second quarter of 2002, the Company removed 90,000 inactive
prepaid customers from its retail customer base. The Company defines
inactive prepaid customers as those who have not made or received a call
for a period of more than 30 days. The 90,000 figure represents
approximately the average monthly number of inactive accounts in the
Companys prepaid customer base in the last twelve months preceding the
second quarter of 2002. By excluding these inactive accounts from the
reported customer base, the Company believes that it is providing a more
accurate representation of the Companys quarterly prepaid operating
statistics for average revenue per user and average monthly usage.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Sales and Marketing

The guiding principle driving Microcells marketing strategy is that Fido
simplifies life. The Company offers an array of leading-edge and affordable
wireless services that meet the everyday personal and business needs of its
customers. The Fido® brand plays a key role in product positioning, having
differentiated itself in the Canadian wireless market by being perceived as
savvy and trendy, yet at the same time trustworthy, customer-friendly, and
innovative. The Company uses market-wide research to identify its best
potential and most profitable, high-growth market segments, and to understand
consumers needs and preferences in developing and delivering the right
products and services in the most cost efficient manner.

Products and services that are simple and easy to use reduce the need for
customer service and optimize customer satisfaction. As a result, the Company
enjoys a low cost of customer maintenance and a high level of efficiency in its
call center operations. Unlike its Canadian competitors, Microcell does not
require long-term contracts. Microcell also provides a 15-day satisfaction
guarantee, bills its postpaid airtime by the second, and offers big-minute
airtime bundles at affordable per-minute rates that can be used anytime and
anywhere Fido PCS service is available.

Microcell uses a segmented approach in acquiring and servicing customers.
This approach is intended to support the growth of Microcells core wireless
voice business, as well as its entry into the emerging wireless data market. As
wireless penetration increases beyond the current penetration rate, the
mass-market retail consumer is expected to make up a higher percentage of new net

19



---



##### Table of Contents



additions. The Company believes that Canadas urban and suburban markets,
where more than two-thirds of the Canadian population lives, are likely to be
the most receptive markets for PCS going forward. Given this context, the
Company is well positioned with the strength and positioning of its Fido®
brand, combined with attractive postpaid and prepaid offers, which have allowed
Microcell to achieve strong positions within the youth and young adult market
(age 15-24) and the young professionals market (age 25-34)  two of the
segments with the highest growth potential in Canada.

In order to make PCS more affordable, Microcell subsidizes the sale of
handsets  a practice also used by other Canadian wireless operators. Research
has shown that a key driver of customer acquisition is handset selection and
style. This factor is taking on greater importance as handset life cycles shorten. The Fido handset and
device portfolio includes some leading-edge handsets, some launched as
exclusive to Fido. The Companys current handset and device line-up consists
mainly of devices from Sony Ericsson, Nokia, Motorola and the Novatel Wireless
Merlin GPRS PC Card.

By establishing preferred business relationships with certain handset
suppliers, the Company is able to obtain better pricing and limited-time
exclusivity on some of their newest devices. The Company has positioned its
postpaid service among high-value customers as a preferred means of
communication, providing them with the added benefits of mobility,
personalization of service, and Internet connectivity. This is done in part
through an attractive handset line-up with high functionality that is fairly
priced. The Company has positioned its prepaid service to allow an alternative
means of payment with comparable value and services to the postpaid plans, yet
with greater control over expenditures. By segmenting Fido service in this
manner, the Company expects to better match potential customers to the most
appropriate method of payment. This is expected to result in improved customer
satisfaction and retention.

With a relatively lower penetration rate of voice-based wireless service
in Canada than in many other markets around the world, for example Europe and
the United States, Microcell believes there remains good growth potential for
wireless services in Canada, including for wireless data services.
Data-services revenue in the wireless market has been slow to materialize due
to a lack of consumer-oriented applications and devices. Microcells management
believes that the penetration rate of data-related services will increase
concurrently with the increase in the penetration rate of wireless services in
Canada as awareness of data-related services grows with the commercial
availability of a larger and wider variety of new and affordable devices.

Short messaging services, instant messaging services, gaming applications,
and the introduction of feature-rich, highly functional and affordable handsets
are all projected to increase the level of wireless data-services traffic and
usage.

Customer Service

Microcell recognizes that superior customer service is vital in
contributing to the long-term success of its business by helping to establish a
loyal base of satisfied customers. Accordingly, Microcell has made customer
service and satisfaction essential elements of its operating philosophy.
Providing timely and accurate information concerning services, network
coverage, billing and customer account information, as well as responding to
general inquiries and correspondence, are important elements of a comprehensive
customer service program that promotes customer goodwill.

Microcell maintains a highly sophisticated monitoring and control system,
a staff of customer service personnel and a well-trained technical staff to
handle both routine and complex questions as they arise. These resources are
available to customers seven days a week. Since 2002, Microcell has offered
on-line billing services whereby its customers have access to billing
information and have the ability to pay their invoices via the Internet.
Microcells trained staff is located in stores and kiosks to promote its PCS
products and services and provide information to customers. Each sales and
customer service representative participates in a customized training program.

Distribution Network

Microcell develops and maintains a distribution network that allows it to
exert significant influence over the message delivered to its customers in
order to set the right expectations for the customer and to control the cost of
acquisition. Microcell has more than 5,500 points of sale at the retail level.
These points of sale include corporate-owned stores and kiosks as well as
third-party outlets, such as The Telephone Booth, Future Shop, and Wal-Mart.
Microcells retail distribution network is also comprised of
voucher-replenishment-only outlets through more than 3,000 Canadian Imperial
Bank of Commerce automated teller machines.

GSM Network

Microcells PCS network, based on the GSM technology, covers approximately
19 million people, or 61% of the Canadian population. Microcell has completed
the greater part of its digital PCS network deployment plans and, going
forward, will analyze, on a case-by-case basis, the merits of further
deployment of the network. Future network deployment plans will focus on
enhancing capacity and coverage, as well as improving signal strength in the
markets already being served in order to support subscriber growth and current
service level parameters.

20



---



##### Table of Contents



Microcell has already deployed its GSM network along certain Canadian
highway corridors between urban areas and weekend destinations. However, due to
the high cost of PCS network build-out and the lack of necessary scale
economies, the Company generally does not build its PCS network in
sparsely-populated areas or in low-traffic density areas. Analog cellular
networks currently serve many of these areas. Microcell has an analog roaming
agreement with the former members of Mobility Canada, whose analog cellular
networks are estimated to cover approximately 94% of the Canadian population.
This agreement gives Microcell extended coverage to areas outside the PCS
network range. Microcell expects that cellular providers will continue to offer
analog cellular coverage for the foreseeable future. PCS customers using
dual-mode (analog-GSM) handsets do not, however, have access to certain of the
features and functions of PCS while operating on an analog cellular network.

Microcell has designed its PCS network to operate exclusively in the 1900
MHz frequency range. With 30 MHz of contiguous spectrum, Microcell has been
able to design its PCS network so that its base station sites are appropriately
spaced and located to provide optimal cost-effectiveness and continuous service
throughout coverage areas. Microcell believes that such design permits its PCS
network to provide high quality service even at cell edges. In addition,
Microcell is using mini- and micro-base stations, off-air repeaters and in
building distributed repeaters to cost-effectively improve the quality of
outdoor and in-building coverage.

In 2001, Microcell upgraded its entire GSM network to offer GPRS, an
over-the-air system for transmitting data on GSM networks. GPRS is a wireless
technology standard that supports data communication through devices that
enable always on Internet connectivity. GPRS technology converts wireless
data into standard Internet packets, enabling interoperability between the
Internet and a mobile wireless network. The GPRS method of transporting data
optimizes network capacity by using bandwidth only when it is needed. In
addition, several data transmissions from different users can share the same
channel. The end result is next-generation technology that will allow end-users
to cost-effectively remain constantly connected, and to send and receive data
much faster.

Suppliers

Network Equipment Vendors.Microcell and Nortel Networks Corporation
(Nortel) are parties to the supply and installation contract dated as of
December 20, 2001 as amended (the Nortel Agreement) entered into for the
purchase by Solutions of GSM Products and eligible services from Nortel. The
Nortel Agreement, containing no purchasing commitment, generally provides for
Microcells purchase of hardware, software and services related to its GSM
network and expires on December 31, 2004.

The Company is also a party with Ericsson Canada Inc. (Ericsson) to the
supply and installation contract (the Ericsson Agreement) entered into by
Microcell and Ericsson for the purchase by Solutions of PCS products from
Ericsson. The Ericsson Agreement, containing no purchasing commitment,
generally provides for the Companys purchase of hardware, software and
services related to its PCS network and expires on December 31, 2003. The
Ericsson Agreement contains an undertaking by the Company to purchase GPRS
systems from Ericsson on an exclusive basis until the earliest of the following
events occurs: (1) the purchase by the Company of a total of 100 MB per second
of GPRS capacity for its PCS network and (2) June 8, 2004.

Handset Suppliers.Microcell does not manufacture any of the handsets
used in its operations. The high degree of compatibility among different
manufacturers models of handsets allows Microcell not to be dependent upon any
single source of handsets. The handsets used in Microcells operations are
available for purchase from multiple sources, and Microcell anticipates that
such equipment will continue to be available in the foreseeable future.
Microcell is purchasing handsets primarily from Nokia, Vtech Telecommunications
Canada Ltd., Sony Ericsson and Motorola.

Intellectual Property

Fido® is a trademark registered by Solutions in Canada with the Registrar
of Trademarks. Microcell Solutions®, Microcell Connexions® and Microcell® are
trademarks registered by Microcell in Canada with the Registrar of Trademarks.
Microcell files applications for registration of the trademarks that it intends
to use in its business. Microcell intends to take appropriate measures to
protect intellectual property that it develops. Under the Trade-Marks Act
(Canada), the registration of a trademark takes effect on the date the
certificate of registration is issued and continues to be in effect for a
period of 15 years; such registration is renewable.

Broadband Wireless Internet Business

In August 1999, the Company formed Inukshuk in conjunction with Look
Communications (Look), a Canadian wireless cable operator and an independent
Internet service provider. Inukshuk applied for new spectrum in the 2500 MHz
range from Industry Canada to build across Canada a high-speed Internet
Protocol-based wireless network, using MCS technology in 13 regional service
areas. In the first quarter of 2000, Industry Canada selected Inukshuk to be
awarded 12 of the 13 MCS Licenses, with the exception of the province of
Saskatchewan, covering a territory in which approximately 30 million Canadians
live. On December 21, 2001, Industry Canada confirmed Inukshuks licenses for a
10-year term, with a renewal date in March of 2011.

21



---



##### Table of Contents



Microcell and Look initially each owned 50% of the issued and outstanding
shares of Inukshuk. On January 29, 2001, Microcell acquired all of the shares
of Inukshuk held by Look for an aggregate consideration of $150 million.
Inukshuk is now a wholly owned subsidiary of Solutions.

Inukshuks objective is to become Canadas premier wholesale provider of
broadband wireless access. To accomplish this, Inukshuk will offer broadband
services across a wireless MCS network infrastructure. In Canadas north,
Inukshuk will work with its regional business partner, Nunanet Worldwide
Communications Ltd. Inukshuks MCS network will be available on a wholesale
basis to third party service providers. Inukshuk also intends to leverage the
management and operating expertise, distribution channels, network assets,
customer care, back office support and other strengths and assets of the
Company.

In accordance with the learning plan filed with its license applications,
Inukshuk will invest the greater of 4% of its adjusted annual gross revenues or
two times its license fees for the development of connectivity to outlying
areas and feature and media rich learning content. To ensure the successful
implementation of its learning plan, Inukshuk has created committees with
members of the learning committees across Canada, which will advise Inukshuk on
its learning plan implementation and recommend projects to be funded by
Inukshuk.

In Canada, high-speed Internet and other broadband services are currently
provided by incumbent telephone companies with DSL technology, cable television
operators and some new entrant telecommunications companies. Service is
principally available in Canadas urban markets, approximately 25% of Canadian
households received high-speed Internet services in 2002 and the market is
projected to continue to grow. Given this context of continued growth,
Inukshuks MCS is projected to provide an attractive and competitive
alternative to cable and DSL networks, as well as to extend broadband access to
areas not currently covered by wireline systems.

The Company had planned to build the MCS networks directly through
Inukshuk. However, due to the current challenging capital market conditions,
which have made raising financing difficult, Inukshuk has suspended building
the MCS network on its own for the time being. Inukshuk is, however, continuing
to seek out arrangements with third parties to advance the MCS project and
deployment, but there can be no certainty any arrangements will be successfully
concluded.

Investments Business

GSM Capital.GSM Capital is a private equity fund dedicated to the
development of new PCS products and services related to the GSM standard. Since
1997, Microcell has invested in GSM Capital in the form of subscriptions of
units.

Argo II.Since the first quarter of 2000, Microcell has been participating
in a second fund, Argo II, which invests in companies developing products and
services that address the requirements of the converging Internet and mobile
telecommunications industries. The Company had committed to invest, in the form
of a subscription for units, U.S.$10.0 million in Argo II and, as of September
30, 2002, U.S.$5.5 million had been paid. During the third quarter of 2002, the
Company was asked to contribute an additional U.S.$0.5 million, as part of its
original commitment, payable in September 2002, but which Argo IIs general
partner agreed to postpone to April 30, 2003. On May 2, 2003, Argo IIs general
partner notified the Company that it intended to extinguish the Companys
interest in Argo II if the U.S.$0.5 million capital contribution was not
received by May 13, 2003; the Company did not make its capital contribution by
that date and Argo IIs general partner extinguished Microcells interest in
the partnership as of May 14, 2003.

Competition

PCS Business.Competition in the wireless communications industry is
intense. Competition for subscribers among wireless providers is based
principally upon effective branding and marketing, the services and features
offered, the technical quality of the wireless system, customer service, system
coverage, capacity, handset selection and functionality, and price. The
wireless communications industry is experiencing significant technological
change, as evidenced by the increasing pace of upgrades of existing wireless
networks from analog to digital, evolving industry standards, ongoing
improvements in the capacity and quality of digital technology, shorter
development cycles for new products and enhancements, and changes in end-user
requirements and preferences.

Today, Microcells PCS voice and data services compete principally with
the incumbent cellular operators, Rogers, Telus and the Bell Mobility Partners,
which offer both cellular and PCS services.

Microcell was one of four entities awarded PCS licenses by Industry Canada
in 1995. In addition to Microcell, a second national license for 30 MHz of
spectrum was awarded to Clearnet, another new PCS operator, and two national
licenses for 10 MHz of spectrum each were awarded to Canadas incumbent
cellular operators, with one license awarded to Rogers, and the second to the
former members of Mobility Canada, including Telus and the Bell Mobility
Partners.

22



---



##### Table of Contents



The competitive environment in Canada has changed since 1995. After the
restructuring of Mobility Canada in the late 1990s, the members of Mobility
Canada were allowed to compete in each others incumbent serving territories.
Clearnet was acquired by Telus in 2000, and Telus later acquired control of
QuébecTel Group Inc. in 2001. Also in 2001, Industry Canada conducted an
auction of additional PCS spectrum. Each of Rogers, Telus and the Bell Mobility
Partners purchased PCS spectrum in the auction. Following all these events,
what has remained is a Canadian wireless industry structure (PCS and cellular)
comprised effectively of four national players:



| |  |  | Microcell, with its national PCS License;                                                                                                                                                                                                                                                                          
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Rogers, with a national 25 MHz cellular license and national PCS licenses;                                                                                                                                                                                                                                         
|
| |  |  | The Bell Mobility Partners, with 25 MHz cellular licenses in their incumbent serving territories (essentially all of
Canada, excluding British Columbia, Alberta and Eastern Québec) and PCS licenses nation-wide; and                                                                                             
|
| |  |  | Telus, with nation-wide PCS licenses and 25 MHz cellular licenses in its incumbent serving territories (essentially British
Columbia, Alberta and Eastern Québec). Telus also currently operates an analog Specialized Mobile Radio (SMR) wireless
communications network and an ESMR digital network at 800 MHz.

In 1996, Rogers entered into a long-term strategic alliance with AT&T
Corporation and its then affiliated companies, including AT&T Wireless
Services, Inc. The agreement includes the licensing of the AT&T brand for use
in connection with the marketing of Rogers wireless services. Rogers first
launched its digital services using Time Division Multiple Access (TDMA)
technology. It has since completed an overlay of the TDMA network with GSM
technology. Rogers continues to operate an analog cellular network across
Canada.

The Bell Mobility Partners and Telus are using Code Division Multiple
Access (the CDMA) technologies for their digital cellular and PCS networks.
Telus and the Bell Mobility Partners both also continue to operate analog
cellular networks in their incumbent serving territories. On October 17, 2001,
Telus, Bell Mobility and Aliant Telecom Wireless (a Bell Mobility partner in
Atlantic Canada) concluded digital roaming arrangements for CDMA technologies
in their respective licensed service areas.

Microcell believes that its 30 MHz allotment of contiguous PCS spectrum
enables it to provide customers with bandwidth-intensive applications,
including high-speed data transmission services. Microcell believes that its
PCS handsets are competitively priced as compared to digital and dual-mode
handsets of comparable size, weight and features. In order to compete
effectively with its competitors who subsidize the sale of their analog
cellular and digital handsets, Microcell subsidizes the sale of its PCS
handsets.

Additional Competition.New spectrum may be licensed, and new technologies
may be developed, which could provide additional competition to the Company.
For example, mobile satellite systems, with transmissions from mobile units to
satellites, could augment or replace transmissions to land-based stations. Even
though such systems are designed primarily to serve remote areas, a mobile
satellite system could possibly augment or replace communications within
segments of land-based wireless systems.

In addition, PCS is increasingly seen as competing with local wireline
telephone services for voice and data traffic. Wireline substitution, whereby
PCS customers use wireless for their principal or only telephony needs, is
becoming increasingly common.

Wireless Internet Business.The ILECs through DSL technology and licensed
cable operators are currently the dominant players in the provision of
broadband access to the Internet in Canada.

Research & Development

As a condition of its PCS License, Solutions is to invest at least 2% of
adjusted gross revenues derived from its 2 GHz PCS operations, on PCS-related
research and development averaged over the five years of the current PCS
License term, which runs until 2006.

Regulation

Radiocommunication Act.The use of radio spectrum for Microcells PCS and
Inukshuks MCS network operations is subject to regulation and licensing by
Industry Canada pursuant to the Radiocommunication Act and the ownership and
operation of cellular, PCS, MCS and other radiocommunication systems in Canada
are subject to ongoing oversight of Industry Canada.

The Radiocommunication Act provides Industry Canada with wide discretion
to issue radio licenses for the operations of radio apparatus and spectrum
licenses for the use of radio spectrum within a defined geographic area,
establish technical standards in relation to radio equipment and plan the
allocation and use of radio spectrum taking into account the orderly
development and efficient operation of radiocommunications in Canada and the
orderly establishment and modification of radio stations. Industry Canada also

23



---



##### Table of Contents



has the discretion to amend the terms and conditions of licenses to ensure the
orderly development and efficient operation of radiocommunications in Canada.

Radio and spectrum licenses are issued for a term and may be renewed at
Industry Canadas discretion. They may be suspended or revoked for cause, on
notice and after giving the license holder a reasonable opportunity to make
representations, where the Minister is satisfied the holder has contravened the
Act, the regulations or the terms or conditions of its licenses. Revocation is
rare and licenses are usually renewed upon expiration. Despite this, there can
be no assurance that the PCS License and the MCS Licenses will be renewed upon
their expiry.

Industry Canada has traditionally assigned portions of the radio spectrum
on a first-come, first-served basis. However, in instances where the expressed
demand for a given allocation of spectrum exceeded the amount available, a
comparative selection process was introduced to identify which of the various
proposed systems would be authorized, based on relative merit.

In February 1996, Industry Canada announced the results of a licensing
review process. A more streamlined version of the selection process was
retained for certain spectrum allocations. At the same time, Industry Canada
announced an alternative auction process, to be used in certain instances.

As part of the PCS licensing policy established by the Minister in 1995, a
spectrum aggregation limit, or spectrum cap was put in place, restricting to
40 MHz the amount of mobile spectrum any one licensee and its affiliates could
hold in a specific geographic area. In 1999, the mobile spectrum cap was raised
to 55 MHz and modified in 2003 to allow ESMR spectrum to count for no more than
10 MHz under the spectrum cap.

PCS License Conditions and Fees.On April 15, 1996, Solutions was informed
of the conditions attached to its PCS License, which had an initial term of
five years. On March 29, 2001, Industry Canada renewed the PCS License for a
second five-year term, commencing on April 1, 2001. The conditions attached to
the renewed term of the PCS License remained unchanged from those of the
initial term. However, Industry Canada also indicated as part of the PCS
License renewal its intention to initiate a review of the cellular and PCS
license terms, fees and conditions (see further below). Industry Canada has the
power to make amendments to the existing terms and conditions of license and
fee structure.

The existing PCS License conditions require Solutions to:



| | (1)  |  | substantially meet the deployment plan contained in its initial
license application and offer a reasonable level of service in all
regions of Canada;                                                                                                                                                                                                                                         
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2)  |  | substantially honor the research and 2% of adjusted gross
revenue from its PCS activities on PCS-related research and
development, as defined by Revenue Canada, averaged over the course
of the PCS License term (adjusted gross revenue is defined as total
service revenues less inter-carrier payments, bad debts, third party
commissions, and provincial and federal taxes collected);
|
| | (3)  |  | substantially honour all other commitments made in its detailed
application;                                                                                                                                                                                                                                                                                                                  
|
| | (4)  |  | comply with the Canadian Ownership and Control Provisions and
notify the Minister of any change that would materially affect its
ownership or control in fact, such notice to be given in advance for
transactions known to the Company;                                                                                                                                                      
|
| | (5)  |  | submit annual reports indicating, among other things, continued
compliance with the PCS License conditions;                                                                                                                                                                                                                                                                                   
|
| | (6)  |  | from the inception of service, provide for and maintain lawful
interception capabilities as authorized by law, unless forborne from
so doing;                                                                                                                                                                                                                                                 
|
| | (7)  |  | comply with the transition policy and relocation procedure for
the relocation of incumbent microwave stations;                                                                                                                                                                                                                                                                                
|
| | (8)  |  | offer PCS resale throughout its service area to PCS licensees
on a non-discriminatory basis;                                                                                                                                                                                                                                                                                                  
|
| | (9)  |  | comply with the provisions set out in the Interim Sharing
Agreement between Industry Canada and the Federal Communications
Commission of the United States concerning the use of the 2 GHz
frequency range; and                                                                                                                                                                               
|
| | (10) |  | obtain site specific authority prior to installing or operating
any 2 GHz PCS base station.                                                                                                                                                                                                                                                                                                   

Solutions paid annual license fees for the PCS License of approximately
$23 million in 2002. Annual PCS license fees are $900/MHz per base station for
wide area systems and $9/MHz per base station for limited area systems. The
dollar amount of Solutions annual license fees will therefore increase
proportionately to the rate at which Solutions adds cell-sites to its PCS
network.

24



---



##### Table of Contents



On December 21, 2001, Industry Canada launched a public consultation
process to review the cellular and PCS licenses conditions, terms and fees,
with the release of Canada Gazette Notice DGRB-004-02, Consultation on a New
Fee and Licensing Regime for Cellular and Incumbent Personal Communications
Services (PCS) Licensees. Issues raised for consultation included the
following:



| |  |  | To extend the cellular and PCS licenses to ten-year terms from the current five, meaning the PCS License term would be
extended to 2011 from the current 2006 expiry date;                                                                                                                                                                                                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | To allow the cellular and PCS licensees to benefit from more liberal spectrum disposition rights, including the ability to
transfer in whole or in part the assigned spectrum in both the geographic and spectral (bandwidth) domains, subject to,
however, any applicable spectrum caps;                                                                                         
|
| |  |  | To modify the current cellular and PCS license fee regime from one requiring payment on a site by site basis to a spectrum
license, whereby a licensee pays for total spectrum assigned;                                                                                                                                                                                        
|
| |  |  | That there be no fee distinction between PCS and cellular spectrum; that is, for each assigned MHz, cellular and PCS
licensees will be charged the same fee. Based on the transitional figures proposed in the Licensing Review document, 30 MHz
of national PCS spectrum, such as Solutions holds today, would attract annual spectrum license fees of $45 million in
2011; and
|
| |  |  | To maintain the obligation that analog roaming and resale be offered by cellular licensees to PCS licensees.                                                                                                                                                                                                                                                                      

While the changes to the cellular and PCS license conditions and fees
proposed in the consultation process have not been adopted, Industry Canada has
stated its intention for any revisions eventually adopted following the
consultation to be in effect by April of 2004. There can be no assurance, if
there are any changes to the PCS License terms, conditions or fee structure
eventually introduced, that these will not materially impact Microcell.

Although revocation is rare and licenses are usually renewed upon their
expiration, there can be no assurance that the PCS License will be renewed upon
its expiry, nor can there be any assurance that the PCS License term,
conditions or fees, following the consultation mentioned above, or established
at the end of the PCS License term, will not differ in a way that affects the
operations or costs of Solutions in a material way.

MCS Licenses Conditions and Fees.In March of 2000, following a
comparative selection process, Inukshuk was selected by the Minister to be
licensed for MCS in twelve license service areas across Canada.

On December 21, 2001, Inukshuk was issued ten-year MCS Licenses running to
March 31, 2011, for the twelve license service areas. The MCS Licenses cover
territory that encompasses the provinces of Alberta, British Columbia, Ontario,
Québec, Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New
Brunswick and the Nunavut, Yukon and Northwest Territories. The MCS Licenses
conditions require Inukshuk, from the date of licensing, to:



| | (1) |  | adhere to the rollout plans made in its initial detailed
license application, as amended by Inukshuks letter to Industry
Canada dated December 5, 2001;                                                                                                                                        
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | adhere to the learning plan as contained in its detailed
application, or as agreed to in writing by the committees made up of
representatives of the learning community and Inukshuk;                                                                                                           
|
| | (3) |  | comply on an ongoing basis with applicable Canadian ownership
and control eligibility criteria (currently as prescribed in the
Radiocommunication Act), and provide notice to the Minister in
advance, if possible, of any change that would materially affect its
ownership or control in fact;
|
| | (4) |  | use the assigned spectrum in accordance with the Canadian Table
of Frequency Allocations and Industry Canadas spectrum policy for
MCS;                                                                                                                                                         
|
| | (5) |  | ensure that radio apparatus are installed and operated in
compliance with Health Canadas limits of exposure to radio fields;                                                                                                                                                                   
|
| | (6) |  | mark antenna structures, where applicable, in accordance with
recommendations of Transport Canada;                                                                                                                                                                                              
|
| | (7) |  | consult with appropriate land use authorities prior to
installation of significant antenna structures, and delaying any
installation pending an Industry Canada review to consider whether
negotiations are at an impasse;                                                                      
|
| | (8) |  | comply with the terms and conditions of any approval given by
Industry Canada in respect of sites for radio apparatus;                                                                                                                                                                          

25



---



##### Table of Contents





| | (9)  |  | ensure that radio apparatus are installed and operated in
accordance with technical standards specified by Industry Canada;                                                                                                                                                                                  
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (10) |  | comply with existing and future international coordination or
notification regulations and procedures;                                                                                                                                                                                                       
|
| | (11) |  | comply with the transition policy and relocation procedure for
the relocation of incumbent stations;                                                                                                                                                                                                         
|
| | (12) |  | comply with requests from Industry Canada for technical details
of hub stations;                                                                                                                                                                                                                             
|
| | (13) |  | obtain Ministerial approval, following full review by Industry
Canada, for any application to transfer or assign the licenses,
including any disposition of the rights and obligations of the
licenses and any change which would have a material effect on the
ownership or control in fact of the licensee;
|
| | (14) |  | pay the annual MCS License fees before March 31 for the
subsequent year;                                                                                                                                                                                                                                     
|
| | (15) |  | submit annual reports for the first five years following
issuance of the licenses indicating, among other things, continued
compliance with the license conditions; and                                                                                                                                      
|
| | (16) |  | submit semi-annual interim reports indicating system
implementation and learning plan progress for the first two years of
the license terms.                                                                                                                                                                 

Annual MCS License fees are $1.30/MHz per 1,000 households for each
licensed service area. For all twelve MCS Licenses, Inukshuk paid annual
license fees of $1,267,734 in 2002.

In November 2001, Industry Canada announced, consistent with an earlier
determination by the Federal Communications Commission of the United States,
that Canada would allow both fixed and mobile applications in the MCS spectrum
band. Industry Canada plans to initiate a public consultation in the future on
licensing considerations arising from this change. There can be no assurance
that conditions of the MCS Licenses, including the license fee structure
following any follow-up consultation, will not change materially, which could
affect Inukshuks operations or costs. On April 2, 2003, recognizing
extenuating circumstances surrounding the telecommunications environment,
Industry Canada extended timelines for Inukshuks MCS system development and
learning plan to March 31, 2004.

Telecommunications Act.As a telecommunications common carrier (i.e., a
facilities-based telecommunications company) operating in Canada, Solutions is
a Canadian carrier as defined by the Telecommunication Act and is therefore
subject to regulation by the CRTC. Inukshuk is also expected to be a Canadian
carrier. The CRTCs jurisdiction extends to the regulation of rates and the
terms and conditions pursuant to which telecommunications services are provided
by Canadian carriers, the exchange of telecommunications traffic between
carriers, inter-carrier arrangements and ownership of Canadian carriers. The
CRTC is also mandated to establish the appropriate rules for entry into new
markets and the regulation of competitive telecommunications markets. Powers
conferred to the CRTC include the ability to exempt classes of Canadian
carriers from the application of the Telecommunications Act and to forbear from
exercising certain regulatory powers with respect to certain classes of
services if the CRTC is satisfied that exemption or forbearance is consistent
with Canadian telecommunications policy objectives, and if the service or class
of service is or will be subject to competition sufficient to protect the
interest of users. Exemption or forbearance may be subject to conditions. For
example, in most of its forbearance decisions, the CRTC has eliminated the
request for carriers to file tariffs and inter-carrier agreements for approval
but has retained its powers to rule on complaints of undue preference or
anti-competitive behavior.

Under the current rules established by the CRTC, a wireless carrier may
carry on business as a Wireless Service Provider, including both
facilities-based service providers and resellers (WSP) under the regulatory
regime established for wireless services, or it may take advantage of the
regulatory framework for the local services generally by electing to become a
competitive local exchange carrier, being a facilities-based new entrant in the
local exchange market (CLEC), on an area-by-area basis. Certain obligations
and benefits are brought about by becoming a CLEC including co-carrier status
with the ILECs. It is also possible for a wireless carrier to operate as a WSP
in some areas and as a CLEC in others, as Solutions is currently doing.

Regulatory Framework for Wireless Services.On December 23, 1996, the CRTC
issued Decision 96-14 regarding the regulation of WSPs. The CRTC decided,
subject to certain conditions, to refrain or forbear from exercising many of
its regulatory powers, including its rate-setting powers, with respect to
mobile wireless voice services interconnected with other public networks
provided and offered by Canadian carriers other than the ILECs. The CRTC
considered it necessary to retain the power to impose certain conditions such
as confidentiality of customer information and to ensure that providers of such
services, including cellular, PCS and ESMR, do not unjustly discriminate
against other service providers or subscribers, or confer any undue or
unreasonable preference with respect to access to their networks or generally
with respect to the provision of the services.

26



---



##### Table of Contents



Regulatory Framework for Local Services.In May 1997, the CRTC issued
Telecom Decision 97-8, Local Competition (Decision 97-8) which set out the
initial terms and conditions for competition in the local telecommunication
services market. Many of the implementation issues associated with the
introduction of local services competition were referred to the CRTC
Interconnection Steering Committee (CISC), an industry organization formed to
assist in developing information, procedures and guidelines as may be required
in implementing local competition. The Company participates actively in the
CISC. Decision 97-8 establishes a technology neutral comprehensive regulatory
framework that addresses key issues necessary to permit competition in the
local services market. Decision 97-8 has been modified from time to time by
subsequent CRTC decisions and orders. Following is a summary of the major
features of Decision 97-8 as it is expected to impact on Microcells business.

In the local services market, the CRTC considers CLECs to be carriers of
equal stature with, and not merely customers of, the ILECs. Accordingly, the
CRTC mandated that ILECs and CLECs terminate each others traffic originating
within the same ILEC exchange based on mutual compensation bill and keep
arrangements. These arrangements do not require the Local Exchange Carrier
(LEC) originating traffic to compensate another LEC for terminating its local
traffic unless there is a substantial traffic imbalance for a significant
period of time. In areas in which terminating traffic is at a substantial
imbalance, LECs charge each other for the imbalance in traffic termination at
cost-justified rate levels approved by the CRTC.

The CRTC determined that ILECs and CLECs must provide at least one
suitably equipped point of interconnection with other telecommunications
providers within each ILEC local exchange in which the LEC provides service
(certain elements of this determination are currently under review by the
CRTC). The point of interconnection is the location where LECs respective
networks interconnect for the exchange of traffic. The CRTC also directed that
LECs should share the cost of this interconnection equally. This is
accomplished through the terms of interconnection agreements between CLECs and
ILECs or other CLECs. In order to provide service, CLECs require access to or
the use of certain discrete and essential elements of the ILECs local exchange
network, referred to as unbundled facilities. The CRTC determined that other
facilities of the ILECs networks, though not essential, were nevertheless
necessary during the early years of competition, and directed the ILECs to make
them available to CLECs at cost-based rates as if they were essential.

The CRTC considers CLECs to be non-dominant carriers. As such, they are
not subject to the same degree of regulation as ILECs and are not required to
file tariffs for their rates for end-customer services. However, the CRTC
requires CLECs to assume certain regulatory obligations, including obtaining
CRTC approval of interconnection agreements and tariffs for services provided
to other carriers (as opposed to end-customers). In addition, CLECs must
provide equal access for their end-customers to long distance providers that
offer services in the same territory served by the CLEC, and interconnection to
all carriers, including long distance carriers, WSPs and other LECs operating
in the same territory. This access must be available at terms, conditions,
rates and charges no less favorable than those offered by the local ILECs.
These requirements, as they apply to wireless CLECs, including Solutions, are
currently being reviewed by the CRTC. CLECs are also required to: implement
local number portability, which permits an end-customer to move from one LEC to
another without changing telephone numbers; provide emergency (9-1-1) service;
provide message relay service for the hearing impaired; and satisfy various
other regulatory requirements designed to protect customers privacy and ensure
that customers receive adequate service information.

Solutions received interim CRTC approval of its CLEC tariffs on September
8, 2000, a condition precedent necessary to achieving CLEC status. Since
September of 2001, Solutions has been converting to CLEC status from WSP status
across the country, and is now operating as a CRTC-approved CLEC in all of the
Companys principal operating exchanges. On March 7, 2003, the CRTC granted
final approval to the terms and conditions of Microcells tariffs, and interim
approval of the rates therein.

Contribution Obligations.In November 2000, with Telecom Decision
2000-745, the CRTC announced a reform of the contribution collection mechanism,
whereby telecommunications service providers subsidize the cost of local
telecommunications service in certain high-cost regions. Previously,
contribution was paid on a per long distance minute basis or comparable per
interconnection trunk basis. Since January 1, 2001, telecommunications service
providers, including WSPs and CLECs, have been required to pay a percentage of
their Canadian Telecommunications Service Revenues (CTSR), less certain
deductions, such as inter-carrier payments, as contribution. In its November
22, 2002, Telecom Decision 2001-71, the CRTC approved on a final basis the 2002
CTSR rate at 1.34%, and also set the interim CTSR rate for 2003 at 1.3%.

Foreign Ownership Restrictions.Solutions and Inukshuk are required, as
radiocommunication carriers and by the conditions of their respective licenses,
to comply with the Canadian Ownership and Control Provisions. The Canadian
Ownership and Control Provisions must also be respected by Solutions and
Inukshuk to maintain their eligibility to operate as Canadian carriers under
the Telecommunications Act and to hold and have renewed the PCS License and MCS
Licenses.

The Canadian Ownership and Control Provisions require Solutions and
Inukshuk to be Canadian-owned and controlled corporations incorporated or
continued under the laws of Canada or a province of Canada. Solutions and
Inukshuk are deemed to be Canadian-owned and controlled as long as: (1) not
less than 80% of the members of their respective boards of directors are
individual Canadians; (2) Canadians beneficially own not less than 80% of their
respective issued and outstanding voting shares; and (3) they are not otherwise
controlled in fact by non-Canadians.

27



---



##### Table of Contents



A Canadian is defined to include a Canadian citizen who is ordinarily
resident in Canada, a permanent resident of Canada, various Canadian government
agencies, various qualified trusts, mutual insurance companies, and
corporations in which Canadians beneficially own and control in the aggregate
not less than 66 2/3% of the issued and outstanding voting shares and which are
not otherwise controlled in fact by non-Canadians.

In the case of Microcell, as the ultimate parent corporation of both
Solutions and Inukshuk, the Canadian Ownership and Control Provisions require,
for Solutions and Inukshuk to be considered eligible thereunder, that not less
than 66 2/3% of the issued and outstanding voting shares of Microcell be owned
by Canadians, and that Microcell not otherwise be controlled in fact by
non-Canadians. A voting share for purposes of the Canadian Ownership and
Control Provisions means a share or class of shares of a corporation carrying
voting rights under all circumstances or by reason of an event that has
occurred and is continuing or by reason of a condition that has been fulfilled
and includes a security that is convertible into such a share at the time that
a calculation referred to in that clause is made.

Microcell may restrict the issue, transfer and ownership of shares, if
necessary, to ensure that Microcell remains in conformity with the Canadian
Ownership and Control Provisions. For such purposes, in particular but without
limitation, Microcell may, in accordance with the provisions of the Canadian
Ownership and Control Provisions, to the extent applicable: (1) refuse to
accept any subscription for any voting shares; (2) refuse to allow any transfer
of voting shares to be recorded in Microcells share register; (3) suspend the
rights of a holder of voting shares to vote at a meeting of the shareholders of
Microcell; and (4) sell, repurchase or redeem any voting shares.

Microcells Articles of Incorporation provide that Microcell may, in
connection with the issue, or transfer of ownership, of voting shares in its
capital, take any action, or refuse to take any action, as the case may be, to
the extent necessary to ensure that any subsidiary of Microcell is and
continues to be eligible to operate as a Canadian carrier under the
Telecommunications Act or to be issued, to hold and to renew radio
authorizations or radio licenses under the Radiocommunication Act, if and only
to the extent that the business activities of such subsidiary require such
eligibility.

Microcell, Solutions and Inukshuk may not otherwise be controlled by
non-Canadians. In other words, non-Canadians cannot exercise control in fact
over these companies. The test for determining control has been applied in a
negative fashion; that is, reviews have focused on whether non-Canadians have
control, not whether Canadians control, the carrier in question. Any one
determinant may not necessarily amount to control, but the cumulative effect of
several determinants may influence whether de facto control is being exercised
by non-Canadians.

Failure by Microcell to comply with the requirements relating to the
Canadian Ownership and Control Provisions may affect the ability of Solutions
and Inukshuk to operate as Canadian carriers and to hold and have renewed the
PCS License and the MCS Licenses. Microcell believes that it and its
subsidiaries currently comply with the Canadian Ownership and Control
Provisions.

In November of 2002, the Minister initiated a review of the Canadian
Ownership and Control Provisions. The review, to be conducted by the House of
Commons Standing Committee on Industry, Science and Technology (the Industry
Committee), is meant to determine whether the restrictions on foreign
participation in the telecommunications sector set out in the Canadian
Ownership and Control Provisions are still appropriate today, or whether
changes to those rules, including their possible removal, are needed. The
Industry Committee is expected to report back to the Minister by mid-2003, but
there is no assurance whether changes will be recommended, or if changes are
recommended, that those recommendations will lead to modifications to the
Canadian Ownership and Control Provisions.

28



---



##### Table of Contents



ORGANIZATIONAL STRUCTURE

The following chart illustrates, as of May 31, 2003 the intercorporate
relationship among the Company and its subsidiaries, and the percentage of
voting rights held or controlled by the Company. All these companies were
incorporated under the CBCA, except for Telcom Investments Inc., which was
incorporated under the laws of the State of Delaware.

(LINE DIAGRAM)

PROPERTIES AND EQUIPMENT

Microcell leases approximately 520,000 square feet of office space in
Montreal, which houses staff of Microcells principal office, switching office
and national network operations center. Microcell also leases 55,100 square
feet of space in Toronto, 19,000 square feet of space in Vancouver, 18,300
square feet in Calgary, 4,200 square feet in Québec City, 3,300 square feet of
space in Ottawa, 1,200 square feet of space in St. Catharines-Niagara, 1,000
square feet in Kitchener, 700 square feet of space in Edmonton, 800 square feet
of space in Victoria, 2,300 square feet of space in Windsor, 4,400 square feet
of space in Winnipeg, 6,000 square feet of space in Halifax, 10,600 square feet
of space in Mississauga, 2,300 square feet of space in Regina, 10,600 square
feet in New Westminster and 200 square feet of space in St. Johns,
Newfoundland for business offices and switching offices. In addition, the
Company leases approximately 1,850 antenna sites and owns six antenna sites.

In most instances, the Company owns the assets essential to its
operations, including transmitters, microwave systems, antennae, electronic
transmission receiving and processing accessories and other network equipment
(including switches, radio channels, base station equipment, microwave
facilities and PCS equipment). The Company generally leases land and space on
buildings for the placement of antenna towers and also leases the premises on
which its switches are located, principally under long

29



---



##### Table of Contents



term leases. The operating systems and software related to these assets
are either owned by the Company or are used under license. Substantially all of
the Companys assets are subject to various security interests in favour of its
lenders.

Environmental protection requirements applicable to the Companys
operations are not expected to have a significant effect on its capital
expenditures, earnings or its competitive position in the current or future
fiscal years.




ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

OPERATING RESULTS

Forward-looking statements

This managements discussion and analysis contains forward-looking
statements, as defined in the Private Securities Litigation Reform Act of 1995,
that are based on expectations and estimates. Forward-looking statements may be
identified by the use of forward-looking terminology such as believe,
intend, may, will, expect, estimate, anticipate, continue,
consider, or similar terms, variations of those terms or the negative of
those terms. Statements that are not historical facts, including statements
about the Companys beliefs and expectations, are forward-looking statements.
These statements contain potential risks and uncertainties, and actual results
may therefore differ materially. The Company undertakes no obligation to
publicly update any forward-looking statements whether as a result of new
information, future events or otherwise.

Important factors that may affect these expectations include, but are not
limited to: changes in the Canadian economy and in Canadian and U.S. capital
markets; changes in competition in the Companys market; advances in
telecommunications technology; changes in the telecommunications regulatory
environment; future litigation; availability of future financing; unanticipated
changes in expected growth of the number of subscribers; radio frequency
emission concerns; and exchange rate fluctuations. Readers should evaluate any
statements in light of these important factors.

Basis of presentation

The following is a discussion of the consolidated financial condition of
Microcell and its subsidiaries as of December 31, 2002 and results of
operations for the twelve-month period ended December 31, 2002. It should be
read in conjunction with the consolidated financial statements of Microcell as
of and for the twelve-month period ended December 31, 2002. Such consolidated
financial statements, and the notes thereto, have been prepared in accordance
with Canadian GAAP, which differ in certain material respects from U.S. GAAP
and have been reconciled with U.S. GAAP in note 20 to the consolidated
financial statements as of December 31, 2002.

As of December 31, 2002, Microcell conducted its wireless communications
business through five wholly owned subsidiaries which were: Microcell Capital,
Connexions, Microcell Labs, Solutions, and Inukshuk.

As of December 31, 2002, the Company carried out its operations through
three strategic business segments: PCS, Wireless Internet and Investments.
Under its PCS business segment, the Company is a provider of PCS in Canada
under one of the PCS License awarded in Canada in 1995 and renewed for five
years in March 2001. The terms and conditions for the renewal of the PCS
License are identical to those established for the first term of the PCS
License in April 1996.

Through its Wireless Internet business segment, the Company provides
mobile Internet services to its PCS subscribers and had planned to build a
high-speed Internet Protocol-based data network using MCS technology in the
2500 MHz range. The Company had planned to build the MCS network through
Inukshuk. However, the current challenging capital market conditions, which
have made raising financing difficult, Inukshuk has suspended building the MCS
network on its own for the time being. Inukshuk is, however, continuing to seek
out arrangements with third parties to advance the MCS project and deployment,
but there can be no certainty any such arrangements will be successfully
concluded.

Finally, under its Investments business segment, the Company invests in
various wireless or high technology companies and, as a result, is exposed to
normal market risk fluctuation, which may be significant.

As the Wireless Internet and Investments operations were not significant
starting 2003, the Company has determined that it operates in one segment since
January 1, 2003.

Throughout the following discussion and analysis, the Company uses the
term EBITDA and EBITDA margin. EBITDA is defined as operating income
(loss), excluding restructuring charges, impairment of intangible assets,
depreciation and amortization. EBITDA margin is defined as EBITDA divided by
the total revenues of the Company. The Company also uses the terms ARPU, COA,
net retail subscriber additions, churn rate and cumulative CAPEX per
population covered. All of these aforementioned

30



---



##### Table of Contents



terms may not be identical to similarly titled measures reported by other
companies. Furthermore, they should not be considered in isolation or as
alternative measurements of operating performance or liquidity to net loss,
operating loss, cash flows from operating activities or any other measures of
performance under Canadian and U.S. GAAP. The Company believes that EBITDA,
EBITDA margin, ARPU, COA, net retail subscriber additions, churn rate and
cumulative CAPEX per population covered are viewed as relevant supplemental
measures of performance in the wireless telecommunications industry.

Critical accounting policies and estimates

The preparation of the Companys consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
critical accounting policies and estimates used in the preparation of the
Companys financial statements include the following:

Revenue Recognition

Monthly access charges are billed in advance and recognized when the
services are provided and collection is reasonably assured. Airtime charges are
recognized as revenue when provided. Sales of handsets and related equipment
are recognized when goods and services are delivered and collection is
reasonably assured. Prepaid service revenues are deferred and recognized when
services are provided. When prepaid airtime vouchers are sold to dealers, the
revenue for the airtime is measured at the face value of the time sold, when
services are provided. Commissions to dealers are classified within cost of
products and services.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated
losses resulting from its inability to collect balances due from its customers.
The Company bases its estimates on the aging of its accounts receivable
balances and historical write-off experience, net of recoveries. If collections
are lower or more customers elect to terminate their service than expected,
actual write-offs may be different than expected.

Capitalization of costs

The Company is engaged in the activity of building and deploying network
assets and incurs internal costs related to these activities. During
construction or deployment of new assets, direct costs, plus a portion of
applicable overhead costs, are capitalized.

Capital Assets

Capital assets are recorded at cost. The PCS network includes direct costs
such as equipment, material, labor, engineering, site development, interest
incurred during the network build out, depreciation of capital assets used in
connection with the construction of the network, and overhead costs. The costs
of PCS network construction in progress are transferred to the PCS network in
service as construction projects are completed and put into commercial service.
The Company reviews the recoverability of capital assets for impairment
whenever events or changes in circumstances occur, or at least annually.
Recoverability is measured by a comparison of the carrying amount of a group of
assets to future undiscounted net cash flows expected to be generated by that
group of assets.

Intangible Assets

The Company has determined that its PCS License and MCS Licenses are
intangible assets having indefinite lives under the recent accounting standard
Goodwill and Other Intangible Assets. The intangible assets are tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the assets might be impaired. The impairment test consists of a
comparison of the fair value of the intangible asset with its carrying amount.
When the carrying amount of the intangible asset exceeds its fair value, an
impairment loss is recognized in an amount equal to the excess.

Change in Canadian accounting policies

Effective January 1, 2002, the Company adopted, for both Canadian and U.S.
GAAP, on a retroactive basis, the provisions set forth in the Financial
Accounting Standards Boards Emerging Issues Task Force (the Task Force)
issue 01-9 Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendors Products(EITF 01-9). The consensus reached by the
Task Force indicates that a cash consideration (including a sales incentive)
given by a vendor to a customer is presumed to be a reduction of the selling
price of the vendors products or services and, therefore, should be accounted
for as a reduction of revenues. Previously, these considerations were presented
as marketing expenses with the corresponding amount as revenues. For the years
ended December 31, 2002, 2001 and 2000, the impact of the change was to reduce
operating revenues and selling and marketing expenses for the PCS operating
segment by $20,941,000, $19,347,000 and $22,827,000 respectively. The adoption
of EITF 01-9 did not have an effect on the Companys net loss, operating
measures or cash flows.

31



---



##### Table of Contents



Effective January 1, 2002, the Company adopted the standard set forth in
Section 3870 of the CICA Handbook entitled Stock-based Compensation and Other
Stock-based Payments. As permitted by Section 3870, the Company has applied
this change prospectively for new stock options granted on or after January 1,
2002. The Company has chosen to recognize no compensation when stock options
are granted to employees and directors under stock option plans with no cash
settlement features. Direct awards of stock to employees and stock and stock
option awards granted to non-employees are accounted for in accordance with the
fair value method of accounting for stock-based compensation. No such awards
were granted in 2002. The fair value of direct awards of stock is determined by
the quoted market price of the Companys stock on the grant date, and the fair
value of stock options is determined using the Black-Scholes option pricing
model. In periods prior to January 1, 2002, the Company recognized no
compensation when stock or stock options were issued. Pro forma information
regarding net income is required and has been determined as if the Company had
accounted for its employee stock options under the fair value method.

Effective January 1, 2002, the Company adopted the new standard set forth
in Section 3062 of the Canadian Institute of Chartered Accountants (CICA)
Handbook entitled Goodwill and Other Intangible Assets, to be applied on or
after January 1, 2002. Under the new standard, goodwill and other
indefinite-life intangible assets are no longer amortized but tested for
impairment on an annual basis. The excess of the carrying amount over the fair
value is charged to earnings. The Company has determined that the PCS License
it has been awarded has an indefinite useful life. Therefore, pursuant to
Section 3062 of the CICA Handbook, the Company will not amortize this PCS
license until it determines that the PCS License has a finite life. The impact
on the consolidated financial statements has been a reduction of the annual
amortization of the PCS License in the amount of $140,000. As disclosed in note
7, an impairment charge was recorded for the MCS Licenses in 2002. The annual
licensing fees are charged to expense as incurred.

Reorganization

At the time of the release of its second quarter 2002 results on August 9,
2002, the Company announced that there was significant uncertainty regarding
its ability to continue as a going concern, such ability being dependent, among
other factors, on the Companys ability to reduce its financing costs and
improve its liquidities and operating performance. The Company also announced
on that date that it had retained the services of a financial advisor and
formed a Special Committee composed of independent directors with a view of
evaluating various strategic options in the circumstances. In light of the
going concern uncertainty, the mandate of the Special Committee was to review
and evaluate the alternatives of the Company with a view to reducing its
financing costs and improving its liquidity. To that end, the Special Committee
obtained the advice and recommendations of the financial advisor. The
significant uncertainty resulted from the fact that the Company disclosed that
it believed it would be in default of certain covenants in its long-term debt
agreements within a twelve-month period, unless it could successfully
renegotiate some of these covenants. With such default, the senior secured
lenders could have chosen not to provide the Company with further access to
funds under the senior secured revolving credit facility and could also
accelerate debt repayment.

On October 31, 2002, the Company entered into a forbearance and amending
agreement with its secured bank lenders in which the lenders agreed to forbear
until December 23, 2002, subject to certain conditions, the exercise of any
rights with respect to certain possible defaults. The covenants to which the
forbearance agreement applied related to the non-payment of interest on the
2006 Notes and the possibility of the non-payment to a vendor under a material
contract. On December 2, 2002, the Company announced that it would not make its
interest payment on its 2006 Notes due on that day. Before the end of the
forbearance period, the Company reached an agreement with the vendor on the
amount due and settled such amount.

On December 23, 2002 the Company announced that its secured lenders,
holding approximately 74% of the outstanding secured debt, have agreed on the
terms of a recapitalization plan. In this regard, the Companys secured lenders
have agreed to forbear until January 6, 2003 the exercise of any rights with
respect to a default resulting from the non-payment of interest on the 2006
Notes. In addition, both parties agreed to terminate the senior secured
revolving credit facility. The Company was subsequently not in compliance with
certain covenants under its long-term debt agreements and as such all the
long-term debt is in default. Microcell also continued to have constructive
discussions regarding the plan with an ad hoc committee of unsecured
noteholders.

On January 3, 2003, the Company announced that it had received signed
commitments from certain of its secured lenders and noteholders, representing
approximately 75% and 55% respectively of the estimated aggregate voting claims
that may be represented at the secured creditors meeting and the affected
unsecured creditors meeting. In view of its then current and anticipated
financial position, the status of its discussions with financial and strategic
investors, the non-payment of U.S.$29.3 million of interest due on the 2006
Notes in December 2002 and the options available to the Company under the
circumstances, the Company elected to restructure its operations under the CCAA
protection and filed for and received protection under the CCAA on January 3,
2003 in the form of an Initial Order. Until the Plan became effective on May 1,
2003, the Company did not make any further payments of principal or interest on
its secured debt or unsecured notes, including the interest payment on its 2006
Notes, which was due December 1, 2002, and quarterly principal repayments on
its secured term loans due December 31, 2002 and March 31, 2003.

On February 19, 2003, the Company filed its Circular, which included a
Plan, setting out the terms of the Companys proposed plan. Subsequently, on
March 17, 2003 the Plan was voted upon and approved by 98% of the secured
creditors and 100% of the affected unsecured creditors, representing 93% and
100%, respectively, of the total value of the secured claims and affected

32



---



##### Table of Contents



unsecured claims that were voted. On March 18, 2003, the Superior Court of
the Province of Quebec issued a Sanction Order approving the Plan. On May 1,
2003, the Plan became effective. The Plan reduced the Companys debt
obligations by approximately $1.7 billion.

The Company continues to experience growth-related capital requirements
arising from the need to fund of network capacity improvements and ongoing
maintenance and to fund the cost of acquiring new PCS customers. Microcells
ability to generate positive net income and cash flow in the future is
dependent upon various factors, including the level of market acceptance of its
services, the degree of competition encountered by the Company, the cost of
acquiring new customers, technology risks, general economic conditions and
regulatory requirements.

These accompanying consolidated financial statements do not reflect any
adjustments arising from the Plan, except that the current portion of long-term
debt is equivalent to the current portion of the new debt contracted on the
implementation date of the Plan. The Company is conducting a revaluation of its
assets and liabilities and will adjust their carrying values to reflect the
value of the Company as an entity established by the capital reorganization.
The revaluation adjustments are expected to be presented in the 2003 second
quarter consolidated interim financial statements, the period encompassing the
expected implementation date of the Plan, May 1, 2003. The Companys balance
sheet after the implementation date will be presented on a comprehensive
revaluation basis after giving effect to both the financial reorganization and
the revaluation adjustments.

Company Overview

The Company began 2002 by successfully securing an additional $100 million
in bank financing from a group of senior lenders, which effectively increased
the total amount of senior secured facilities outstanding from $750 million to
$800 million. In conjunction with this financing, the Company entered into an
equipment supply agreement with an important vendor whereby Connexions agreed
to purchase at least $150 million worth of network infrastructure hardware and
software over the next three years. This agreement was subsequently amended in
December 2002 to eliminate the purchase commitment as part of the Companys
recapitalization efforts described above.

During the same time, the Company proceeded with the consolidation of its
core PCS operations and further adapted its business priorities to increase its
customer focus and to respond to competitive market conditions. Improving
profitability was at the forefront of these efforts. To achieve this, the
Company focused on implementing effective and prudent cost management
initiatives and reduced its level of activity and project focusing on its core
business. As a result, the workforce was reduced by approximately 350
employees. Furthermore, in-line with new business strategy, the Company reduced
spending in its non-PCS business operations such as Inukshuk Internet Inc. and
Argo II.

The objective of the integration of the Companys network operations,
marketing, and customer service activities, accomplished through the
above-mentioned PCS reorganization, was to allow the Company to sharply focus
and galvanize its resources to better address the needs of Fido customers in
terms of capacity, new services and data. A number of developments occurred in
2002 that reflected the Companys goal to enhance the PCS customer experience
and to create a foundation for future growth and profitability.

In order to maintain and improve its competitiveness, the Company
continued to expand and enhance its product and service offering.

In April 2002, the Company offered the first GPRS card for personal
computers (PC) that allows Canadians to access wireless data services across
North America.

In August 2002, the Company introduced a new 15¢-per-minute airtime rate
for Fido Prepaid Service. The new airtime vouchers are available in
denominations of $15 (valid for 15 days) and $30 (valid for 30 days). The
Company also continues to offer vouchers with a longer validity period in
denominations of $10 (valid for 30 days) and $25 (valid for 60 days), with
airtime being calculated at an effective per-minute rate of 30¢. The flexible
nature of the new pricing should enable two main customer segments the Company
is targeting for prepaid, the youth and the young adults segments, to better
control monthly expenses and benefit from greater value.

In October 2002, Fido introduced InstantRefilla mobile wireless,
interactive transactional platform for prepaid airtime replenishment.
InstantRefill, a SMS text message-based payment service, is a secure and simple
mobile commerce application that enables airtime refill from a handset with
payment by credit card or pre-authorized bank account debit.

During 2002, the Company also introduced several new devices, many which
were exclusive to Fido. These included the Vtech A700, the Sony Ericsson T200,
and the Sony Ericsson T68i. These handsets offer many of the features found
only on high-end wireless handsets, such as a vibrating alert, calendar, alarm
clock, calculator, scalable text and dynamic menu icons. Several of these
handsets combine worldwide roaming capabilities with instant one-touch access
to the Internet and personal picture messaging. In

33



---



##### Table of Contents



particular, the Sony Ericsson T68i,
which supports cable-free BluetoothTM
connections between devices (thereby allowing users to talk without a wire
connection), was also the first wireless handset in Canada with digital camera
capability and picture messaging.

Despite the Companys efforts to tightly manage its costs, operating cash
flow did not grow sufficiently to cover interest charges, debt capital
repayment, and to fund on-going network enhancement and capacity improvement.
In addition, the economic, capital market and industry-specific conditions that
affected the telecommunications operators in Canada had serious repercussions
on the Companys operating results. With a highly leveraged financial position
and no clear financing options available, the Companys share price fell
significantly. This resulted in the delisting of the Companys Class B
Non-Voting Shares from the Nasdaq National Market in July 2002. Given this
context, during the second half of 2002 as discussed in the Reorganization
section, the Company undertook a comprehensive evaluation of possible
alternatives, with the assistance of a financial advisor, to reduce its
financing costs and improve its liquidity. This process culminated with the
Companys reaching an agreement in principle with its secured lenders and
unsecured noteholders subsequent to the end of the year. The proposed
recapitalization Plan was approved almost unanimously by the Companys
creditors in the first quarter of 2003, significantly reducing the Companys
debt obligations by approximately $1.7 billion and its annual interest
obligations by a range of $160 million to $200 million. On May 1, 2003, the
Plan became effective.

Financial Highlights and Selected Statistics

|                                                              |                                                                    |          |   |                         |         |            |   |             |         |  |   |          |         | 
|------------------------------------------------------------- | ------------------------------------------------------------------ | -------- | - | ----------------------- | ------- | ---------- | - | ----------- | ------- |  | - | -------- | ------- | 
|                                                              |                                                                    |          |   | Years ended December 31
|                                                              |                                                                    |          |   |                        
|                                                              |                                                                    |          |   | 2002                    |         | 2001       |   | 2000       
|                                                              |                                                                    |          |   |                         |         | $          |   | $          
|                                                              |                                                                    |          |   |                         |         | (Restated) |   | (Restated) 
|                                                              |                                                                    |          |   |                         |         |            |   |            
|                                                              |                                                                    |          |   |                         |         |            |   | (Unaudited) |         |  |   |         
|CONSOLIDATED                                                  |                                                                    |          |   |                         |         |            |   |             |         |  |   |         
|(In thousands of Canadian dollars, except for per-share data) |                                                                    |          |   |                         |         |            |   |             |         |  |   |         
|                                                              | Revenues                                                           |          |   | 591,062                 |         |            |   | 541,490     |         |  |   | 405,986  |        
|                                                              | EBITDA                                                             |          |   | 91,012                  |         |            |   | (9,803      | )       |  |   | (112,332 | )      
|                                                              | Loss before income taxes                                           |          |   | 642,396                 |         |            |   | 500,207     |         |  |   | 383,942  |        
|                                                              | Net loss                                                           |          |   | 570,501                 |         |            |   | 498,485     |         |  |   | 268,427  |        
|                                                              | Basic and diluted loss per share                                   |          | $ | 2.37                    |         |            | $ | 4.56        |         |  | $ | 2.79     |        
|                                                              | Capital expenditures                                               |          |   | 124,683                 |         |            |   | 277,395     |         |  |   | 257,191  |        
|                                                              | Total employees, end of period (expressed as full-time equivalent) |          |   | 2,026                   |         |            |   | 2,377       |         |  |   | 2,603    |        
|                                                              |                                                                    |          |   |                         |         |            |   |             |         |  |   |         
|PCS                                                           |                                                                    |          |   |                         |         |            |   |             |         |  |   |         
|                                                              |                                                                    |          |   |                         |         |            |   |             |         |  |   |         
|                                                              | Revenues                                                           |          |   | 591,056                 |         |            |   | 542,510     |         |  |   | 407,700  |        
|                                                              | EBITDA                                                             |          |   | 95,909                  |         |            |   | 8,167       |         |  |   | (105,735 | )      
|                                                              | Capital expenditures                                               |          |   | 124,738                 |         |            |   | 283,610     |         |  |   | 263,170  |        
|Other data:                                                   |                                                                    |          |   |                         |         |            |   |             |         |  |   |         
|                                                              | Monthly average retail revenue per user                            |          |   |                         |         |            |   |             |         |  |   |          |        
|                                                              | (ARPU)                                                             |          |   |                         |         |            |   |             |         |  |   |          |        
|                                                              |                                                                    | Postpaid |   | $                       | 59.12   |            |   | $           | 60.56   |  |   | $        | 56.69   | 
|                                                              |                                                                    | Prepaid  |   | $                       | 18.64   | (1)        |   | $           | 20.99   |  |   | $        | 27.14   | 
|                                                              |                                                                    | Blended  |   | $                       | 39.73   | (1)        |   | $           | 41.14   |  |   | $        | 43.55   | 
|                                                              | Cost of acquisition of a retail subscriber                         |          | $ | 281                     |         |            | $ | 321         |         |  | $ | 388      |        
|                                                              | Net retail subscriber additions                                    |          |   |                         |         |            |   |             |         |  |   |          |        
|                                                              |                                                                    | Postpaid |   |                         | (92,636 | )          |   |             | 169,880 |  |   |          | 119,770 | 
|                                                              |                                                                    | Prepaid  |   |                         | 137,947 |            |   |             | 116,803 |  |   |          | 218,270 | 
|                                                              |                                                                    |          |   |                         |         |            |   |             |         |  |   |          |        
|                                                              | Total                                                              |          |   | 45,311                  |         |            |   | 286,683     |         |  |   | 338,040  |        
|                                                              |                                                                    |          |   |                         |         |            |   |             |         |  |   |          |        
|                                                              | Churn rate                                                         |          |   | 3.4                     | %(2)    |            |   | 2.6         | %       |  |   | 2.2      | %      
|                                                              | Total retail subscribers, end of period                           
|                                                              |                                                                    | Postpaid |   |                         | 545,062 |            |   |             | 637,698 |  |   |          | 467,818 | 
|                                                              |                                                                    | Prepaid  |   |                         | 619,459 |            |   |             | 571,512 |  |   |          | 454,709 | 
|                                                              |                                                                    |          |   |                         |         |            |   |             |         |  |   |          |        
|                                                              | Total                                                              |          |   | 1,164,521               |         |            |   | 1,209,210   |         |  |   | 922,527  |        
|                                                              |                                                                    |          |   |                         |         |            |   |             |         |  |   |          |        
|                                                              | Total employees, end of period (expressed as full-time equivalent) |          |   | 2,023                   |         |            |   | 2,302       |         |  |   | 2,495    |        
|                                                              |                                                                    |          |   |                         |         |            |   |             |         |  |   |          |        



---

|(1) |  | Calculation excludes 50,000 inactive prepaid service customers.                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Calculation excludes 40,000 inactive prepaid service customers, who were
deactivated during 2002, following the termination of a customer retention
program.

34



---



##### Table of Contents



CONSOLIDATED RESULTS

Year ended December 31, 2002, compared with the year ended December 31, 2001

The Companys financial results for the periods described herein are not
necessarily indicative of its future operating results given the risks and
uncertainties associated with the Companys operations and the Canadian
wireless industry in general.

As of December 31, 2002, the Company offered PCS in twenty-one Census
Metropolitan Areas (CMAs) in Canada. In addition, the Company has deployed
its GSM network in smaller communities and along major highway corridors. The
Company estimates that its PCS network reaches some 19 million people or 61% of
the Canadian population. Beyond this network footprint, the Company provides
analog cellular roaming capabilities on the networks of other carriers, which
increases its service area to 94% of the total Canadian population.

Reported results(in millions of dollars, except for per-share data)

|                                                                                                                                  |  |      |       |            |  |          |       |   |  |  |        |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---------- |  | -------- | ----- | - |  |  | ------ | -
|Years ended December 31,                                                                                                          |  | 2002 |       | 2001       |  | Variance
|                                                                                                                                  |  | $    |       | $          |  | $       
|                                                                                                                                  |  |      |       | (Restated) |  |         
|                                                                                                                                  |  |      |       |            |  |         
|Revenues                                                                                                                          |  |      | 591.1 |            |  |          | 541.5 |   |  |  | 49.6   |  
|Costs and operating expenses
(excluding restructuring charges,
impairment of intangible assets and
depreciation and amortization) |  |      | 500.1 |            |  |          | 551.3 |   |  |  | (51.2  | )
|                                                                                                                                  |  |      |       |            |  |          |       |   |  |  |        |  
|Operating income (loss) before
restructuring charges, impairment of
intangible assets and depreciation
and amortization           |  |      | 91.0  |            |  |          | (9.8  | ) |  |  | (100.8 | )
|Impairment of intangible assets                                                                                                   |  |      | 223.4 |            |  |          |      |   |  |  | 223.4  |  
|Restructuring charges                                                                                                             |  |      | 7.5   |            |  |          | 5.2   |   |  |  | 2.3    |  
|Depreciation and amortization                                                                                                     |  |      | 242.4 |            |  |          | 178.0 |   |  |  | 64.4   |  
|                                                                                                                                  |  |      |       |            |  |          |       |   |  |  |        |  
|Operating loss                                                                                                                    |  |      | 382.3 |            |  |          | 193.0 |   |  |  | 189.3  |  
|Interest expense and other                                                                                                        |  |      | 221.4 |            |  |          | 217.7 |   |  |  | 3.7    |  
|Foreign exchange loss (gain)                                                                                                      |  |      | (1.0  | )          |  |          | 51.1  |   |  |  | (52.1  | )
|Write-down of deferred financing
costs and deferred gain and loss of
financial instruments                                        |  |      | 17.0  |            |  |          |      |   |  |  | 17.0   |  
|Gain on financial instruments                                                                                                     |  |      | (6.6  | )          |  |          |      |   |  |  | 6.6    |  
|Loss in value of investments,
marketable securities and other
assets                                                              |  |      | 16.1  |            |  |          | 33.1  |   |  |  | (17.0  | )
|Share of net loss in investees                                                                                                    |  |      | 13.2  |            |  |          | 5.3   |   |  |  | 7.9    |  
|Income tax benefit                                                                                                                |  |      | (71.9 | )          |  |          | (1.7  | ) |  |  | 70.2   |  
|                                                                                                                                  |  |      |       |            |  |          |       |   |  |  |        |  
|Net loss                                                                                                                          |  |      | 570.5 |            |  |          | 498.5 |   |  |  | 72.0   |  
|Basic and diluted loss per share                                                                                                  |  |      | 2.37  |            |  |          | 4.56  |   |  |  | (2.19  | )
|                                                                                                                                  |  |      |       |            |  |          |       |   |  |  |        |  

Quarterly data(in millions of dollars, except for per-share data)

|                                 |  |    |       |    |  |    |       |    |  |  |       |  |  |  |       | 
|-------------------------------- |  | -- | ----- | -- |  | -- | ----- | -- |  |  | ----- |  |  |  | ----- | 
|Year ended December 31, 2002     |  | Q1 |       | Q2 |  | Q3 |       | Q4
|(Unaudited)                      |  | $  |       | $  |  | $  |       | $ 
|                                 |  |    |       |    |  |    |       |   
|Revenues                         |  |    | 140.1 |    |  |    | 145.7 |    |  |  | 154.5 |  |  |  | 150.8 | 
|Net loss                         |  |    | 95.3  |    |  |    | 199.2 |    |  |  | 152.3 |  |  |  | 123.7 | 
|Basic and diluted loss per share |  |    | 0.40  |    |  |    | 0.82  |    |  |  | 0.64  |  |  |  | 0.51  | 
|                                 |  |    |       |    |  |    |       |    |  |  |       |  |  |  |       | 

Quarterly data(Restated) (in millions of dollars, except for per-share data)

|                                 |  |    |       |    |  |    |       |    |  |  |       |  |  |  |       | 
|-------------------------------- |  | -- | ----- | -- |  | -- | ----- | -- |  |  | ----- |  |  |  | ----- | 
|Year ended December 31, 2001     |  | Q1 |       | Q2 |  | Q3 |       | Q4
|(Unaudited)                      |  | $  |       | $  |  | $  |       | $ 
|                                 |  |    |       |    |  |    |       |   
|Revenues                         |  |    | 119.4 |    |  |    | 134.1 |    |  |  | 146.4 |  |  |  | 141.6 | 
|Net loss                         |  |    | 172.0 |    |  |    | 75.2  |    |  |  | 142.9 |  |  |  | 108.4 | 
|Basic and diluted loss per share |  |    | 1.67  |    |  |    | 0.72  |    |  |  | 1.37  |  |  |  | 0.88  | 
|                                 |  |    |       |    |  |    |       |    |  |  |       |  |  |  |       | 

Consolidated revenues increased from $541.5 million to $591.1 million,
representing a 9% growth over 2001 mainly due to a higher number of
revenue-generating postpaid and prepaid subscribers in the active customer base
in the PCS business (for more details, see the explanation provided in the
Segmented Results section entitled PCS Segment).

35



---



##### Table of Contents



Costs and operating expenses, excluding impairment of intangible assets,
restructuring charges, depreciation and amortization, decreased by 9% from
$551.3 million in 2001 to $500.1 million in 2002, primarily as a result of
lower expenses in the PCS business segment of $39.9 million (including the
impact of a favorable clarification of provincial sales tax legislation related
to handset subsidies, which resulted in the reversal of a $13.8 million
cumulative provision previously accounted for), lower expenses in the Wireless
Internet business segment of $9.4 million, and lower expenses in the
Investments segment of $1.9 million (all after intersegment eliminations).
Consequently, the Company posted an operating income before restructuring
charges, impairment of intangible assets, depreciation and amortization of
$91.0 million for the year ended December 31, 2002, compared with an operating
loss before restructuring charges, depreciation and amortization of $9.8
million in 2001. This represents an improvement of $100.8 million
year-over-year. For a detailed analysis, see the Segmented Resultssection.

For a period of time during 2002, the Company had been pursuing
negotiations with potential business partners to secure financing for its MCS
project to be carried out by Inukshuk. During 2002, the likelihood of
concluding such an agreement became uncertain. Given this fact, and considering
the difficult financial market conditions that the telecommunications industry
is facing, the Company wrote down the value of the MCS Licenses to nil.
Accordingly, a non-cash expense affecting the Wireless Internet segment in the
amount of $223.4 million was recorded in 2002. The cost of future income tax
related to the MCS Licenses, resulting from the difference between the carrying
value and the tax basis of the assets acquired, which was capitalized to the
MCS Licenses, was reversed, resulting in an income tax benefit in the amount of
$72.9 million.

The restructuring charges of $7.5 million for 2002 compared with $5.2
million in 2001, related primarily to severance payments made to approximately
350 employees who were laid-off during 2002 compared with approximately 200
employees laid-off in 2001. These measures were taken in order to adjust the
Companys workforce to the requirements of its operating plan and were the
result of increased productivity from the consolidation of certain
administrative and operating support services, and the suspension of certain
projects due to difficult financial market conditions.

Depreciation and amortization increased by $64.4 million in 2002. This was
mainly due to the write-down of certain of the Companys capital assets to
their net recoverable amounts and to the increase in capital assets as a result
of network enhancement since December 2001. Accordingly, the depreciation and
amortization for 2002 included write-downs of $31.4 million related to network
and application software in the PCS segment and $5.9 million related to the
portal in the Wireless Internet segment. As a result, the operating loss for
2002 increased by $189.3 million in 2002.

The decrease in foreign exchange loss of $52.1 million in 2002 was mainly
due to the improvement of the exchange rate of the Canadian dollar relative to
the U.S. dollar, especially on the Companys long-term U.S. dollar denominated
debt.

Given the recapitalization process in which the Company was engaged in
2002, it decided to terminate all its hedging agreements (see note 9to the
audited consolidated financial statements for the year ended December 31,
2002). These terminations, as well as the de-designation of the cross-currency
swap on the principal balance of the 2009 Senior Discount Notes due 2009,
created a net gain in the amount of $6.6 million for the whole year.

The Company wrote down $18.9 million of deferred financing costs, $17.7
million of deferred loss on financial instruments and $19.6 million deferred
gain on financial instruments for a net total of $17 million, all which related
to the long-term debt in default.

The decrease of $17.0 million in the loss in value of investments,
marketable securities and other assets for 2002 was mainly due to a lower
number of investments and marketable securities in the Companys portfolio
during 2002. The $7.9 million increase in the share of net loss in investees
for the twelve-month period ended December 31, 2002 was the result of a general
decline in market conditions for high-technology companies in 2002, which are
the main component of GSM Capitals portfolio.

As a result, the Company posted consolidated net losses of $570.5 million
for the year ended December 31, 2002 compared with $498.5 million for 2001.
Basic and diluted losses per share decreased from $4.56 in 2001 to $2.37 in
2002. This was mainly due to the increase in the weighted-average number of
shares following the December 2001 rights issue.

Year ended December 31, 2001, compared with the year ended December 31, 2000

The Companys financial and operating statistics for the year ended
December 31, 2001, compared with the year ended December 31, 2000, reflect the
increase in its activities in the CMAs covered as of December 31, 2000, the
growth of wireless penetration in Canada, and the launch of commercial
operations in four additional CMAs in 2001.

36



---



##### Table of Contents



Reported results(in millions of dollars, except for per-share data)

|                                                                                                                                  |  |            |       |            |  |          |        |   |  |  |        |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | ----- | ---------- |  | -------- | ------ | - |  |  | ------ | -
|Years ended December 31,                                                                                                          |  | 2001       |       | 2000       |  | Variance
|                                                                                                                                  |  | $          |       | $          |  | $       
|                                                                                                                                  |  | (Restated) |       | (Restated) |  |         
|                                                                                                                                  |  |            |       |            |  |         
|Revenues                                                                                                                          |  |            | 541.5 |            |  |          | 406.0  |   |  |  | 135.5  |  
|Costs and operating expenses
(excluding restructuring charges,
impairment of intangible assets and
depreciation and amortization) |  |            | 551.3 |            |  |          | 518.3  |   |  |  | 33.0   |  
|                                                                                                                                  |  |            |       |            |  |          |        |   |  |  |        |  
|Operating loss before restructuring
charges, depreciation and amortization                                                        |  |            | (9.8  | )          |  |          | (112.3 | ) |  |  | (102.5 | )
|Restructuring charges                                                                                                             |  |            | 5.2   |            |  |          |       |   |  |  | 5.2    |  
|Depreciation and amortization                                                                                                     |  |            | 178.0 |            |  |          | 131.3  |   |  |  | 46.7   |  
|                                                                                                                                  |  |            |       |            |  |          |        |   |  |  |        |  
|Operating loss                                                                                                                    |  |            | 193.0 |            |  |          | 243.6  |   |  |  | (50.6  | )
|                                                                                                                                  |  |            |       |            |  |          |        |   |  |  |        |  
|Interest expense and other                                                                                                        |  |            | 217.7 |            |  |          | 173.9  |   |  |  | 43.8   |  
|Foreign exchange loss                                                                                                             |  |            | 51.1  |            |  |          | 24.6   |   |  |  | 26.5   |  
|Net gain on disposal of investments                                                                                               |  |            |      |            |  |          | (286.0 | ) |  |  | (286.0 | )
|Loss (gain) in value of investments,
marketable securities and other assets                                                       |  |            | 33.1  |            |  |          | 248.3  |   |  |  | (215.2 | )
|Share of net loss (income) in investees                                                                                           |  |            | 5.3   |            |  |          | (20.6  | ) |  |  | (25.9  | )
|Income tax benefit                                                                                                                |  |            | (1.7  | )          |  |          | (115.5 | ) |  |  | (113.8 | )
|                                                                                                                                  |  |            |       |            |  |          |        |   |  |  |        |  
|Net loss                                                                                                                          |  |            | 498.5 |            |  |          | 268.4  |   |  |  | 230.1  |  
|Basic and diluted loss per share                                                                                                  |  |            | 4.56  |            |  |          | 2.79   |   |  |  | 1.77   |  
|                                                                                                                                  |  |            |       |            |  |          |        |   |  |  |        |  

Consolidated revenues increased from $406.0 million to $541.5 million,
representing a 33% growth over 2000. PCS business accounted for all of this
increase, due mainly to a 31% increase in the subscriber base. Costs and
operating expenses, excluding restructuring charges, depreciation and
amortization, increased by 6% from $518.3 million to $551.3 million as a result
of higher expenses in the PCS business segment for $19.7 million, in the
Wireless Internet business segment for $13.2 million, and in the Investments
segment for $0.1 million (all after intersegment eliminations). As a result,
the operating loss before restructuring charges, depreciation and amortization,
on a year-over-year basis, decreased by $102.5 million or 91% to $9.8 million
in 2001, compared with an operating loss before depreciation and amortization
of $112.3 million in 2000. The operating loss, at $193.0 million in 2001,
decreased by $50.6 million for the same reasons but it was partially offset by
a higher depreciation expense of $46.7 million (due to the increase in capital
assets as a result of network expansion since December 31, 2000) and
restructuring charges of $5.2 million. The restructuring charges recorded in
2001 relate primarily to severance payments made to a number of employees laid
off during the year in order to adjust the Companys work force to the
requirements of its 2002-2003 operating plan.

The increase in interest expense and other was due to the draw-downs in
2001 on the Senior Secured Revolving Credit Loan and was consistent with the
accretion of interest on the Senior Discount Notes due 2006, 2007 and 2009. In
addition, lower cash and short-term investments on-hand during the first three
quarters of 2001 compared with the same periods in 2000 contributed to a
decrease in interest income in 2001. The increase in foreign exchange loss was
due to the deterioration of the exchange rate of the Canadian dollar relative
to the U.S. dollar.

The decrease, in 2001, in net gain on disposal of investments is the
result of a net gain of $286.0 million realized in 2000 due mainly to the
Companys sale of both its directly and indirectly held investments in Saraide
Inc. to InfoSpace Inc. (InfoSpace). The loss in value of investments and
marketable securities decreased by $215.8 million in 2001 compared with the
previous year. This was due mainly to the lower level of InfoSpace shares held
in 2001 following the sale of 961,894 shares in 2000 and 911,767 shares early
in 2001, and to the fact that the major part of the decline in market
conditions occurred in 2000. The share of net loss in investees, which amounted
to $5.3 million in 2001 compared with a share of net income of $20.6 million in
2000 is due to the general decline in market conditions of high-technology
companies.

As a result, the Company posted a net loss and a net loss per share in
2001 of $498.5 million and $4.56 respectively, compared with $268.4 million and
$2.79 in 2000.

Segmented Results

PCS Segment

Year ended December 31, 2002, compared with the year ended December 31, 2001

PCS consists of wireless telecommunications services that use advanced and
secure digital technology. The Company provides retail PCS in Canada to
end-users and offers access to the Companys PCS network to third-party
telecommunications providers (on a wholesale basis). The Company also offers
data services based on GPRS technology.

37



---



##### Table of Contents



PCS Selected financial information(In millions of dollars)

|                                                                                              |  |      |       |            |  |          |       |  |  |  |       |  
|--------------------------------------------------------------------------------------------- |  | ---- | ----- | ---------- |  | -------- | ----- |  |  |  | ----- | -
|Years ended December 31,                                                                      |  | 2002 |       | 2001       |  | Variance
|                                                                                              |  | $    |       | $          |  | $       
|                                                                                              |  |      |       | (Restated) |  |         
|                                                                                              |  |      |       |            |  |         
|Revenues                                                                                      |  |      | 591.0 |            |  |          | 542.5 |  |  |  | 48.5  |  
|Costs and operating expenses
(excluding restructuring charges,
depreciation and amortization) |  |      | 495.1 |            |  |          | 534.3 |  |  |  | (39.2 | )
|                                                                                              |  |      |       |            |  |          |       |  |  |  |       |  
|PCS Segment operating income                                                                  |  |      | 95.9  |            |  |          | 8.2   |  |  |  | 87.7  |  
|                                                                                              |  |      |       |            |  |          |       |  |  |  |       |  

During 2002, the Company activated 548,079 new gross retail customers,
down 11% from 612,883 in 2001. The decline in new gross retail customers was
the result of a decrease in postpaid gross activations, particularly in the
second half of 2002, reflecting continuing competitive market conditions within
the Canadian wireless industry, as well as the Companys prudent approach
toward customer acquisition given its uncertain financial situation and
recapitalization process. Accordingly, postpaid subscribers accounted for 45%
of the total gross activations in 2002, compared with 51% in 2001.

As of December 31, 2002, the Company provided wireless service to
1,164,521 retail PCS customers, 545,062 of which were on postpaid and 619,459
on prepaid. This figure included the adjustment described above. As a result of
this adjustment, in addition to lower gross activations, higher churn, tighter
credit policies, and competitive market conditions there was a 44,689 reduction
in the Companys retail customer base during 2002, compared with the addition
of 286,683 new net retail customers in 2001. Excluding the second-quarter
adjustment for inactive prepaid customers, the Company added 137,947 new net
prepaid additions for full-year 2002, compared with 116,803 in the previous
year. However, the Companys postpaid subscriber base decreased by 92,636 in
2002, compared with an increase of 169,880 in 2001, due primarily to
substantially higher involuntary churn to disconnect non-paying customers,
increased migration of postpaid customers to prepaid service, a reduction in
marketing-related promotions in light of the Companys financial condition, and
a pronounced emphasis on postpaid customer acquisition by the competition.

In addition, as at December 31, 2002, Microcell provided PCS network
access to 20,667 wholesale subscribers, compared with 20,631 at the end of
2001. This result is consistent with the Companys strategy of discontinuing
active solicitation of the wholesale business, while continuing to support its
existing third-party service providers.

The blended post-guarantee period monthly churn rate (number of
deactivated users divided by the average number of active users during the
period), increased to 3.4% for full-year 2002 from 2.6% in the previous year,
and was the result of both higher postpaid churn and prepaid churn. Postpaid
churn was 3.0% in 2002, compared with 2.0% in 2001, while prepaid churn
increased to 3.8% from 3.2% for the same period. The year-over-year increases
were due primarily to the negative publicity surrounding the Company and its
financial condition, increasingly competitive handset offers, the effects of
changes made to the Companys prepaid pricing structure in August 2002 that
shortened the validity period and increased the price per minute on certain
airtime vouchers, thereby contributing to higher churn among occasional,
security-type users as well as continuing high Company-initiated churn to
disconnect non-paying customers. The Company generated significant involuntary
customer churn due to certain marketing programs and policies implemented
throughout 2001 and at the beginning of 2002 to increase postpaid customer
acquisition. In particular, a special plan was devised to allow customers with
a low credit rating to access a postpaid plan that included a variable-spending
limit. Although this program was terminated during the third quarter of 2002,
the churn rate was negatively impacted in the fourth quarter of 2002.

Although, the Companys PCS revenues, which consist primarily of
subscriber service revenues generated from monthly billings for access fees,
incremental airtime charges, prepaid time consumed or expired, roaming, fees
for value-added services, and revenues from equipment sales, increased compared
to the previous year.

PCS revenues(in millions of dollars)

|                         |  |      |       |            |  |          |       |  |  |  |      |  
|------------------------ |  | ---- | ----- | ---------- |  | -------- | ----- |  |  |  | ---- | -
|Years ended December 31, |  | 2002 |       | 2001       |  | Variance
|                         |  | $    |       | $          |  | $       
|                         |  |      |       | (Restated) |  |         
|                         |  |      |       |            |  |         
|Services                 |  |      | 566.6 |            |  |          | 509.0 |  |  |  | 57.6 |  
|Equipment sales          |  |      | 24.3  |            |  |          | 32.4  |  |  |  | (8.1 | )
|Revenue  intersegment   |  |      | 0.1   |            |  |          | 1.1   |  |  |  | (1.0 | )
|                         |  |      |       |            |  |          |       |  |  |  |      |  
|Revenues                 |  |      | 591.0 |            |  |          | 542.5 |  |  |  | 48.5 |  
|                         |  |      |       |            |  |          |       |  |  |  |      |  

Service revenues grew by 11% to $566.6 million for the year ended December
31, 2002, from $509.0 million for the previous year. The increase reflects a
higher average number of subscribers. This was partially offset by lower
blended ARPU and softer wholesale revenues. Equipment sales were $24.3 million
for full-year 2002, compared with $32.4 million one year earlier. The

38



---



##### Table of Contents



decrease in equipment sales was due primarily to fewer gross activations,
lower handset prices in the first three quarters of 2002 as a result of
promotional offers on several new models, a greater volume of retention and
satisfaction discounts, as well as to decreased accessory sales. Intersegment
revenues represent services provided by the PCS segment to the other segments
of the Company and are eliminated upon consolidation, along with the associated
expenses.

Retail-postpaid ARPU was $59.12 for 2002, compared with $60.56 for 2001.
The decrease reflects a decline in airtime revenues. This decline resulted
mainly from lower billable minutes due to greater in-bucket usage stemming from
the high take-up of promotional plans that offered free bundled weeknight and
weekend usage, from bundling value-added service options, such as voice mail
and caller ID, in the basic monthly service packages, as well as from higher
customer satisfaction and retention-related credits. Average monthly postpaid
minutes of usage (MOU) for 2002 was higher at 361 minutes compared with 319
minutes in 2001 due primarily to greater off-peak usage arising from
promotional plans that offered free weeknight and weekend airtime.

The Companys retail prepaid ARPU for 2002 decreased to $18.64 from $21.02
in 2001 mainly as a result of lower MOU. The reduction in prepaid MOU stemmed
from the migration of high-usage prepaid customers to postpaid monthly plans.
Average monthly prepaid MOU for 2002 was 57 minutes compared with 62 minutes
for the previous year. On a blended basis, the Companys combined postpaid and
prepaid ARPU decreased to $39.73 in 2002 from $41.14 for 2001. Fido prepaid and
postpaid customers sent approximately 42.4 million text messages in 2002 up 91%
from 2001.

The calculation of both prepaid and blended ARPU for 2002 includes an
adjustment made during the second quarter of 2002 to remove 90,000 inactive
prepaid customers from the Companys retail customer base. The Company defines
inactive prepaid service customers as those who have not made or received a
call for a period of more than 30 days. Of these 90,000 inactive prepaid
service customers, 40,000 customers were deactivated following the termination
of a customer retention program. The 90,000 figure represents approximately the
average monthly number of inactive accounts in the Companys prepaid customer
base in the twelve months preceding the second quarter of 2002. By excluding
these inactive accounts from the reported customer base, the Company believes
that it is providing a more accurate representation of the Companys quarterly
and year-to-date prepaid operating statistics for ARPU and average monthly
usage. The Company intends to review this provision on a yearly basis or as
required.

PCS costs and operating expenses(in millions of dollars)

|                                                                                              |  |      |       |            |  |          |       |  |  |  |       |  
|--------------------------------------------------------------------------------------------- |  | ---- | ----- | ---------- |  | -------- | ----- |  |  |  | ----- | -
|Years ended December 31,                                                                      |  | 2002 |       | 2001       |  | Variance
|                                                                                              |  | $    |       | $          |  | $       
|                                                                                              |  |      |       | (Restated) |  |         
|                                                                                              |  |      |       |            |  |         
|Cost of products and services                                                                 |  |      | 283.3 |            |  |          | 326.7 |  |  |  | (43.4 | )
|Selling and marketing                                                                         |  |      | 104.8 |            |  |          | 114.2 |  |  |  | (9.4  | )
|General and administrative                                                                    |  |      | 105.1 |            |  |          | 92.2  |  |  |  | 12.9  |  
|Operating expenses  intersegment                                                             |  |      | 1.9   |            |  |          | 1.2   |  |  |  | 0.7   |  
|                                                                                              |  |      |       |            |  |          |       |  |  |  |       |  
|Costs and operating expenses
(excluding restructuring charges,
depreciation and amortization) |  |      | 495.1 |            |  |          | 534.3 |  |  |  | (39.2 | )
|                                                                                              |  |      |       |            |  |          |       |  |  |  |       |  

In keeping with its focus on cash preservation, the Company carefully
managed its costs during 2002. PCS costs and operating expenses (excluding
restructuring charges, depreciation and amortization) decreased by $39.2
million when compared to 2001. Expenses for 2002 included a clarification of a
provincial sales tax legislation related to handset subsidies, which resulted
in the reversal of a previously accounted for provision of $13.8 million.
Normalized for this reduction in expenses, PCS costs and operating expenses for
2002 decreased $25.4 million. The cost of products and services for 2002, at
$283.3 million, was composed of $102.1 million for cost of products and $181.2
million for cost of services, compared with cost of products of $143.0 million
and cost of services of $183.7 million one year earlier.

The $40.9 million, or 29%, improvement in cost of products for 2002, was
composed of the aforementioned $13.8 million sales tax provision reversal; a
reduced volume of handset sales and lower per-unit cost for handsets sold
resulting in savings of $22.5 million; lower assembly, packaging and prepaid
voucher production costs of $2.5 million; a lower cost of accessory sales of
$1.1 million; and reduced shrinkage, obsolescence and devaluation of
inventories of $1.0 million.

Cost of services consists of site-related expenses, transmission costs,
spectrum license fees, contribution revenue taxes, customer care costs, and
other direct costs related to network operations. The $2.5 million
year-over-year improvement in cost of services for 2002 resulted from a $14.1
million reduction in contribution charges paid to the CRTC. During the fourth
quarter, the CRTC finalized the 2002 contribution rate at 1.3% of eligible
revenues, retroactive to January 1, 2002, which compares favorably to the
interim rate of 1.4% for 2002 and to the 2001 rate of 4.5%. This cost reduction
was offset partially by a $3.5 million increase in customer care expenses, as
well as by a $8.1 million increase in network operating costs that can be
explained by the receipt of certain non-recurring credits for maintenance costs
and license fees in 2001. Adjusted for these non-recurring credits, network
operating costs for 2002 were flat, year-over-year.

39



---



##### Table of Contents



Selling and marketing costs include compensation expenses and other
distribution channel costs, as well as advertising expenses. In an effort to
preserve cash as it continued pursuing its capital restructuring activities,
the Company reduced the scale of its holiday marketing campaign and promotions
during the fourth quarter of 2002. The Company believes this had a direct
impact on its ability to remain competitive during the busiest acquisition
period of the year for wireless operators. The improved cost performance also
reflects lower salaries and benefits resulting from a reduced sales force, and
reduced retail partner compensation attributable to lower overall sales and a
higher proportion of prepaid gross activations. Consequently, selling and
marketing expenses decreased by $9.4 million, year-over-year, in 2002, despite
increased spending on retention initiatives associated with the Companys
customer life cycle program and higher retail partner compensation rates.

The COA, which consists of handset subsidy and related selling and
marketing expenses, improved 12% to $281 per gross addition for full-year 2002,
compared with $321 per gross addition for the previous year, despite 11% fewer
new gross customer activations. The year-over-year improvement was due to tight
control over spending on advertising and promotions, reduced handset subsidies
resulting from a lower-cost mix of PCS handsets negotiated by the Company, the
higher mix of prepaid versus postpaid gross additions, as well as lower channel
compensation costs.

General and administrative expenses (G&A) consist of employee
compensation and benefits, and facilities, client services, bad debt and
various other expenses. G&A expenses were $105.1 million for 2002, compared to
spending of $92.2 million in 2001. The increase was due primarily to higher bad
debt expense, which can be attributed to a larger number of lower-credit
customers in the subscriber base as a result of past marketing programs and
policies implemented to optimize postpaid customer acquisition. As a percentage
of service revenue, however, G&A remained virtually unchanged, year-over-year,
reflecting the Companys ability to control overhead costs and achieve
additional operating efficiency.

Consequently, PCS EBITDA for 2002 increased by $87.7 million to $95.9
million from $8.2 million in 2001. Despite high churn, this result was achieved
because of a 10% year-over-year increase in service revenues, as well as an 11%
reduction in costs and operating expenses (before depreciation and
amortization) attributable to lower contribution fees, lower handset costs and
tight control over selling and marketing expenses. EBITDA as a margin of
service revenue expanded to 17% for the year ended December 31, 2002 from 2%
one year earlier. While part of the margin improvement, year-over-year, relates
to slow customer growth and hence lower marketing expenses, it also relates to
improved operating cost efficiencies, as well as to the favorable impact from
the reversal of a cumulative handset sales tax provision in the second quarter.
Excluding the favorable $13.8 million provincial sales tax clarification on
handset subsidies, PCS EBITDA for 2002 was $82.1 million.

Year ended December 31, 2001, compared with the year ended December 31, 2000

PCS Selected financial information(In millions of dollars)

|                                                                                              |  |            |       |            |  |          |        |   |  |  |        |  
|--------------------------------------------------------------------------------------------- |  | ---------- | ----- | ---------- |  | -------- | ------ | - |  |  | ------ | -
|Years ended December 31,                                                                      |  | 2001       |       | 2000       |  | Variance
|                                                                                              |  | $          |       | $          |  | $       
|                                                                                              |  | (Restated) |       | (Restated) |  |         
|                                                                                              |  |            |       |            |  |         
|Revenues                                                                                      |  |            | 542.5 |            |  |          | 407.7  |   |  |  | 134.8  |  
|Costs and operating expenses
(excluding restructuring charges,
depreciation and amortization) |  |            | 534.3 |            |  |          | 513.4  |   |  |  | 20.9   |  
|                                                                                              |  |            |       |            |  |          |        |   |  |  |        |  
|PCS Segment operating income (loss)                                                           |  |            | 8.2   |            |  |          | (105.7 | ) |  |  | (113.9 | )
|                                                                                              |  |            |       |            |  |          |        |   |  |  |        |  

The increase in revenues was the result of increased activities in all
CMAs covered as of December 31, 2000, the growth of wireless penetration in
Canada, and the launch of commercial operations in four additional CMAs since
that date. As of December 31, 2001, the Company had 1,209,210 subscribers,
representing an increase of 31% in its subscriber base compared with December
31, 2000. Fido postpaid service accounted for 637,698 subscribers and Fido
prepaid service accounted for 571,512 subscribers.

PCS revenues(in millions of dollars)

|                         |  |            |       |            |  |          |       |  |  |  |       |  
|------------------------ |  | ---------- | ----- | ---------- |  | -------- | ----- |  |  |  | ----- | -
|Years ended December 31, |  | 2001       |       | 2000       |  | Variance
|                         |  | $          |       | $          |  | $       
|                         |  | (Restated) |       | (Restated) |  |         
|                         |  |            |       |            |  |         
|Services                 |  |            | 509.0 |            |  |          | 365.5 |  |  |  | 143.5 |  
|Equipment sales          |  |            | 32.4  |            |  |          | 40.3  |  |  |  | (7.9  | )
|Revenue  intersegment   |  |            | 1.1   |            |  |          | 1.9   |  |  |  | (0.8  | )
|                         |  |            |       |            |  |          |       |  |  |  |       |  
|Revenues                 |  |            | 542.5 |            |  |          | 407.7 |  |  |  | 134.8 |  
|                         |  |            |       |            |  |          |       |  |  |  |       |  

Service revenues increased by 39% on a year-over-year basis to reach
$509.0 million. Fido postpaid ARPU increased to $60.56 for the year from $56.69
in 2000. This increase was due mainly to higher value-added service revenues
following the addition of the Unlimited Evenings and Weekends option to the
range of Fido options as well as higher roaming and PCS License fee revenues.

40



---



##### Table of Contents



On the other hand, Fido prepaid service provided an ARPU of $20.99 for the
year, compared with $27.14 in 2000. This decrease was due mainly to lower
minutes of usage following the success of the migration program, which prompted
the migration of high-usage customers from Fido prepaid to Fido postpaid. When
combined, Fido postpaid and Fido prepaid services provided a blended ARPU of
$41.14 for the year, compared with $43.55 in 2000.

The monthly churn rate (number of deactivated users divided by the average
number of active users in the period), excluding returns during the
satisfaction guarantee periods, was 2.6% in 2001 compared with 2.2% in 2000 as
a result of higher prepaid churn mainly due to the reduction of the validity
period on the $10 prepaid vouchers.

PCS costs and operating expenses(in millions of dollars)

|                                                                                              |  |            |       |            |  |          |       |  |  |  |      |  
|--------------------------------------------------------------------------------------------- |  | ---------- | ----- | ---------- |  | -------- | ----- |  |  |  | ---- | -
|Years ended December 31,                                                                      |  | 2001       |       | 2000       |  | Variance
|                                                                                              |  | $          |       | $          |  | $       
|                                                                                              |  | (Restated) |       | (Restated) |  |         
|                                                                                              |  |            |       |            |  |         
|Cost of products and services                                                                 |  |            | 326.7 |            |  |          | 304.5 |  |  |  | 22.2 |  
|Selling and marketing                                                                         |  |            | 114.2 |            |  |          | 118.9 |  |  |  | (4.7 | )
|General and administrative                                                                    |  |            | 92.2  |            |  |          | 90.0  |  |  |  | 2.2  |  
|Operating expenses  intersegment                                                             |  |            | 1.2   |            |  |          |      |  |  |  | 1.2  |  
|                                                                                              |  |            |       |            |  |          |       |  |  |  |      |  
|Costs and operating expenses
(excluding restructuring charges,
depreciation and amortization) |  |            | 534.3 |            |  |          | 513.4 |  |  |  | 20.9 |  
|                                                                                              |  |            |       |            |  |          |       |  |  |  |      |  

The increase in costs and expenses in 2001, as compared with 2000, is
directly related to network expansion and to the rapid growth of the subscriber
base. However, the retail cost of acquisition per subscriber, which consists of
a handset subsidy and related selling and marketing expenses, decreased by 17%
in 2001, to $321, compared with $388 in 2000. The decrease in the retail cost
of acquisition per subscriber is mainly attributable to the lower cost of
handsets negotiated by the Company and to the improved per-unit selling and
marketing expenses brought about by economies of scale from the Companys rapid
subscriber growth.

The cost of products and services increased to $326.7 million in 2001,
compared with $304.5 million in 2000. This increase is the result of an
increase of $6.6 million in equipment costs mainly due to the higher volume of
handsets sold partially offset by their lower per-unit cost; an increase of
$8.8 million in network operating costs due to higher contribution revenue
charges paid to the CRTC partially offset by lower site-related expenses; and,
an increase of $6.8 million in customer care and training costs. The increased
cost of products and services is consistent with the Companys network
enhancement activities, as well as the expansion of its subscriber base.

Selling and marketing costs include compensation expenses and other
distribution channel costs, as well as advertising expenses. Lower selling and
marketing costs reflects cost control over advertising and promotion expenses
in a highly competitive wireless environment. The number of points of sale
increased by 34% to 5,184 as of December 31, 2001, compared with 3,870 as of
December 31, 2000.

The increase of $2.2 million in general and administrative expenses was
mainly due to higher subscriber-related expenses and higher capital tax
partially offset by lower salaries and benefits. As of December 31, 2001, the
number of employees within the PCS business was 2,302 (expressed in full-time
equivalent), compared with 2,495 as of December 31, 2000.

Wireless Internet Segment

Through its Wireless Internet business segment, the Company provides
mobile Internet services to its PCS subscribers and had planned to build a
high-speed Internet Protocol-based data network using MCS technology in the
2500 MHz range.

Year ended December 31, 2002, compared with the year ended December 31, 2001

Selected financial information(in millions of dollars)

|                                                                                                        |  |      |        |      |  |          |       |   |  |  |       |  
|------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | -------- | ----- | - |  |  | ----- | -
|Years ended December 31,                                                                                |  | 2002 |        | 2001 |  | Variance
|                                                                                                        |  | $    |        | $    |  | $       
|                                                                                                        |  |      |        |      |  |         
|Revenues                                                                                                |  |      | 1.9    |      |  |          | 7.6   |   |  |  | (5.7  | )
|Costs and operating expenses (excluding
impairment of intangible assets,
depreciation and amortization) |  |      | 13.5   |      |  |          | 20.3  |   |  |  | (6.8  | )
|Impairment of intangible assets                                                                         |  |      | 223.4  |      |  |          |      |   |  |  | 223.4 |  
|                                                                                                        |  |      |        |      |  |          |       |   |  |  |       |  
|Wireless Internet segment operating loss                                                                |  |      | (235.0 | )    |  |          | (12.7 | ) |  |  | 222.3 |  
|                                                                                                        |  |      |        |      |  |          |       |   |  |  |       |  

41



---



##### Table of Contents



During 2002, the activities in the Wireless Internet Segment were reduced
due to the Companys business plan guidelines to keep the allocation of
resources outside the PCS segment to a minimum, unless these operations could
be independently financed. Nevertheless, during 2002, Inukshuk continued to
conduct trials to test the next generation of broadband wireless technology
with certain vendors.

Revenues for 2002 decreased by $5.7 million, year-over-year, due to the
fact that Microcell i5 Inc. (Microcell i5) has abandoned its commercial
activities in 2002. Revenues of $1.9 million represent management fees charged
by the Wireless Internet segment to the PCS segment for the maintenance of the
portal used by the PCS segment.

Costs and operating expenses before impairment of intangible assets,
depreciation and amortization decreased to $13.5 million for 2002, compared
with $20.3 million for 2001. This decrease reflects the reduction of the
activities in this segment.

For a period of time during 2002, the Company had been pursuing
negotiations with potential business partners to secure financing for its MCS
project to be carried out by Inukshuk. During 2002, the likelihood of
concluding such an agreement became uncertain. Given this fact, and considering
the difficult financial market conditions that the telecommunications industry
is facing, the Company wrote down the value of the MCS Licenses to nil.
Accordingly, a non-cash expense affecting the Wireless Internet segment in the
amount of $223.4 million was recorded in 2002.

As a result, the Company posted a Wireless Internet segment operating loss
of $235.0 million for 2002, compared with $12.7 million in 2001.

Year ended December 31, 2001, compared with the year ended December 31, 2000

Selected financial information(in millions of dollars)

|                                                                                              |  |      |       |      |  |          |     |  |  |  |       |  
|--------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | -------- | --- |  |  |  | ----- | -
|Years ended December 31,                                                                      |  | 2001 |       | 2000 |  | Variance
|                                                                                              |  | $    |       | $    |  | $       
|                                                                                              |  |      |       |      |  |         
|Revenues                                                                                      |  |      | 7.6   |      |  |          | 9.3 |  |  |  | (1.7  | )
|Costs and operating expenses (excluding
restructuring charges, depreciation and
amortization) |  |      | 20.3  |      |  |          | 6.8 |  |  |  | 13.5  |  
|                                                                                              |  |      |       |      |  |          |     |  |  |  |       |  
|Wireless Internet segment operating income (loss)                                             |  |      | (12.7 | )    |  |          | 2.5 |  |  |  | (15.2 | )
|                                                                                              |  |      |       |      |  |          |     |  |  |  |       |  

In 2001, revenues of $7.6 million decreased by $1.7 million following the
deferral of revenues in the amount of $4.6 million following the sale to
Solutions of licenses for the use of wireless Internet services developed by
Microcell i5. Costs and operating expenses before restructuring charges,
depreciation and amortization, increased to $20.3 million in 2001, compared
with $6.8 million in 2000. This increase was mainly due to the fact that the
Wireless Internet segment, through Microcell i5, was in operation for the full
year in 2001 compared to 2000 when it only commenced operations during the
year.

Investments Segment

The Investments segment consists mainly of various wireless or high
technology investments or projects that primarily involve Microcell Capital and
Microcell Labs.

Year ended December 31, 2002, compared with the year ended December 31, 2001

Selected financial information(In millions of dollars)

|                                                       |  |      |      |      |  |          |      |  |  |  |       |  
|------------------------------------------------------ |  | ---- | ---- | ---- |  | -------- | ---- |  |  |  | ----- | -
|Years ended December 31,                               |  | 2002 |      | 2001 |  | Variance
|                                                       |  | $    |      | $    |  | $       
|                                                       |  |      |      |      |  |         
|Revenues                                               |  |      |     |      |  |          | 0.2  |  |  |  | (0.2  | )
|Costs and operating expenses                           |  |      |     |      |  |          | 2.8  |  |  |  | (2.8  | )
|Loss in value of investments and marketable securities |  |      | 16.1 |      |  |          | 32.5 |  |  |  | (16.4 | )
|Share of net loss in investees                         |  |      | 13.2 |      |  |          | 5.3  |  |  |  | 7.9   |  
|                                                       |  |      |      |      |  |          |      |  |  |  |       |  
|Investments segment operating loss                     |  |      | 29.3 |      |  |          | 40.4 |  |  |  | (11.1 | )
|                                                       |  |      |      |      |  |          |      |  |  |  |       |  

The Investments segment operating loss stood at $29.3 million for the year
ended December 31, 2002, compared with $40.4 million in 2001. Zero costs and
operating expenses for 2002 reflect the Companys objective to focus on its
core PCS business segment with minimal activities in the other segments. Lower
loss in value of investments and marketable securities of $16.4 million was
mainly due to the lower number of investments and marketable securities in the
Companys portfolio during 2002. Higher share of loss in investees of $7.9
million was a result of a general decline in market conditions for
high-technology companies in 2002, which are the main component of the
investees portfolio.

42



---



##### Table of Contents



Year ended December 31, 2001, compared with the year ended December 31, 2000

Selected financial information(In millions of dollars)

|                                                       |  |      |       |      |  |          |        |   |  |  |        |  
|------------------------------------------------------ |  | ---- | ----- | ---- |  | -------- | ------ | - |  |  | ------ | -
|Years ended December 31,                               |  | 2001 |       | 2000 |  | Variance
|                                                       |  | $    |       | $    |  | $       
|                                                       |  |      |       |      |  |         
|Revenues                                               |  |      | 0.2   |      |  |          | 0.2    |   |  |  |       |  
|Costs and operating expenses                           |  |      | 2.8   |      |  |          | 3.6    |   |  |  | (0.8   | )
|Net gain on disposal of investments                    |  |      |      |      |  |          | 286.0  |   |  |  | (286.0 | )
|Loss in value of investments and marketable securities |  |      | (32.5 | )    |  |          | (248.3 | ) |  |  | (215.8 | )
|Share of net income (net loss) in investees            |  |      | (5.3  | )    |  |          | 20.6   |   |  |  | (25.9  | )
|                                                       |  |      |       |      |  |          |        |   |  |  |        |  
|Investments segment operating income (loss)            |  |      | (40.4 | )    |  |          | 54.9   |   |  |  | (95.3  | )
|                                                       |  |      |       |      |  |          |        |   |  |  |        |  

The Company posted an Investment segment operating loss of $40.4 million
in 2001 compared with an operating income of $54.9 million in 2000. This
variation was due mainly to the decline in market conditions for
high-technology companies in 2001, which are the main component of the
Companys portfolio, compared with the effervescence of the market in 2000. In
fact, a net gain of $286.0 million was realized in 2000 due mainly to the
Companys sale of both its directly and indirectly held investments in
Saraide.com Inc. to InfoSpace. Under the terms of the agreement, InfoSpace
merged Saraide with its own wireless services business and created Saraide,
Inc., a new subsidiary of InfoSpace. In exchange for its total ownership of
Saraide, the Company received 2,281,326 InfoSpace shares and a direct ownership
interest of approximately 4.3% in the new company created, Saraide, Inc.

The loss in value of investments and marketable securities decreased by
$215.8 million in 2001 compared with the previous year. This was due mainly to
the lower level of InfoSpace shares held in 2001 following the sale of 961,894
shares in 2000 and 911,767 shares early in 2001, and to the fact that the major
part of the decline in market conditions occurred in 2000. Also, the
weighted-average market value of the 911,767 shares sold in 2001 was guaranteed
at U.S.$50.72 under a put and call option agreement entered into by the Company
to manage the risk associated with fluctuations in the market value of the
underlying shares, which reduced the effect of the loss in value of those
shares.

Finally, the Company recorded in 2001, a share of net loss in its equity
investments, which amounted to $5.3 million compared with a share of net income
of $20.6 million in 2000 due to the general decline in market conditions of
high-technology companies.

LIQUIDITY AND CAPITAL RESOURCES

The following should be read in conjunction with the Reorganization
section discussed above.

As at December 31, 2002, the Company had cash and cash equivalents and
short-term investments and marketable securities in the amount of $110.3
million, compared with cash and cash equivalents and short-term investments and
marketable securities of $178.5 million as at December 31, 2001.

In comparison with December 31, 2001, receivables decreased by $14.2
million mainly due to a lower postpaid subscriber base. Capital assets
decreased by $108.4 million due to depreciation expense in the amount of $234.4
million (including write-downs of $37.1 million discussed in the consolidated
results section), partially offset by cash investments of $124.7 million
primarily for the PCS network. Intangible assets decreased by $223.4 million
due to the impairment charge recorded for the MCS Licenses in the second
quarter of 2002. Long-term investments decreased by $24.3 million mainly due to
the Companys share of loss in its investees of $13.2 million (due to the
general decline in market conditions of high-technology companies which are the
main component of the Companys investees) and the devaluation of certain of
the Companys investment in the amount of $11.8 million. The decrease in
deferred charges and other assets of $42.9 million was mainly due to the
termination, in 2002, of the cross-currency swap ($25.0 million), the write
down of the deferred financing costs ($18.9 million), partially offset by
higher deferred financing costs following the closing of the new $100.0 million
Tranche F senior secured credit facility in February 2002 ($19.7 million minus
amortization of 9.1 million) and the write down of different deferred charges
with respect to certain development projects. The increase in accounts payable
and accrued liabilities of $26.0 million was mainly attributable to unpaid
accrued interest on the Companys 1996 and 1997 senior discount notes.

As of December 31, 2002 the Company was not in compliance with certain of
its covenants (see note 1to the audited consolidated financial statements for
the year ended December 31, 2002) and as such the long-term debt was in
default. In addition, as part of a forbearance agreement entered into on
October 31, 2002, the Company and the senior secured lenders mutually agreed to
terminate the senior secured revolving credit facility in the amount of $270.8
million. The $136.6 million increase in the long-term debt (current and
long-term portion) was due to the new $100.0 million Tranche F
senior secured
term loan and to accreted interest of

43



---



##### Table of Contents



$72.8 million on the senior discount notes, partially offset by an
exchange rate improvement of $25.5 million and the repayment of $10.7 million
on the senior secured credit facilities.

Reported results(in millions of dollars)

|                                      |  |      |       |      |  |      |        |   |  |  |        |  
|------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  |  | ------ | -
|Years ended December 31,              |  | 2002 |       | 2001 |  | 2000
|                                      |  | $    |       | $    |  | $   
|                                      |  |      |       |      |  |     
|Cash used in operating activities     |  |      | (41.0 | )    |  |      | (122.3 | ) |  |  | (105.7 | )
|Cash used in investing activities     |  |      | (20.6 | )    |  |      | (383.9 | ) |  |  | (329.6 | )
|Cash provided by financing activities |  |      | 69.5  |      |  |      | 437.7  |   |  |  | 396.8  |  
|                                      |  |      |       |      |  |      |        |   |  |  |        |  

The Company used $41.0 million of cash in operating activities for the
year ended December 31, 2002, compared with $122.2 million in 2001, for a
decrease of $81.2 million. This favorable variance resulted primarily from a
positive EBITDA (excluding the reversal of a non-cash sales tax provision of
$13.8 million) of $77.2 million for the twelve-month period ended December 31,
2002, compared with a negative EBITDA of $9.8 million for 2001, and a decrease
in cash used in operating assets and liabilities of $82.3 million. These
decreases in cash used in operating activities were partially offset by an
increase in cash interest expense and other of $85.8 million (mainly due to the
interest payable on the senior discount notes due 2006 and 2007) and higher
restructuring charges in the amount of $2.3 million. The restructuring charges
in 2002 and 2001 related to severance payments made to a number of employees
laid off during both years.

Cash used in investing activities was $20.6 million for the year ended
December 31, 2002, compared with $383.9 million during 2001, for a decrease of
$363.3 million. This difference was mainly attributable to lower additions to
capital assets and deferred charges of $159.8 million, resulting from lower
cash investments in the PCS network, which reflected the Companys continuing
focus on cash preservation. It was also due to lower additions to intangible
assets of $130.0 million, the amount which was paid by the Company in 2001 as
the final installment for the acquisition of the remaining 50% interest in
Inukshuk. In addition, higher proceeds from the sale of short-term investments
and marketable securities of $40.3 million contributed to the favorable
variance. Finally, the decrease in cash used in investing activities can be
explained by the proceeds of $32.0 million received mainly from the termination
of the Companys hedging agreements, as well as by a lower cash investment of
$1.2 million in Argo II.

The Company has committed to invest, in the form of a subscription for
units, U.S.$10.0 million in Argo II and, as of December 31, 2002, U.S.$5.5
million has been paid. During 2002, the Company was asked to contribute an
additional U.S.$0.5 million, as part of its original commitment. The Company
asked for a grace period to pay its capital contribution and Argo IIs general
partners agreed to postpone the payment until the end of the Companys
recapitalization. This investment has been reduced to its estimated fair value
of nil as at December 31, 2002. The Company has not yet decided if it will
maintain its commitment for the remaining $4.5 million.

Cash provided by financing activities for the twelve-month period ended
December 31, 2002 was $69.5 million, compared with $437.8 million for 2001, for
a decrease of $368.2 million. This decrease was mainly due to the lower amount
of cash provided as a result of the issuance of $439.3 million in shares
related to the two Companys equity financing initiatives in 2001 (174,691,777
Class B Non-Voting Shares issued in 2001 compared with nil in 2002), partially
offset by the closing, in the first quarter of 2002, of a new $100.0 million
senior secured credit facility (Tranche F). In addition, higher financing
costs of $18.2 million with respect to the Tranche F and the repayment of
senior secured loans in the amount of $10.7 million contributed to the
variance.

ACCOUNTING DEVELOPMENTS

The Canadian Institute of Chartered Accountants recently issued Section
3063, Impairment of Long-Lived Assets. This Section establishes standards for
the recognition, measurement and disclosure of the impairment of long-lived
assets held for use. The new standard replaces requirements on the write-down
of assets previously contained in Section 3061, Property, Plant and Equipment
and is effective for 2004. The Company is currently assessing the new
regulations and the impact that adoption will have on its consolidated
financial statements. Similar requirements were also issued in the United
States under Statement of Financial Accounting Standard No. 144.

In November 2001, the CICA issued Accounting Guideline 13, Hedging
Relationships (AcG-13). AcG-13 establishes new criteria for hedge accounting
and will apply to all hedging relationships in effect for the
Companys 2004 fiscal
year under Canadian GAAP. To qualify for hedge
accounting, consistent with U.S. GAAP, the hedging relationship must be
appropriately documented at the inception of the hedge and there must be
reasonable assurance, both at the inception and throughout the term of the
hedge, that the hedging relationship will be effective. Effectiveness requires
a high correlation of changes in fair values or cash flows between the hedged
item and the hedge. The Company currently documents all hedging relationships
on an ongoing basis.

44



---



##### Table of Contents



RISKS AND UNCERTAINTIES

Cash Flow and Capital Requirements

The current business plan of the Company does not expect to require
additional financing assuming it is implemented without material variances;
however, if actual results vary from the business plan and if the assumptions
underlying the business plan were to change, additional funds may be required.

Sources of funding for the Companys further financing or refinancing
requirements may include, in addition to the new credit facilities under the
Plan, additional bank financing, vendor financing, public offerings or private
placements of equity or debt securities, capital contributions from
shareholders and disposition of assets. There can be no assurance that
additional financing will be available to the Company or, if available, that it
can be obtained on a timely basis and on terms acceptable to the Company.
Failure to obtain the new credit facilities or such additional financing in
this context could result in the delay or modification of the Companys level
of services or in the delay or failure to meet license conditions, which could
result in a loss of the PCS License and/or the MCS licenses. Any of these
events could impair the Companys ability to meet its debt service requirements
and could have a material adverse effect on its business.

The new credit facilities contain restrictive covenants which may affect,
and in some cases significantly limit or prohibit, among other things, the
Companys ability to incur indebtedness, raised private equity, make
prepayments of certain indebtedness, create liens, sell assets, make capital
expenditures and engage in acquisitions, mergers, amalgamations and
consolidations. In addition, the new credit facilities require the Company to
maintain certain financial ratios, including minimum liquidity level, EBITDA
levels, ARPU levels, subscriber and revenue levels and maximum levels of
capital expenditures. If the Company fails to comply with the various
covenants of its indebtedness, it will be in default under the terms thereof,
which would permit holders of such indebtedness to accelerate the maturity of
such indebtedness and could cause defaults under other indebtedness or
agreements. In such circumstances, the lenders under the new credit facilities
could foreclose upon all or substantially all of the assets of the Company and
its subsidiaries, which will be pledged to secure the obligations of the
borrowers thereunder.

Since the implementation of the restructuring plan, the total long-term
debt of the Company is $350 million (including a current portion of $7.5
million). In addition, the Company has access to $25 million in the form of a
revolving credit facility and could incur up to an additional $50 million of
indebtedness thereunder.

The level of the Companys indebtedness could have consequences,
including: (1) the Companys ability to obtain additional financing in the
future for capital expenditures, working capital, operating losses, debt
service requirements or other purposes; (2) the Companys flexibility in
planning for, or reacting to, changes to its business and market conditions;
(3) the Companys ability to compete; and (4) the Companys vulnerability in
the event of a downturn in its business.

Exchange Rate Fluctuations

As most of the Companys revenues are expected to be received in Canadian
dollars, the Company is exposed to foreign exchange risk on repayments at
maturity of the 1996 and 1999 Notes and their potential early redemption, and
on Tranches B, E and F of the Senior Secured Term Loans denominated in U.S.
dollars.

In the past, the Company has entered into a hedging arrangement with
respect to the 1999 Notes but has terminated this arrangement in the fourth
quarter of 2002. Although the Company may enter into other such transactions to
hedge the exchange rate risk with respect to any other U.S. dollar-denominated
debt and transactions, there can be no assurance that the Company will engage
in such transactions or, if the Company decides to engage in any such
transaction, that it will be successful and that changes in exchange rates will
not have a material adverse effect on the Companys ability to make payments in
respect of its future U.S. dollar-denominated debt. Such transactions may
require that the Company provide cash or other collateral to secure its
obligations. As of December 31, 2002, borrowings of approximately $1,416
million were in U.S. dollars and unhedged. A $0.01 variation in exchange rates
affects the Companys foreign exchange loss or gain by approximately $9.0
million. Assuming the successful implementation of the Plan, the foreign
exchange risk on repayments at maturity of the long-term debt will be reduced
as borrowings of approximately $200 million will be in U.S. dollars.

For the purposes of financial reporting, any change in the value of the
Canadian dollar against the U.S. dollar during a given financial reporting
period would result in a foreign exchange loss or gain on the translation of
any U.S. cash and cash equivalents or U.S. dollar-denominated debt into
Canadian currency. Such foreign exchange gain or loss on the translation of
U.S. dollar-denominated long-term debt is included in income as it arises.
Consequently, the Companys reported earnings could fluctuate materially as a
result of foreign exchange translation gains or losses.

45



---



##### Table of Contents



Interest Rate Fluctuations

In the past, the Company has entered into hedging arrangements with
respect to a portion of the variable-rate debt drawn where floating interest
rates were swapped to fixed interest rates or to within a fixed range of
variable rates. During the fourth quarter of 2002, the Company terminated all
such hedging arrangements. As of December 31, 2002, a one-percentage point
change in interest rates could affect the Companys cash flow by approximately
$5.9 million. With the successful implementation of the Plan, the interest
rate risk on the debt will be reduced significantly given the debt reduction of
approximately $1.7 billion.

Future cash flows; Ability to Service Debt

The Company may experience growth-related capital requirements arising
from the need to fund of network capacity improvements and ongoing maintenance
and to fund the cost of acquiring new PCS customers. Microcells ability to
generate positive net income and cash flow in the future is dependent upon
various factors, including the level of market acceptance of its services, the
degree of competition encountered by the Company, the cost of acquiring new
customers, technology risks, the future availability of financing, the results
of its equity investments, general economic conditions and regulatory
requirements. There can be no assurance that the Company will achieve or
sustain positive cash flow from operating activities. If the Company cannot
achieve positive cash flow from operating activities, it may not be able to
meet its debt service or working capital requirements or obtain additional
capital required to meet all of its cash requirements. In addition, the
Company will be required to make interest payments under certain financing
arrangements and will be required to make payments of principal thereunder.

Contingency

On April 10, 2002, ASP Wireless Net Inc. (ASP), a former service
provider of Connexions, filed a notice of arbitration pursuant to an agreement
that ASP had with Connexions. ASP claims in the notice of arbitration that
Connexions has breached its agreements with ASP and that it therefore suffered
damages in the amount of $18.5 million, which ASP is claiming from the Company.
The Company considers ASPs claim as frivolous and unfounded in fact and in law
and intends to vigorously contest it.

FUTURE OUTLOOK

With effective implementation of its capital restructuring plan on May 1,
2003, Microcell will strengthen its financial position. The plan provides for a
comprehensive recapitalization of the Company that significantly reduces its
debt obligations by approximately $1.7 billion and its annual interest
obligations by a range of $160 to $200 million. Once this process has been
completed, Microcells goal is to re-establish itself as a strong competitor in
the Canadian wireless market, providing affordable and innovative PCS services
and positioning itself as a preferred access network for the mass market.

Despite the industry slowdown experienced in 2002, wireless was the only
segment of Canadian telecom that enjoyed solid growth. Wireless revenue growth
in Canada for 2002 exceeded 10%, compared to revenue growth in the Canadian
telecom market of approximately 3%. The trend is expected to continue for the
wireless industry, as the industry players remain focused on profitable
subscriber growth over mere market share. Moreover, wireless data remains an
important growth opportunity that may provide some additional upside. This,
however, will depend not only on availability of devices and consumer-oriented
applications, but also, and more importantly, on consumer awareness and usage.

While most industry analysts agree on the longer-term potential for
cellular in Canada, they are cautious about growth for 2003 until there is some
evidence of a sustainable resurgence in subscriber growth. Accordingly, the
wireless market in Canada is expected to continue growing at a similar rate to
2002. Wireless penetration at the end of 2002 was approximately 38% and is
expected to approach 42% by the end of 2003. At these penetration levels, there
is still ample room for wireless voice services to grow in Canada, especially
given the proliferation of new handsets with high-end features. Microcell
believes it is well positioned operationally, financially and strategically to
acquire its fair share of new subscribers.

The Companys strategic direction is to focus primarily on core PCS
operations within the retail consumer and individual business user market
segments. In order to position its wireless service as a preferred means of
communication for the mass market, the Company has designed its postpaid
service marketing strategy based on specific product attributes, such as
big-minute bundles, per-second billing, no contract, worldwide roaming and
competitive long-distance rates, while its prepaid service marketing strategy
is centered on product features such as flexibility, spending control, simple,
convenient and mobile replenishment, as well as postpaid-type per-minute
pricing and bundled value-added services.

The key elements that will guide Microcells business strategy in 2003 and
beyond are as follows:



| | (1) |  | allocate resources primarily to PCS activities with a high
impact on the customer base; the allocation of resources to non-PCS
operations will be kept to a minimum, unless these activities can be
self-financed;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

46



---



##### Table of Contents





| | (2) |  | target mass-market retail consumer segments with the highest
growth potential, such as the youth, young adult and urban
professional markets, as well as individual/business users/small
office/home office business users located in major metropolitan
areas, using direct-to-consumer distribution channels, including
corporate-owned stores, third-party retailers, and a direct sales
force;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (3) |  | offer simple, affordable and relevant PCS products, services
and devices that meet the everyday personal and business needs of
customers, while minimizing operating costs;                                                                                                                                                                                                                       
|
| | (4) |  | adopt a fast-follower approach to reduce the costs and
business risks associated with new product and service development;                                                                                                                                                                                                                                                                      
|
| | (5) |  | leverage the existing customer base by offering a variety of
enhanced value-added voice-related and SMS-based data services to
encourage incremental usage and to maintain current levels of ARPU;                                                                                                                                                                                                
|
| | (6) |  | provide a superior level of customer service, invest in
customer retention programs, and ensure customers are matched to the
right payment method to optimize satisfaction and foster loyalty;                                                                                                                                                                                                    
|
| | (7) |  | focus network improvements primarily on capacity and
maintenance;                                                                                                                                                                                                                                                                                                                                 
|
| | (8) |  | increase network capacity on a timely basis to support customer
growth requirements and enhance existing network coverage through
improvements to signal strength in markets already being served; and                                                                                                                                                                                            
|
| | (9) |  | discontinue active solicitation of wholesale business, while
continuing to support existing third-party service providers and
considering wholesale proposals.                                                                                                                                                                                                                                    

The financial and operating targets established for 2003 reflect the
above-mentioned strategic guidelines and incorporate the effects of the
Companys conscious decision to restrict growth as a means to preserve
liquidity, while engaged in the capital restructuring process. Accordingly, the
Company expects to continue reporting a low number of new gross customer
activations and subscriber losses during the first half of 2003. Now that the
recapitalization process is finalized, the Company intends to actively resume
customer acquisition and to regain market momentum through reestablishing its
market presence. Now, the focus will return increasingly to revenue and EBITDA
growth. The Company also expects the blended churn rate to improve and to begin
returning closer to historical levels, now that the capital reorganization is
completed and once the effects from past postpaid acquisition programs and last
years prepaid price structure modifications begin to subside.

Due to softer subscriber growth and higher churn in the first half of
2003, compared with the latter half of the year, the Companys expects that
total revenues for 2003 will remain relatively flat to slightly down compared
with 2002. As a result, the Company will continue to adjust its cost structure
on an ongoing basis to match it with the revenue streams that will be
generated. Consequently, EBITDA is expected to remain at roughly the same level
as for 2002 on a normalized basis.

Moreover, due to the substantial reduction in long-term debt stemming from
the capital reorganization, the Companys interest expense will be
significantly reduced once the Company begins fresh start accounting in May
2003. In addition, the reclassification and write-down of certain assets as a
result of the capital reorganization, will result in a reduced depreciation and
amortization expense going forward. Given that the Companys network buildout
is substantially completed and that a more cautious outlook for subscriber
growth is expected, capital expenditures for 2003 should be lower with spending
concentrated on maintenance capacity improvements for subscriber and usage
growth, as well as on enhancement of PCS digital coverage and signal strength
in markets already being served. As a result, the Company expects to near free
cash flow break-even for 2003. Free cash flow is defined as EBITDA less capital
expenditures, interest paid, cash taxes and changes in working capital.

In 2003, Microcell will continue to show financial discipline, while
striving for profitable revenue growth and continued operating and capital cost
containment. This is expected to result in stable ARPU and COA, as well as a
reduced churn rate compared with figures from fourth quarter of 2002, despite
relatively flat gross additions. The primary goal for management coming out of
the recapitalization is resume subscriber growth while controlling costs to
maintain EBITDA levels. The key measures on which management will measure its
performance are as follows:

47



---



##### Table of Contents



|                   |  |                      |  |      |             |        |  |                       
|------------------ |  | -------------------- |  | ---- | ----------- | ------ |  | ----------------------
|                   |  | 2003 Target          |  | 2002 |             | Change
|                   |  |                      |  |      |             |       
|Gross Additions    |  | 540,000 to 570,000   |  |      | 548,000     |        |  | (8,000) to 22,000     
|Blended churn rate |  | 3.2% to 3.5%         |  |      | 3.4         | %      |  | 10 bps to 20 bps      
|Total revenues     |  | $550 to $580 million |  | $    | 591 million |        |  | $(11) to $(41) million
|EBITDA(1)          |  | $65 to $75 million   |  | $    | 77 million  |        |  | $(8) to $(2) million  
|CAPEX              |  | $80 to $90 million   |  | $    | 125 million |        |  | $(35) to $(45) million



---

|(1) |  | The figure for 2002 excludes a one-time benefit arising from the reversal
of a $13.8 million handset subsidy tax provision.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

As a condition of its PCS License, Microcell is to invest at least 2% of
its adjusted gross revenues, resulting from 2 GHz PCS operations, on
PCS-related research and development averaged over the five years of the
current PCS License term, which runs until 2006. During 2002, 2001 and 2000,
Microcell spent approximately $4,085,000, $7,033,000 and $7,838,000
respectively on research and developments activities.




ITEM 6  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

New Board

The table below sets forth the name, principal occupation and date of the
appointment of each actual member of the New Board since the implantation of
the Plan on May 1, 2003.

|                  |  |                                                                  |  |                
|----------------- |  | ---------------------------------------------------------------- |  | ---------------
|                  |  |                                                                  |  | Director of    
|Name              |  | Principal Occupation                                             |  | Microcell Since
|                  |  |                                                                  |  |                
|ANDRÉ BUREAU      |  | Chairman of the New Board of Microcell and of Astral Media Inc.  |  | May 1998       
|ANDRÉ TREMBLAY    |  | President and Chief Executive Officer of Microcell               |  | May 1995       
|CHARLES SIROIS    |  | Chairman and President of Telesystem Ltd.                        |  | December 1993  
|JAMES CONTINENZA  |  | President and Chief Executive Officer of Teligent, Inc.          |  | May 2003       
|CHRISTIAN DUBÉ    |  | Senior Vice-President and Chief Financial Officer of Domtar Inc. |  | May 2003       
|GARY GOERTZ       |  | Corporate Director                                               |  | May 2003       
|ROBERT LATHAM     |  | President of RFL Consulting                                      |  | May 2003       
|PAUL MCFARLANE    |  | Corporate Director                                               |  | May 2003       
|BERL NADLER       |  | Partner with Davies Ward Phillips and Vineberg LLP               |  | May 2003       
|STEVEN D. SCHEIWE |  | President of Ontract Advisors Inc.                               |  | May 2003       
|LORIE WAISBERG    |  | Corporate Director                                               |  | May 2003       

48



---



##### Table of Contents



Pursuant to the Plan: (1) Mr. André Bureau, Mr. Jim Continenza, Mr.
Christian Dubé, Mr. Gary Goertz, Mr. Robert Latham, Mr. Paul McFarlane and Mr.
Berl Nadler were nominated by the secured creditors; (2) Mr. Steven D. Scheiwe
and Mr. Lorie Waisberg were nominated by the noteholders; and (3) Mr. Charles
Sirois was nominated by the Old Board. See Composition of the Boardbelow for
more details on the nomination of the directors on the New Board.

The principal occupation of each director during the past five years is as
follows:

André Bureauwas appointed a director of Microcell on May 8, 1998. Since
May 14, 2003 Mr. Bureau has been Chairman of Microcell. Since December 1997, he
has been Chairman of the board of Astral Media Inc., Canadas largest operator
of English and French specialty, pay and pay-per-view television services,
Astral also owns 24 radio stations in Quebec and the Atlantic provinces, as
well as Astral Affichage, for outdoor advertising, and was President and Chief
Executive Officer of Astral Broadcasting Group Inc. from 1993 until October
2001. Mr. Bureau is also counsel at Heenan Blaikie LLP. Before 1989, Mr. Bureau
was Chairman of the CRTC.

André Tremblayhas been President and Chief Executive Officer of Microcell
since May 1995 and was Chairman of Microcell from August 10, 1999 to March 9,
2000. Mr. Tremblay has been actively involved in the telecommunications
industry since 1989. Prior to 1989, Mr. Tremblay was a tax partner and member
of the management committee of Raymond, Chabot, Grant, Thornton, a Canadian
accounting firm.

Charles Siroishas been a director of Microcell since December 9, 1993.
Mr. Sirois was the Chairman of Microcell until May 1, 2003. Since 1990, Mr.
Sirois has been Chairman and President of Telesystem Ltd., an entrepreneurial
private equity company of which his is the founder and principal shareholder.
Mr. Sirois is also Chairman of Telesystem International Wireless Inc. From 1992
to February 2000, Mr. Sirois was Chairman and Chief Executive Officer of
Teleglobe Inc., a leading global provider of broadband services with the most
extensive global Internet network. From 1988 to 1990, Mr. Sirois was Chairman
and Chief Executive Officer of BCE Mobile Inc. He currently sits on the board
of directors of the Canadian Imperial Bank of Commerce and is Chairman and CEO
of Enablis Entrepreneurial Network, a non-profit organization sponsored by the
G8 DotForce. He was also a member of the G8 dot force, of the National
Broadband Task Force and was a founding member of the Washington-based Global
Information Infrastructure Commission (GIIC).

James Continenzahas been a director of Microcell since May 1, 2003. Mr.
Continenza is Chief Executive Officer and a director of Teligent, Inc. a full
service facilities based communications company offering small and medium size
business customers local and long-distance telephony, high speed data and
internet access services. Prior to September 2002, Mr. Continenza was Chief
Operating Officer and a Director of Teligent, Inc. From September 2000 to May
2001, Mr. Continenza served a Senior Vice-President Strategic Operations of
Teligent, Inc. Prior to joining Teligent, Inc., Mr. Continenza was President
and Chief Executive Officer of Lucent Technologies Product Finance where he
worked for eleven years with Lucent and its predecessor AT&T. Mr. Continenza
holds a degree in business administration from the University of Wisconsin.

Christian Dubéhas been a director of Microcell since May 1, 2003. Mr.
Dubé is Senior Vice-President and Chief Financial Officer of Domtar Inc., the
third largest integrated manufacturer and marketer of fine paper in North
America. From 1996 to 1998 he was Vice-President Corporate Development of
Domtar Inc. Mr. Dubé is a director of Norampac Inc. and of NB Capital
Corporation. He has been a Chartered Accountant since 1979 and holds a
bachelors degree in business administration from Laval University.

Gary Goertzhas been a director of Microcell since May 1, 2003. Mr. Goertz
was Executive Vice-President, Finance and Chief Financial Officer of MDS Inc.,
the largest health and life science company in Canada from September 1999 to
February 2003. From March 1994 to August 1999, Mr. Goertz was Executive
Vice-President & CFO of Telus Corporation Inc., formerly BCT.Telus
Communications Inc. Mr. Goertz is a Chartered Accountant. Mr. Goertz is also a
director of MDS Capital Corp. and MDS Proteomics Inc. and is a trustee of
Associated Brands Operating Trust.

Robert Lathamhas been a director of Microcell since May 1, 2003. Since
April 2001, he has been the President of RFL Consulting, a company providing
consulting advice to small entrepreneurial companies and other organizations
developing and expanding new business. Since December 2002, he has been the
Chairman of Objectworld Technologies Ltd. From February 2001 to April 2001 he
was Chairman and Chief Executive Officer of Axxent Inc. a telecommunications
company in Canada where he also served as President and Chief Executive Officer
from September 1999 to February 2001. From January 1998 to September 1999, he
was President of ORBCOMM Global L.P. a telecommunications company based in
Dulles, Virginia. He also served as Executive Vice-President of ORBCOMM from
April 1997 to January 1998. From February 1996 to February 1997, Mr. Latham was
Managing Director, Telecom for Bell Canada International Management Ltd., U.K.
From April 1996 until November 1996, Mr. Latham was seconded to Mercury
Communications Limited in London England, a facilities-based carrier, as the
Managing Director, Commercial Service. Mr. Latham spent the previous 28 years
with Bell Canada in a wide variety of Sales, Marketing, Operations, Customer
Service and Regulatory assignments. During this period, he was the President
and CEO of Bell Cellular from August 1986 until August 1991 and responsible for
the Signature Service Organization from July 1992 until October 1994.

49



---



##### Table of Contents



Paul McFarlanehas been a director of Microcell since May 1, 2003. Since
May 1998, Mr. McFarlane has been a director of Brookfield Properties
Corporation. He was also Senior Vice-President of the Canadian Imperial Bank of
Commerce from February 1994 to December 2002 and prior to 1994, Mr. McFarlane
held various positions with the Canadian Imperial Bank of Commerce.

Berl Nadlerhas been a director of Microcell since May 1, 2003. Mr. Nadler
is a senior corporate law partner of Davies Wards Phillips & Vineberg LLP and a
member of the firms management committee. Mr. Nadler is a graduate of the
Faculty of Law McGill University and the Harvard Law School.

Steven D. Scheiwehas been a director of Microcell since May 1, 2003. Mr.
Scheiwe is currently President of Ontrac Advisors Inc., a consulting firm
providing analysis and management services to private equity groups, privately
held companies and fund/traders of distressed corporate debt issues. Mr.
Scheiwe is also a director of Nucentrix Broadband Communications, Inc. since
May 2001; Neff Corporation since May 2001 and Metrocall Holdings, Inc. since
October 2002. From April 1999 to May 2001, Mr. Scheiwe was the Chief Executive
Officer and a director of Teletrac Inc., a provider of wireless fleet
management location and communication services. From January 1996 to April
1999, Mr. Scheiwe was Vice-President, General Counsel and Secretary of Teletrac
Inc.

Lorie Waisberghas been a director of Microcell since May 1, 2003. Mr.
Waisberg is also a director of McWatters Mining Inc., Chemtrade Logistics
Income Fund and Specialty Foods Group Income Fund. From August 2000 to October
2002, Mr. Waisberg was Executive Vice-President Finance and Administration of
Co-Steel Inc., a steel manufacturer. Prior to that, Mr. Waisberg was a partner
at the law firm of Goodmans LLP and predecessor firms in Toronto, Ontario,
where he had been partner since 1974.

Officers of the Company

The following table indicates the name of the present officers of
Microcell, along with their positions held with Microcell.

|               |  |                                                              |  |                                                                   
|-------------- |  | ------------------------------------------------------------ |  | ------------------------------------------------------------------
|Name           |  | Office                                                       |  | Principal Occupation                                              
|               |  |                                                              |  |                                                                   
|ALAIN RHÉAUME  |  | President and Chief Operating Officer of Solutions           |  | President and Chief Operating Officer                             
|ANDRÉ TREMBLAY |  | President and Chief Executive Officer                        |  | of Solutions
President and Chief Executive Officer
of Microcell   
|DEAN PROCTOR   |  | Vice-President, Regulatory Affairs                           |  | Vice-President, Regulatory Affairs of                             
|GAÉTAN JACQUES |  | Interim Vice-President, Sales, Solutions                     |  | Microcell
Interim Vice-President, Sales of
Solutions              
|JACQUES LEDUC  |  | Chief Financial Officer and Treasurer                        |  | Chief Financial Officer and Treasurer
of Microcell                
|JOCELYN CÔTÉ   |  | Vice-President, Legal Affairs and Assistant Secretary        |  | Vice-President, Legal Affairs and
Assistant Secretary of Microcell
|MICHEL CORDEAU |  | Secretary                                                    |  | Lawyer                                                            
|PIERRE BONIN   |  | Chief Information Officer, Solutions                         |  | Chief Information Officer of Solutions                            
|RENÉ BOUSQUET  |  | Interim Vice-President, Marketing, Solutions                 |  | Interim Vice-President, Marketing of
Solutions                    
|ROBERT FORTIER |  | Vice-President and Corporate Controller                      |  | Vice-President and Corporate
Controller of Microcell              
|CARL DEXTER    |  | Vice-President, Network Services, Solutions                  |  | Vice-President, Network Services, of
Solutions                    
|BRUNO PÉLOQUIN |  | Vice-President, Customer Relations and Operations,
Solutions |  | Vice-President, Customer Relations &
Operations of Solutions      

50



---



##### Table of Contents



The principal occupation of each officer (other than André Tremblay)
during the past five years is as follows:

Alain Rhéaumewas appointed President and Chief Operating Officer of
Solutions on May 1, 2003. He was President and Chief Executive Officer of
Microcells PCS division from February 12, 2001 to April 30, 2003. From June
1996 to February 2001, Mr. Rhéaume was Chief Financial Officer and Treasurer of
Microcell and from May 1998 to February 2001, he was also Executive
Vice-President, Corporate Services. Prior to joining Microcell, Mr. Rhéaume
worked for the Government of the Province of Québec at the Ministry of Finance
since 1974. Mr. Rhéaume was Deputy Minister of Finance from 1992 to 1996 and
prior to that he was Associate Deputy Minister of Finance from November 1988 to
October 1992.

Dean Proctorhas been Vice-President of Microcell since February 1996.
Prior to joining Microcell, Mr. Proctor practised law in Montreal and Ottawa,
focusing on broadcasting and telecommunications matters. He is a Director of
the Wireless Communications Association, based in Washington, D.C., and acts as
Microcells Privacy Ombudsman. Mr. Proctor graduated from the University of
Saskatchewan with a Bachelor of Arts degree in 1984 and received bachelor
degrees in Common Law and Civil Law from McGill University in 1988. Mr. Proctor
is a member of the Bars of Québec and Ontario.

Gaétan Jacqueswas appointed Vice-President of Microcell on August 10,
1999. Mr. Jacques is interim Vice-President, Sales of Solutions since June 2003
and was, prior to that, Vice-President, Human Resources of the Company. Before
joining Microcell, Mr. Jacques was Director, Human Resources at the Canadian
Broadcasting Corporation from 1993-1994 and from 1994-1999, General Manager,
Technical Products and Engineering at the CBC. He also has worked for several
large corporations, including Stone-Consolidated, where he performed various
duties in human resources and quality management. Mr. Jacques holds an MBA and
a bachelors degree in Industrial Relations.

Jacques Leducwas appointed Chief Financial Officer and Treasurer of
Microcell on February 12, 2001. From May 1999 to February 2001, Mr. Leduc was
Vice-President Finance of Microcell. From January 1995 to May 1999, he was
Director, Financial Planning of Microcell. Prior to joining Microcell, Mr.
Leduc was the Corporate Controller and Officer of a privately owned business in
the manufacturing and food industry from 1990 to 1995. Mr. Leduc holds a
masters degree in business administration from HEC Montréal (formerly École
des Hautes Études Commerciales (University of Montreal)). He also holds a
bachelors degree in business administration from the University of Québec in
Montreal and was admitted by the Canadian Institute of Chartered Accountants in
1986.

Jocelyn Côtéwas appointed Vice-President of Microcell on August 10, 2001
and Assistant Secretary on May 10, 2001. From February 1998 to August 2001, Mr.
Côté was Director, Legal Affairs of Microcell. Prior to joining Microcell, he
was, from 1997 to 1998, legal counsel at Le Groupe Vidéotron Ltd. and, prior to
that, practiced corporate and tax law at the law firm Stikeman Elliott in
Montreal. Mr. Côté holds a law degree from Laval University and a masters
degree in Taxation from Sherbrooke University. Mr. Côté is a member of the Bar
of Québec.

Michel Cordeauwas appointed Secretary of Microcell on May 8, 1998. Mr.
Cordeau was, from February 1996 to August 2001, Vice-President, Legal Affairs
of Microcell. From March 1996 to May 1998, he was Assistant-Secretary of
Microcell. Mr. Cordeau is also legal counsel for Telesystem Ltd. Mr. Cordeau
was a partner of the law firm of Hickson, Martin, Blanchard in Québec City,
where he practiced corporate and bankruptcy law from 1980 to 1999. Mr. Cordeau
holds a law degree and a masters degree in Law from Laval University. Mr.
Cordeau is a member of the Bar of Québec.

Pierre Boninwas appointed Chief Information Officer of the Company on
December 12, 2000. Prior to joining Microcell, Mr. Bonin worked for Bell Canada
from 1987 to 2000 where he held various senior management positions, including
Vice-President, Information Technology and Vice-President, Finance and
Administration. Mr. Bonin holds an MBA from HEC Montréal (formerly École des
Hautes Études Commerciales (University of Montreal)) and other computer
sciences degrees.

Robert Fortierwas appointed Vice-President of the Company on August 9,
2002. From January 1995 to August 9, 2002, Mr. Fortier was Director, Corporate
Controller of the Company. Mr. Fortier chaired the Taxation Committee of the
CWTA from 1997 until 2002. He holds a Bachelors degree in Accounting from the
Université du Québec à Trois-Rivières and has been a member of the Ordre des
comptables agréés du Québec since 1983.

René Bousquetjoined Microcell in March 1996 and held the position of
Director with the Financial Planning and Corporate Planning departments before
becoming Vice-President, Finance of Solutions in May 2002 and interim
Vice-President, Marketing of Solutions in June 2003. Prior to joining
Microcell, Mr. Bousquet held a number of management positions in marketing,
including Director at Price Waterhouse Coopers. Mr. Bousquet holds a Bachelors
degree in Business Administration (Marketing and Finance) from the Université
de Sherbrooke and a Masters degree in Business Administration from the same
institution.

51



---



##### Table of Contents



Carl Dexterjoined Microcell in January 2001 as Vice-President, National
Network and Services Operation. Mr. Dexter has 26 years of experience in the
telecom industry, mainly at MTT (now Aliant Telecom) in Nova Scotia. The last
position he held at MTT was that of Vice-President, Network Operations and
Customer Services. Immediately prior to joining Microcell, Mr. Dexter was
Vice-President, Operations Support, of the international wireless operating
companies of Telesystem International Wireless (TIW).

Bruno Péloquinjoined Microcell in 1997 and is Vice-President, Customer
Relations and Operations, Solutions. Prior to joining Microcell, Mr. Péloquin
held positions in eastern and western Canada as Regional Director of Sales and
Operations with United Parcel Service Canada Ltd. He was also Vice-President,
Operations, with Diners Club/enRoute.

COMPENSATION

Remuneration of Directors

For the fiscal year ended December 31, 2002, directors of the Company who
were not officers or employees of the Company or its subsidiaries or of a
shareholder for whom they were the designated nominees received $10,000 per
year as well as an attendance fee per board or committee meeting. The Chairman
of the Old Board received a fee of $240,000 and each Committee Chairman (except
for the Special Committee Chairman) received a fee of $2,000 per year. The
directors of the New Board receive a yearly fee of $35,000, plus an attendance
fee per board or committee meeting. Members of the committees of the New Board
receive a fee of $2,000 per year. The Chairman of the New Board receives an
annual fee of $150,000. The Chairmans of the Human Resources, Corporate
Governance and Audit Committees receive respectively a fee of $2,000, $2,000
and $6,000 per year. The Company has no service contracts with its directors.

Remuneration of Members of Special Committee

At the time of the establishment of the Special Committee, compensation in
respect of the members of the Special Committee was based in part upon
attendance at meetings. However, in light of the difficulties of administering
such a method of compensation given the frequent communications among the
members of the Special Committee, the compensation was amended, with effect
from September 1, 2002, to be $10,000 per month, with the Chairman of the
Special Committee receiving an additional amount of $40,000 per month. No
amounts based upon the number of meetings of the Special Committee are payable
in addition to these monthly fees. The mandate of the Special Committee was
subsequently expanded to include the powers of the Companys Human Resources
Committee and the term of the Special Committees mandate was extended and
expired on May 1, 2003. The members of the Special Committee are also entitled
to reimbursement of reasonable out of pocket expenses incurred in the course of
performing their functions.

Remuneration of Executive Officers

The table below shows certain compensation information for the respective
fiscal years ended December 31, 2002, 2001 and 2000 for Mr. André Tremblay,
President and Chief Executive Officer of the Company, and certain other
executive officers. This information includes the dollar value of base
salaries, bonus awards, long-term incentive plan payments, the number of
options granted, and certain other compensation, if any, whether paid or
deferred.

52



---



##### Table of Contents



SUMMARY COMPENSATION TABLE

|                    |  |       |      |     |  |                     |         |                              |  |              |         |       |  |                     |   |                 |  |                   |         |                     |  |           |  |  |  |  |  |  |  |  |         | 
|------------------- |  | ----- | ---- | --- |  | ------------------- | ------- | ---------------------------- |  | ------------ | ------- | ----- |  | ------------------- | - | --------------- |  | ----------------- | ------- | ------------------- |  | --------- |  |  |  |  |  |  |  |  | ------- | 
|                    |  |       |      |     |  | Annual Compensation |         | Long-Term Compensation Award
|                    |  |       |      |     |  |                     |         |                             
|                    |  |       |      |     |  |                     |         |                              |  |              |         |       |  |                     |   |                 |  | Awards            |         | Payouts            
|                    |  |       |      |     |  |                     |         |                              |  |              |         |       |  |                     |   |                 |  |                   |         |                    
|                    |  |       |      |     |  |                     |         |                              |  |              |         |       |  |                     |   |                 |  | Securities Under  |         |                     |  |           |  |  |  |  |  |  |  | 
|                    |  |       |      |     |  |                     |         |                              |  |              |         |       |  | Other Annual        |   | Options/        |  | Restricted Shares |         | Long-Term Incentive |  | All Other
|Name and Principal  |  |       |      |     |  | Salary              |         | Bonus                        |  | Compensation |         | SARs  |  | or Restricted Share |   | Program Payouts |  | Compensation(5)  
|Position            |  | Years |      | ($) |  | ($)                 |         | ($)(1)                       |  | Granted(2)   |         | Units |  | ($)                 |   | ($)            
|                    |  |       |      |     |  |                     |         |                              |  |              |         |       |  |                     |   |                
|André Tremblay      |  |       |      |     |  |                     |         |                              |  |              |         |       |  |                     |   |                 |  |                   |         |                     |  |           |  |  |  |  |  |  |  |  |         | 
|President, Chief    |  |       | 2002 |     |  |                     | 514,654 |                              |  |              | 169,950 |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  | 405,000 | 
|Executive Office    |  |       | 2001 |     |  |                     | 498,077 |                              |  |              | 247,500 |       |  |                     |  |                 |  |                   | 531,681 |                     |  |           |  |  |  |  |  |  |  |  |        | 
|and Director        |  |       | 2000 |     |  |                     | 398,462 |                              |  |              | 200,000 |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  |        | 
|Alain Rhéaume       |  |       |      |     |  |                     |         |                              |  |              |         |       |  |                     |   |                 |  |                   |         |                     |  |           |  |  |  |  |  |  |  |  |         | 
|President and Chief |  |       | 2002 |     |  |                     | 374,423 |                              |  |              | 101,250 |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  | 271,250 | 
|Operating Officer,  |  |       | 2001 |     |  |                     | 344,956 |                              |  |              | 138,200 |       |  |                     |  |                 |  |                   | 348,443 |                     |  |           |  |  |  |  |  |  |  |  | 80,000  | 
|Solutions           |  |       | 2000 |     |  |                     | 279,423 |                              |  |              | 127,500 |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  |        | 
|Pierre Bonin(4)     |  |       | 2002 |     |  |                     | 249,770 |                              |  |              | 60,000  |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  | 89,000  | 
|Chief Information   |  |       | 2001 |     |  |                     | 223,558 |                              |  |              | 82,200  |       |  |                     |  |                 |  |                   | 160,647 |                     |  |           |  |  |  |  |  |  |  |  |        | 
|Officer, Solutions  |  |       | 2000 |     |  |                     |        |                              |  |              |        |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  |        | 
|Jacques Paquin(3)   |  |       |      |     |  |                     |         |                              |  |              |         |       |  |                     |   |                 |  |                   |         |                     |  |           |  |  |  |  |  |  |  |  |         | 
|President and Chief |  |       | 2002 |     |  |                     | 236,596 |                              |  |              | 50,745  |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  | 225,000 | 
|Operating Officer,  |  |       | 2001 |     |  |                     | 214,615 |                              |  |              | 77,400  |       |  |                     |  |                 |  |                   | 87,500  |                     |  |           |  |  |  |  |  |  |  |  |        | 
|Inukshuk            |  |       | 2000 |     |  |                     | 194,617 |                              |  |              | 75,500  |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  |        | 
|Jacques Leduc       |  |       |      |     |  |                     |         |                              |  |              |         |       |  |                     |   |                 |  |                   |         |                     |  |           |  |  |  |  |  |  |  |  |         | 
|Chief Financial     |  |       | 2002 |     |  |                     | 219,768 |                              |  |              | 52,800  |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  | 157,000 | 
|Officer and         |  |       | 2001 |     |  |                     | 206,249 |                              |  |              | 72,700  |       |  |                     |  |                 |  |                   | 226,058 |                     |  |           |  |  |  |  |  |  |  |  |        | 
|Treasurer           |  |       | 2000 |     |  |                     | 164,519 |                              |  |              | 52,000  |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  |        | 
|Sean Dalton(6)      |  |       |      |     |  |                     |         |                              |  |              |         |       |  |                     |   |                 |  |                   |         |                     |  |           |  |  |  |  |  |  |  |  |         | 
|Vice-President,     |  |       | 2002 |     |  |                     | 209,769 |                              |  |              | 37,800  |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  | 70,000  | 
|Marketing,          |  |       | 2001 |     |  |                     | 199,904 |                              |  |              | 54,000  |       |  |                     |  |                 |  |                   | 112,539 |                     |  |           |  |  |  |  |  |  |  |  |        | 
|Solutions           |  |       | 2000 |     |  |                     | 194,617 |                              |  |              | 49,000  |       |  |                     |  |                 |  |                   |        |                     |  |           |  |  |  |  |  |  |  |  |        | 



---

|(1) |  | The aggregate value of perquisites and other benefits does not exceed,
for each named executive officer, the lesser of $50,000 or 10% of the
total salary and bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Indicates the number of options granted under the stock option plan of
Old Microcell (the Old Stock Option Plan) during the relevant year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) |  | Mr. Paquins employment with Inukshuk was terminated in December 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(4) |  | Mr. Bonin began employment with the Company in February 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) |  | All other compensation for 2002 represents payments under the Companys
retention plan for key employees (as described below), except in the case
of Mr. Paquin for whom it represents severance payments related to the
termination of his employment. In the case of Mr. Rhéaume, the amount for
2001 was paid in respect to his relocation to Montreal. In order to
receive payments under the retention plan, each named executive officer
was required to remit for cancellation the following number of options
granted under the Old Stock Option Plan: André Tremblay  126,348; Alain
Rhéaume  88,443; Pierre Bonin  60,647; Jacques Leduc  53,066; and Sean
Dalton  50,539.
|   
|(6) |  | Mr. Daltons employment with Solutions was terminated on June 13, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Option Grants in last Financial Year

No stock option grants were made to the directors and the executive
officers named above under the Old Stock Option Plan during the financial year
ended December 31, 2002.

Aggregate Option Exercises in Last Financial Year and Financial year-End Option Values

The following table summarizes, for each of the executive officers named
above, the number of stock options under the Old Stock Option Plan, if any,
exercised during the financial year ended December 31, 2002, the aggregate
value realized upon exercise and the total number of unexercised options, if
any, held at December 31, 2002. Value realized upon exercise is the difference
between the fair market value of the underlying class B non-voting shares of
Old Microcell on the exercise date and the exercise or

53



---



##### Table of Contents



base price of the option. Value of unexercised in-the-money options at
financial year-end is the difference between its exercise or base price and the
closing fair market value of the underlying class B non-voting shares of Old
Microcell on December 31, 2002, which was $0.10 per share. These values, unlike
the amounts set forth in the column Aggregate Value Realized, have not been,
and may never be, realized. There can be no assurance that these values will be
realized. Unexercisable options are those which have been held for less than
the time required for vesting. The Old Stock Option Plan, and all options
issued pursuant thereto, were cancelled on May 1, 2003 pursuant to the Plan.

|               |  |                     |   |                 |  |             |   |               |  |                        |         |                              |  |  |         |  |  |  |   |  |  |  |   | 
|-------------- |  | ------------------- | - | --------------- |  | ----------- | - | ------------- |  | ---------------------- | ------- | ---------------------------- |  |  | ------- |  |  |  | - |  |  |  | - | 
|               |  |                     |   |                 |  |             |   |               |  | Unexercised Options at |         | Value of Unexercised        
|               |  |                     |   |                 |  |             |   |               |  | December 31, 2002      |         | "in-the-Money"* Options/SARs
|               |  |                     |   |                 |  |             |   |               |  | (#)                    |         | at December 31, 2002        
|               |  |                     |   |                 |  |             |   |               |  |                        |         |                             
|               |  | Securities Acquired |   | Aggregate Value |  |             |   |               |  |                        |         |                              |  |  |         |  |  |  |   | 
|               |  | on Exercise         |   | Realized(1)     |  |             |   |               |  |                        |         |                              |  |  |         |  |  |  |   | 
|Name           |  | (#)                 |   | ($)             |  | Exercisable |   | Unexercisable |  | Exercisable            |         | Unexercisable               
|               |  |                     |   |                 |  |             |   |               |  |                        |         |                             
|André Tremblay |  |                     |  |                 |  |             |  |               |  |                        | 495,500 |                              |  |  | 195,166 |  |  |  |  |  |  |  |  | 
|Alain Rhéaume  |  |                     |  |                 |  |             |  |               |  |                        | 274,750 |                              |  |  | 175,250 |  |  |  |  |  |  |  |  | 
|Pierre Bonin   |  |                     |  |                 |  |             |  |               |  |                        | 75,000  |                              |  |  | 125,000 |  |  |  |  |  |  |  |  | 
|Jacques Paquin |  |                     |  |                 |  |             |  |               |  |                        | 86,251  |                              |  |  |        |  |  |  |  |  |  |  |  | 
|Jacques Leduc  |  |                     |  |                 |  |             |  |               |  |                        | 57,888  |                              |  |  | 158,012 |  |  |  |  |  |  |  |  | 
|Sean Dalton    |  |                     |  |                 |  |             |  |               |  |                        | 65,500  |                              |  |  | 36,500  |  |  |  |  |  |  |  |  | 



---

|(1) |  | Aggregate value realized is calculated using the closing price of the
class B non-voting shares of Old Microcell on the Toronto Stock Exchange
(the TSX) on the date of exercise.                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The value of unexercised in-the-money options is calculated using the
closing price of the class B non-voting shares of Old Microcell on the TSX
on December 31, 2002, less the exercisable price of in-the-money
options.



| |  | in-the-money options are options for which the market value of the
underlying securities is higher than the price at which such securities
may be bought from Old Microcell.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pension Plans for Executive Officers

There is no pension plan implemented by the Company. There is only a
deferred profit sharing plan under which the Company makes a defined
contribution for the employees. No contribution under such plan was made in
2002.

Employment Agreements

The Company is a party to employment contracts with Mr. André Tremblay,
Mr. Alain Rhéaume and Mr. Jacques Leduc which provide that in the event of
termination by the Company without just and sufficient cause, lay-off following
a Major Change (as defined below) or resignation within 30 days of a Major
Change, they are entitled to receive an amount equal to two years base
salary, increased by their target bonus, and to exercise all vested and
unvested options to acquire shares of the Company. However, in the event
termination by the Company without just and sufficient cause or lay-off
following a Major Change occurs after September 30, 2004, Mr. Leduc is entitled
to receive an amount equal to one years base salary, increased by his target
bonus, which is generally consistent with the Companys employment arrangements
with all of its executive officers in such circumstances. Mr. Pierre Bonin is
entitled to exercise all vested and unvested options in the case of a layoff or
resignation within 30 days following a major change.

In the context of the review of its capital structure, the Company amended
and restated the terms and expanded the scope of its existing retention program
for key employees in order to mitigate the risks related to headhunting
activities and to maintain in its employment the employees necessary for the
successful completion of the recapitalization of the Company. Amounts payable
by the Company thereunder are equal to the annual compensation of each employee
and are payable in installments until August 2003, to the extent the employee
continues to be employed at the date of each payment. In addition, upon the
occurrence of a Major Change in respect of the Company, the retention program
provides that all unpaid retention payments become immediately due and payable.
Finally, except if a Major Change has occurred, should the Company terminate
without just cause the employment of a key employee covered by the retention
program before August 1, 2003, all unpaid retention payments become immediately
due and payable.

For the purposes of the above, a Major Change means: (1) the
amalgamation of the Company with another company if as a result thereof the
shareholders of the Company as of September 1, 2002 own less than 50% of the
voting shares of the Company resulting from such amalgamation; (2) a take over
bid (as construed in Canadian securities legislation) for all the shares of the
Company, if as a result thereof the shareholders of the Company as of September
1, 2002 own less than 50% of the voting shares thereof; (3) the sale of all or
substantially all of the property and assets of the Company to a person other
than an affiliate of the

54



---



##### Table of Contents



Company or Telesystem Ltd. (or any successor thereof); or (4) any other
transaction resulting in the acquisition of more than 50% of the voting shares
of the Company by a person other than Telesystem Ltd. (or any successor
thereof) or an affiliate thereof.

Executive Compensation Policy

A total compensation policy was introduced in 1994 to recognize and reward
individual contributions to the short-term and long-term success of the Company
and also ensure that the Company offers competitive compensation. This
compensation policy was reviewed in 2002 and certain adjustments were made to
ensure that it remained competitive with the industry.

According to this policy, executive compensation is based on three major
components: base salary, benefits and incentive compensation. The Company aims
to provide base salaries and benefits targeted at a selected market median
level as well as incentive programs designed to bring executive total
compensation in the upper quartile upon the achievement of superior results.
Incentive compensation is awarded through plans and criteria approved by the
Human Resources Committee.

The benefits consist of standard deferred profit sharing plan and
insurance coverage arrangements and allowance for certain expenses.

Short-Term Incentive Compensation

The short-term incentive compensation offers bonuses tied to the Companys
financial performance and the achievement of strategic corporate and business
unit objectives established on a yearly basis.

In the case of the named executive officers, incentive bonuses range from
30% to 90% of base salary when the financial and strategic objectives are
achieved. When such objectives are exceeded, bonuses are higher; when the
objectives are not met, the incentive bonuses are lower, or they may not be
paid at all under certain circumstances.

The Human Resources Committee reviewed and recommended to the Old Board
the approval of the 2002 bonuses on the basis that managements performance did
not entirely meet the set of objectives presented to the Old Board at the
beginning of the year.

Long-Term Executive Compensation

The long-term incentive component is made up of the stock option plan of
the Company.

Old Stock Option Plan

Introduced in 1994 and revised from time to time, the Old Stock Option
Plan was designed to motivate employees to share interest with the Old
Microcells shareholders over the long-term and provides salary-linked stock
option grants. It is of limited duration and was subject to Human Resources
Committee review to ensure maintenance of its market competitiveness. With the
approval of the Plan on May 1, 2003, the Old Stock Option Plan, and all
outstanding options issued pursuant thereto, were cancelled.

The Old Stock Option Plan provided for the issuance of options to
employees of Old Microcell to purchase Class B Non-Voting shares of Old
Microcell. Each participant in the Old Stock Option Plan was entitled to
receive one grant of options per year, except for certain classes of
participants who may only receive one grant of options per 3-year period. The
number of options was based on the grant amount value for a class of employees
multiplied by a factor of between 0 and 1.5 depending on the individual
contribution of the employee and divided by the reference price fixed by the
Old Board on or around July 1 of each year. The first year began on July 1,
2001 and the reference price was set at $35.00. During 2001, the class of
employees eligible to be participants in the Old Stock Option Plan was extended
to almost all employees as a result of the overall review of the compensation
policy.

Pursuant to the Old Stock Option Plan, options for no more than 19,000,000
Class B Non-Voting shares may be granted. The exercise price of the options was
determined by the Old Board at the time of granting the options, subject to
compliance with the rules of all stock exchanges on which the Class B
Non-Voting shares are listed and with all relevant securities legislation.

Options granted pursuant to the Old Stock Option Plan were exercisable as
to 25% of the options on the first, second, third and fourth anniversaries of
the date of the grant. Options were exercisable for a period of seven years
from the date on which they are initially granted.

Any option granted pursuant to the Old Stock Option Plan was lapsed 30
days after the date on which the holder thereof ceases to be an officer,
director or employee of Old Microcell or of one of its subsidiaries. In the
event of death, any option held by the optionee lapsed 180 days after the date
of such death.

55



---



##### Table of Contents



New Stock Option Plan

With the approval of the Plan on May 1, 2003, a new stock option plan of
Microcell (the New Stock Option Plan) has been implemented. No further
approval or ratification by shareholders will be sought or required in
connection therewith.

The purpose of the New Stock Option Plan is to provide an opportunity,
through options, for the officers and employees of the Company and its
subsidiaries to purchase Class A Restricted Voting Shares (in the case of a
Canadian) or Class B Non-Voting Shares (in the case of a non-Canadian) upon
exercise of options granted pursuant to the New Stock Option Plan and thereby
participate in the future growth and development of the Company.

The New Board, if the New Board so resolves, a committee thereof, will
administer the New Stock Option Plan including the allocation thereof.

Under the New Stock Option Plan, the Company has reserved for issuance
Class A Restricted Voting Shares and Class B Non-Voting Shares, representing,
together with such shares reserved for issuance in connection with the New
Stock Purchase Plan, in the aggregate 10% of the aggregate number of Class A
Restricted Voting Shares and Class B Non-Voting Shares outstanding immediately
after implementation of the Plan (assuming conversion of all First Preferred
Shares and Second Preferred Shares). Options granted under the New Stock Option
Plan will have the terms and conditions, including exercise prices, vesting and
expiration, as will be established by the New Board, from time to time,
provided that the pricing of options will be in accordance with the
requirements of the TSX and will not be less than the market prices for the
Class A Restricted Voting Shares and Class B Non-Voting Shares at the time of
the grant of options.

Compensation Plan Control and Review

The Human Resources Committee is responsible for ensuring that executive
compensation conforms to the Companys total compensation policy.

Indebtedness of Directors and Officers

As at May 1, 2003, the Company or its subsidiaries had not made any loan
to officers, directors, employees and former officers, directors and employees
of the Company and its subsidiaries.

Directors and Officers Liability Insurance

Pursuant to its By-laws, the Company may indemnify a director or officer
in any legal proceeding if such person acted honestly and in good faith, and
had reasonable grounds to believe that such persons conduct was lawful.

The Company maintains insurance protection against liability incurred by
its officers and directors as well as those of its subsidiaries in the
performance of their duties. The entire premium, of U.S.$390,538 in 2002, was
paid by the Company. The aggregate limit of liability in respect of any and all
claims is U.S.$31 million per year. The policy provides for the indemnification
of directors and officers in the case of claims for which the Company has not
indemnified or is not permitted by law to indemnify them, and for the
reimbursement of the Company, subject to a deductible of U.S.$500,000, in the
case of claims for which it has indemnified or was permitted to indemnify the
directors or officers involved.

BOARD PRACTICES

Role and Responsibilities of the Board

The board is responsible for orientation and follow-up of the achievement
of business objectives and of the activities of the Company. The board is
responsible for approving and ensuring that the mission, the vision and the
strategy adopted by the Company is respected in the pursuit of its business
objectives. The board holds regular meetings on a quarterly basis as well as
additional meetings to consider particular issues or conduct specific reviews
whenever deemed appropriate. The board approves the Companys ethical values
and ensures that the major business risks of the Company are identified and
measured and that a proper management process is implemented.

Before the start of every fiscal year, the board receives and approves an
annual budget submitted by the President and Chief Executive Officer.

The board monitors and evaluates the performance of the President and
Chief Executive Officer and of senior management. Finally, the board reviews
those matters requiring the boards approval pursuant to the law or the
Companys articles and by-laws. All important decisions of the Company and of
its wholly owned subsidiaries are subject to approval by the board.

56



---



##### Table of Contents



Composition of the Board

Old Board

According to the articles of Old Microcell, the Old Board consisted of a
minimum of nine and a maximum of 15 directors. At every annual meeting held
before the effective date of the Plan on May 1, 2003, management proposed to
nominate individuals for election as directors of Old Microcell to hold office
until the next annual meeting or until the office was otherwise vacated in
accordance with the by-laws.

Before the effective date of the Plan on May 1, 2003, the Old Board was
comprised of 13 directors. 11 of the 13 actual Directors were unrelated
directors defined in the TSX Guidelines (as defined below) as directors who
are independent of management and free from any interest and any business or
other relationship which would, or could reasonably, be perceived to materially
interfere with the directors ability to act in view of Old Microcells best
interest. Old Microcell had one significant shareholder, Telesystem Ltd. The
composition of the Old Board had been structured in a manner that allowed the
significant shareholder to designate only six nominees and, as a result, seven
of the 13 actual directors did not have interests in or relationships with Old
Microcell or the significant shareholder.

New Board

The New Board has been designated by the Court as part of the Sanction
Order and the directors of the New Board were appointed on May 1, 2003, the
effective date of the Plan. The New Board has been fixed at 11 directors
initially, one of which is the chief executive officer of the Company from time
to time. A majority of members of the New Board must be Canadians.

The initial members of the New Board were nominated as follows:



| | (a) |  | seven appointees were selected by the secured creditors as
holders of the First Preferred Voting Shares;                    
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | two appointees were selected by the AHB Committee; and                                                                      
|
| | (c) |  | one appointee was selected by the Old Board. On January 27,
2003 the Old Board selected Mr. Charles Sirois as its appointee.

The initial Chairman of the New Board, Mr. André Bureau, has been selected
by the members of the New Board appointed by the secured creditors as holders
of First Preferred Voting Shares.

As redemptions or conversions of First Preferred Shares (or First Units)
will occur over time, the number of directors nominated and elected to the New
Board by holders of First Preferred Voting Shares (or First Units comprised of
First Preferred Voting 2 Shares) will be reduced according to the number of
First Preferred Shares (or First Units) outstanding relative to the aggregate
number originally issued, as follows:

|                                                   |  |                  |   | 
|-------------------------------------------------- |  | ---------------- | - | 
|% FIRST PREFERRED SHARES (OR FIRST UNIT) REMAINING |  |                  |   | 
|OUTSTANDING                                        |  | NO. OF DIRECTORS
|                                                   |  |                 
|70% or more                                        |  |                  | 7 | 
|50% to 69.99%                                      |  |                  | 6 | 
|30% to 49.99%                                      |  |                  | 3 | 
|10% to 29.99%                                      |  |                  | 2 | 
|Less than 10%                                      |  |                  | 0 | 

If holders of the First Preferred Shares (or First Units) lose the
entitlement to nominate and elect one or more director(s) of the New Board in
accordance with the foregoing, holders of the Class A Restricted Voting Shares
shall correspondingly acquire the entitlement to elect additional director(s)
such that the number of directors shall always equal eleven (until changed in
accordance with the CBCA).

57



---



##### Table of Contents



Pursuant to the Companys Articles, the New Board has been divided into
two groups: a first group (Group A) to consist of six directors appointed to
hold office for a stated term expiring at the close of the third annual meeting
of shareholders following May 1, 2003 and a second group (Group B) to consist
of five directors appointed to hold office for a stated term expiring at the
close of the second annual meeting of shareholders following May 1, 2003. At
the end of their respective initial terms of office, elections of directors
shall be for terms of two years each. The table below identifies, in respect
of each individual listed therein, whether such individual is part of Group A
or Group B.

|                  |  |      
|----------------- |  | -----
|Name              |  | Group
|                  |  |      
|André Bureau      |  | A    
|Jim Continenza    |  | B    
|Christian Dubé    |  | B    
|Gary Goertz       |  | B    
|Bob Latham        |  | B    
|Berl Nadler       |  | B    
|Paul McFarlane    |  | B    
|Steven D. Scheiwe |  | A    
|Charles Sirois    |  | A    
|André Tremblay    |  | A    
|Lorie Waisberg    |  | A    

Human Resources Committee

As at December 31, 2002, the Human Resources Committee of the Old Board
was composed of the following individuals: Mr. Martin Fafard, Mr. André Bureau
and Mr. Bernard Lamarre. None were officers, employees or former officers of
the Company or of its subsidiaries. On June 12, 2003, the Human Resources
Committee of the New Board was formed and is now composed of Mr. Charles
Sirois, Mr. Lorie Waisberg, Mr. Gary Goertz, Mr. Jim Continenza and Mr. André
Bureau.

The Human Resources Committee is a committee of the board of directors of
the Company. It is mandated to review and make recommendations to the board in
connection with the appointment and remuneration of senior officers of the
Company and of its subsidiaries, including the Chief Executive Officer. In
addition, the Human Resources Committee determines the options to be granted
under the Stock Option Plan in accordance with the rules adopted by the board.
The Companys relative position in terms of compensation levels is determined
annually through studies performed by independent consulting firms using a
selected reference market of comparable companies. Internal pay equity studies
are a key factor to complete the process and provide necessary adjustments
where required.

Audit Committee

As at December 31, 2002, the Audit Committee was composed of four
individuals namely Mr. Daniel Cyr, Mr. Pierre Laurin, Mr. Noël Bambrough and
Mr. Graham W. Savage. The Audit Committee oversees the Companys financial
reporting process on behalf of the board of directors. Management has the
primary responsibility for the financial statements and the reporting process,
including the systems of internal controls. In fulfilling its oversight
responsibilities, the Audit Committee reviewed the audited financial statements
of the Company with Management and with the Auditors. On June 12, 2003, the
Audit Committee of the New Board was formed and is now composed of Mr. Paul
McFarlane, Mr. Christian Dubé, Mr. Charles Sirois, Mr. Steven D. Scheiwe and
Mr. André Bureau.

The Audit Committee reviewed with the Auditors their judgements as to the
quality of the Companys accounting principles and such other matters as are
required to be discussed under generally accepted auditing standards. In
addition, the Audit Committee has discussed with the Independent Auditors their
independence from Management and the Company, including the matters in the
written disclosures required by the independence standards board. The Audit
Committee discussed with the Companys internal and independent Auditors the
overall scope and plans for their respective audits. The Audit Committee meets
with the internal and

58



---



##### Table of Contents



independent Auditors, with and without Management presence, to discuss the
result of their examinations, their evaluations of the Audit Companys internal
controls, and the overall quality of the Companys financial reporting. In
reliance of the reviews and discussions referred to above, the Audit Committee
recommended to the Old Board that the Audited Financial Statements be included
in the Canadian Annual Report of the Company filed on Form 6-K on May 12, 2003.

Corporate Governance Committee

The Old Board considered good corporate governance to be important to the
effective operations of the Company. The Old Board formed, at its meeting of
February 20, 1998, a Corporate Governance Committee. On November 13, 1998, this
committee recommended the adoption of a Corporate Governance Policy which
conforms with the Guidelines adopted by the TSX (the TSX Guidelines). This
policy was adopted by the Old Board on December 18, 1998. The Corporate
Governance Committee ensured that the Corporate Governance Policy complies with
the TSX Guidelines. It approved any material transactions with a related party
having a significant impact on the business and affairs of the Company. The
Corporate Governance Committee was composed of three unrelated directors: Mr.
Daniel Cyr, Mr. Michael Cytrynbaum and Mr. James J. Healy who resigned as a
director of Old Microcell in December 2002.

The New Board will, as part of its responsibilities, establish new
corporate governance guidelines for Microcell to ensure sound corporate
governance practices for Microcell. On June 12, 2003, the Corporate Governance
Committee of the New Board was formed and is now composed of Mr. André Bureau,
Mr. Berl Nadler, Mr. Lorie Waisberg, Mr. Robert F. Latham and Mr. Christian
Dubé.

EMPLOYEES

In the previous two years, the Company has reduced its work force by 520
employees. This measure was the result of increased productivity from the
consolidation of certain administrative and operating support activities, and
of the suspension of certain projects due to the Companys financial difficulty
and difficult financial market conditions. After giving effect to the lay-offs
which occurred in December 2002, Microcell had approximately 2,000 employees
(expressed as full-time equivalents). Microcell is not party to any collective
labor agreements and none of its employees is represented by a union. Microcell
believes that it enjoys good relations with its employees. As of December 31,
2001 and 2000, the Company had respectively 2,321 and 2,603 employees.

SHARE OWNERSHIP

Besides Mr. Charles Sirois, beneficial ownership of 5,665 Class B
Non-Voting Shares, 669,128 Warrants 2005 and 1,115,214 Warrants 2008 of the
Company (the Warrants representing 16.8% of each respective Warrant series), to
the Companys knowledge, no director or officer beneficially owns more than 1%
of each of the Companys class of securities.




ITEM 7  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

Prior to May 1, 2003 (the effective date of the Plan), Telesystem Ltd. was
the major shareholder of Old Microcell with 72.1% of the votes and 25% of the
equity of Old Microcell. T-Mobile USA, Inc. and Capital Communications CDPQ
Inc. (CDPQ), with respectively 14.6% and 16.6% of the equity of Old
Microcell, were the other principal shareholders of Old Microcell.

The following table and notes thereto set forth certain information
regarding ownership of Microcells securities outstanding as of May 31, 2003,
namely the First Preferred Voting Shares and First Preferred Non-Voting Shares,
Second Preferred Voting Shares and Second Preferred Non-Voting Shares, Class A
Restricted Voting Shares and Class B Non-Voting Shares, and Warrants, for the
following persons:



|(1) |  | each person who is known by Microcell to be the beneficial owner of 5% or
more of any of our classes of shares or Warrants; and
|--- |  | -------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | all other stakeholders as a group.                                                                                             

59



---



##### Table of Contents





|                                    |  |                                     |       |            |  |                  |       |            |  |  |       |                  |  |  |       | 
|----------------------------------- |  | ----------------------------------- | ----- | ---------- |  | ---------------- | ----- | ---------- |  |  | ----- | ---------------- |  |  | ----- | 
|                                    |  | Expressed as a % of all Outstanding
|                                    |  |                                    
|                                    |  |                                     |       |            |  | First Preferred  |       |            |  |  |       | Second Preferred
|                                    |  | First Preferred                     |       | Non-Voting |  | Second Preferred |       | Non-Voting
|Name of Beneficial Owner            |  | Voting Shares(1)                    |       | Shares(2)  |  | Voting Shares(3) |       | Shares(4) 
|                                    |  |                                     |       |            |  |                  |       |           
|Bank of Montreal                    |  |                                     | 36.9  |            |  |                  |      |            |  |  | 60.9  |                  |  |  |      | 
|Capital Communications CDPQ Inc.(9) |  |                                     | 13.9  |            |  |                  |      |            |  |  | 22.9  |                  |  |  |      | 
|Canadian Imperial Bank of Commerce  |  |                                     | 9.6   |            |  |                  |      |            |  |  | 16.2  |                  |  |  |      | 
|York Capital Management, L.P(12)    |  |                                     |      |            |  |                  | 14.4  |            |  |  |      |                  |  |  | 7.1   | 
|JP Morgan Chase Bank(10)(12)        |  |                                     |      |            |  |                  | 6.0   |            |  |  |      |                  |  |  |      | 
|Aspen Partners LP(12)               |  |                                     |      |            |  |                  | 12.8  |            |  |  |      |                  |  |  | 6.3   | 
|Harbert Management Corporation(12)  |  |                                     |      |            |  |                  |      |            |  |  |      |                  |  |  | 10.3  | 
|Kingdon Capital Management(12)      |  |                                     |      |            |  |                  |      |            |  |  |      |                  |  |  |      | 
|Telesystem Ltd.(11)                 |  |                                     |      |            |  |                  |      |            |  |  |      |                  |  |  |      | 
|T-Mobile USA Inc(12)                |  |                                     |      |            |  |                  |      |            |  |  |      |                  |  |  |      | 
|Other Holders                       |  |                                     | 39.6  |            |  |                  | 66.8  |            |  |  |      |                  |  |  | 76.3  | 
|Total                               |  |                                     | 100.0 |            |  |                  | 100.0 |            |  |  | 100.0 |                  |  |  | 100.0 | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                    |  |                                     |       |                    |  |                  |       |                  |  |  |       |  |  |  |       | 
|----------------------------------- |  | ----------------------------------- | ----- | ------------------ |  | ---------------- | ----- | ---------------- |  |  | ----- |  |  |  | ----- | 
|                                    |  | Expressed as a % of all Outstanding
|                                    |  |                                    
|                                    |  | Class A Restricted                  |       | Class B Non-Voting |  |                  |       |                  |  |  |       | 
|Name of Beneficial Owner            |  | Voting Shares(5)                    |       | Shares(6)          |  | Warrants 2005(7) |       | Warrants 2008(8)
|                                    |  |                                     |       |                    |  |                  |       |                 
|Bank of Montreal                    |  |                                     |      |                    |  |                  |      |                  |  |  |      |  |  |  |      | 
|Capital Communications CDPQ Inc.(9) |  |                                     |      |                    |  |                  |      |                  |  |  | 12.6  |  |  |  | 12.6  | 
|Canadian Imperial Bank of Commerce  |  |                                     |      |                    |  |                  |      |                  |  |  |      |  |  |  |      | 
|York Capital Management, L.P(12)    |  |                                     |      |                    |  |                  |      |                  |  |  |      |  |  |  |      | 
|JP Morgan Chase Bank(10)(12)        |  |                                     |      |                    |  |                  |      |                  |  |  |      |  |  |  |      | 
|Aspen Partners LP(12)               |  |                                     | 7.3   |                    |  |                  | 7.1   |                  |  |  |      |  |  |  |      | 
|Harbert Management Corporation(12)  |  |                                     | 20.3  |                    |  |                  | 19.8  |                  |  |  | 6.7   |  |  |  | 6.7   | 
|Kingdon Capital Management(12)      |  |                                     | 6.9   |                    |  |                  | 6.7   |                  |  |  |      |  |  |  |      | 
|Telesystem Ltd.(11)                 |  |                                     |      |                    |  |                  |      |                  |  |  | 16.7  |  |  |  | 16.7  | 
|T-Mobile USA Inc(12)                |  |                                     |      |                    |  |                  |      |                  |  |  | 9.8   |  |  |  | 9.8   | 
|Other Holders                       |  |                                     | 65.5  |                    |  |                  | 66.4  |                  |  |  | 54.2  |  |  |  | 54.2  | 
|Total                               |  |                                     | 100.0 |                    |  |                  | 100.0 |                  |  |  | 100.0 |  |  |  | 100.0 | 



---

|(1)  |  | Based on a total of 497,461 First Preferred Voting Shares outstanding.
The holdings for each named beneficial holder are 183,623 for Bank of
Montreal, 47,800 for Canadian Imperial Bank of Commerce and 68,962 for
CDPQ.                         
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Based on a total of 11,221,839 First Preferred Non-Voting Shares
outstanding. The holdings for each named beneficial holder are 1,611,732
for York Capital Management, L.P., 673,291 for JP Morgan Chase Bank and
1,432,425 for Aspen Partners LP.
|    
|(3)  |  | Based on a total of 92,282 Second Preferred Voting Shares outstanding.
The holdings for each named beneficial holder are 56,182 for Bank of
Montreal, 15,000 for Canadian Imperial Bank of Commerce and 21,100 for
CDPQ.                          
|    
|(4)  |  | Based on a total of 7,093,972 Second Preferred Non-Voting Shares
outstanding. The holdings for each named beneficial holder are 500,260 for
York Capital Management, 444,646 for Aspen Partners LP and 729,857 for
Harbert Management Corporation.
|    
|(5)  |  | Based on a total of 30,000 Class A Restricted Voting Shares outstanding.
The holdings for each named beneficial holder are 2,183 for Aspen Partners
LP, 6,085 for Harbert Management Corporation and 2,070 for Kingdon Capital
Management.        
|    
|(6)  |  | Based on a total of 3,662,630 Class B Non-Voting Shares outstanding. The
holdings for each named beneficial holder are 260,345 for Aspen Partners
LP, 725,502 for Harbert Management Corporation and 246,757 for Kingdon
Capital Management.      
|    
|(7)  |  | Based on a total of 3,998,302 Warrants 2005. The holdings for each named
beneficial holder are 503,924 for CDPQ, 269,484 for Harbert Management
Corporation, 669,128 for Telesystem Ltd. and 389,838 for T-Mobile USA Inc.                        
|    
|(8)  |  | Based on a total of 6,663,943 Warrants 2008. The holdings for each named
beneficial holder are 839,877 for CDPQ, 449,144 for Harbert Management
Corporation, 1,115,214 for Telesystem Ltd. and 649,729 for T-Mobile USA
Inc.                      
|    
|(9)  |  | Caisse de dépôt et placement du Québec. Includes securities held by CDPQ
and other subsidiaries of the Caisse de dépôt et placement de Québec.                                                                                                    
|    
|(10) |  | Represents securities held by JP Morgan Chase Bank and its affiliates.                                                                                                                                                                            
|    
|(11) |  | Includes securities held by subsidiaries of Telesystem Ltd., ultimately
controlled by Charles Sirois.                                                                                                                                             
|    
|(12) |  | To the Companys knowledge, these persons or entities are residents of
the U.S.                                                                                                                                                                   

To our knowledge, other than as disclosed in this annual report, the
aforementioned beneficial holders did not, as of May 31, 2003, own or exercise
control over any of our other securities.

60



---



##### Table of Contents



RELATED PARTY TRANSACTIONS

From the beginning of its last full fiscal year up to the latest
practicable date, the Company has entered into transactions with shareholders
and companies under common control, which were not material to the Company or
the related party. These transactions were undertaken in the normal course of
operations and were measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties. These
transactions consisted primarily of the purchase or sale by the Company of
management services and telecommunication services or equipment.

During all of 2001, Telesystem Ltd. (which owned approximately 72.1% of
the voting common shares of Old Microcell owned 50% of Spectra
Telecommunications Inc. who provides engineering consulting for the Company.
During 2001, these services amounted to $1,684,448. In February 2002,
Telesystem Ltd. sold its 50% interest to SNC  Lavalin Inc., the other
shareholder of Spectra Telecommunications Inc.




ITEM 8  FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

The Companys consolidated financial statements for the fiscal years ended
December 31, 2002, 2001 and 2000 and the auditors report signed by Ernst &
Young LLP are presented at Item 18 of this report.

DIVIDEND POLICY

The Company has not paid any dividends since its creation and the Company
does not anticipate declaring or paying dividends in the foreseeable future, as
it intends to retain future earnings, if any, for reinvestment in its business
and repayment of indebtedness. Any future determination to declare or pay
dividends will be at the discretion of the board of directors of the Company,
will be subject to compliance with the Companys debt financing arrangements,
and will depend upon the Companys financial condition, results of operations,
capital requirements and such other factors as the board of directors of the
Company considers relevant. Certain covenants under the terms of the Companys
financing agreements and of its public debt prohibit or limit the ability of
the Company to declare or pay dividends.

SIGNIFICANT CHANGES

The Company completed a capital restructuring on May 1, 2003, which is
fully described in note 1 to the consolidated financial statements for the year
ended December 31, 2002 presented in Item 18.




ITEM 9  THE OFFER AND LISTING

MARKETS

Old Microcells Class B Non-Voting Shares

Microcell has been a public company since October 1997. Our old class B
non-voting shares were listed for trading on the TSX under the symbol MTI.B
from October 7, 1997 to April 30, 2003, as well as on The Nasdaq Stock Market
Inc. (Nasdaq) under the symbol MICTF from October 7, 1997 to July 10, 2002
and on the OTC Bulletin Board from July 11, 2002 to April 30, 2003. On May 1,
2003, we completed our recapitalization process, which resulted in a new
capital structure being established and, as a result, new securities being
issued. Consequently, our old class B non-voting shares represented by the
CUSIP number 59501T304 were delisted on April 30, 2003. The following table
sets forth, for the years, calendar quarters and months indicated, the range of
high and low closing sale prices for the class B non-voting shares as reported
on the TSX and the Nasdaq and OTC Bulletin Board.

61



---



##### Table of Contents



|     |  |             |       |                              |  |        |       |      |  |     |         |        |  |  |        |  |  |  |        |  |  |  |        | 
|---- |  | ----------- | ----- | ---------------------------- |  | ------ | ----- | ---- |  | --- | ------- | ------ |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|     |  | TSX         |       | Nasdaq or OTC Bulletin Board
|     |  | Price Range |       | Price Range                 
|     |  |             |       |                             
|     |  | (Cdn.$)     |       | (Cdn.$)                      |  | (000s) |       | ($)  |  | ($) |         | (000s)
|     |  | High        |       | Low                          |  | Volume |       | High |  | Low |         | Volume
|     |  |             |       |                              |  |        |       |      |  |     |         |       
|1998 |  |             | 14.00 |                              |  |        | 7.30  |      |  |     | 20,780  |        |  |  | 9.625  |  |  |  | 4.6875 |  |  |  | 16,430 | 
|1999 |  |             | 47.50 |                              |  |        | 9.40  |      |  |     | 24,080  |        |  |  | 32.875 |  |  |  | 6.1875 |  |  |  | 52,960 | 
|2000 |  |             | 77.50 |                              |  |        | 25.45 |      |  |     | 11,150  |        |  |  | 54.25  |  |  |  | 15.75  |  |  |  | 56,020 | 
|2001 |  |             | 38.66 |                              |  |        | 1.34  |      |  |     | 100,430 |        |  |  | 25.625 |  |  |  | 0.82   |  |  |  | 48,300 | 
|2002 |  |             | 3.89  |                              |  |        | 0.055 |      |  |     | 278,660 |        |  |  | 2.46   |  |  |  | 0.032  |  |  |  | 25,210 | 

|               |  |             |       |                              |  |        |       |      |  |     |         |        |  |  |        |  |  |  |        |  |  |  |        | 
|-------------- |  | ----------- | ----- | ---------------------------- |  | ------ | ----- | ---- |  | --- | ------- | ------ |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|               |  | TSX         |       | Nasdaq or OTC Bulletin Board
|               |  | Price Range |       | Price Range                 
|               |  |             |       |                             
|               |  | (Cdn.$)     |       | (Cdn.$)                      |  | (000s) |       | ($)  |  | ($) |         | (000s)
|               |  | High        |       | Low                          |  | Volume |       | High |  | Low |         | Volume
|               |  |             |       |                              |  |        |       |      |  |     |         |       
|2001           |  |             |       |                              |  |        |       |      |  |     |         |        |  |  |        |  |  |  |        |  |  |  |        | 
|First quarter  |  |             | 38.66 |                              |  |        | 17.60 |      |  |     | 6,490   |        |  |  | 25.625 |  |  |  | 11.125 |  |  |  | 9,120  | 
|Second quarter |  |             | 17.71 |                              |  |        | 10.50 |      |  |     | 12,090  |        |  |  | 11.49  |  |  |  | 6.77   |  |  |  | 16,550 | 
|Third quarter  |  |             | 14.41 |                              |  |        | 3.24  |      |  |     | 8,860   |        |  |  | 9.40   |  |  |  | 1.96   |  |  |  | 7,090  | 
|Fourth quarter |  |             | 4.30  |                              |  |        | 1.34  |      |  |     | 72,990  |        |  |  | 2.64   |  |  |  | 0.82   |  |  |  | 15,540 | 
|2002           |  |             |       |                              |  |        |       |      |  |     |         |        |  |  |        |  |  |  |        |  |  |  |        | 
|First quarter  |  |             | 3.89  |                              |  |        | 1.78  |      |  |     | 37,520  |        |  |  | 2.46   |  |  |  | 1.15   |  |  |  | 6,270  | 
|Second quarter |  |             | 2.00  |                              |  |        | 0.13  |      |  |     | 88,700  |        |  |  | 1.21   |  |  |  | 0.09   |  |  |  | 11,940 | 
|Third quarter  |  |             | 0.25  |                              |  |        | 0.055 |      |  |     | 62,950  |        |  |  | 0.15   |  |  |  | 0.038  |  |  |  | 3,430  | 
|Fourth quarter |  |             | 0.20  |                              |  |        | 0.06  |      |  |     | 89,490  |        |  |  | 0.12   |  |  |  | 0.032  |  |  |  | 3,570  | 
|2003           |  |             |       |                              |  |        |       |      |  |     |         |        |  |  |        |  |  |  |        |  |  |  |        | 
|First quarter  |  |             | 0.185 |                              |  |        | 0.085 |      |  |     | 124,180 |        |  |  | 0.115  |  |  |  | 0.054  |  |  |  | 5,451  | 

|              |  |             |       |                              |  |        |       |      |  |     |        |        |  |  |       |  |  |  |       |  |  |  |       | 
|------------- |  | ----------- | ----- | ---------------------------- |  | ------ | ----- | ---- |  | --- | ------ | ------ |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|              |  | TSX         |       | Nasdaq or OTC Bulletin Board
|              |  | Price Range |       | Price Range                 
|              |  |             |       |                             
|              |  | (Cdn.$)     |       | (Cdn.$)                      |  | (000s) |       | ($)  |  | ($) |        | (000s)
|              |  | High        |       | Low                          |  | Volume |       | High |  | Low |        | Volume
|              |  |             |       |                              |  |        |       |      |  |     |        |       
|November 2002 |  |             | 0.17  |                              |  |        | 0.10  |      |  |     | 34,770 |        |  |  | 0.12  |  |  |  | 0.06  |  |  |  | 1,300 | 
|December 2002 |  |             | 0.125 |                              |  |        | 0.08  |      |  |     | 26,240 |        |  |  | 0.075 |  |  |  | 0.053 |  |  |  | 1,320 | 
|January 2003  |  |             | 0.185 |                              |  |        | 0.125 |      |  |     | 66,170 |        |  |  | 0.11  |  |  |  | 0.075 |  |  |  | 1,930 | 
|February 2003 |  |             | 0.185 |                              |  |        | 0.12  |      |  |     | 22,050 |        |  |  | 0.115 |  |  |  | 0.08  |  |  |  | 911   | 
|March 2003    |  |             | 0.15  |                              |  |        | 0.085 |      |  |     | 35,960 |        |  |  | 0.10  |  |  |  | 0.054 |  |  |  | 2,610 | 
|April 2003    |  |             | 0.14  |                              |  |        | 0.085 |      |  |     | 26,930 |        |  |  | 0.09  |  |  |  | 0.056 |  |  |  | 2,600 | 

Microcell New Shares & Warrants

The new shares and Warrants issued by us upon the effective implementation
of our recapitalization plan on May 1, 2003 consisted of: First Preferred
Voting Shares (represented by the CUSIP number 59501T502), First Preferred
Non-Voting Shares (represented by the CUSIP number 59501T601), Second Preferred
Voting Shares (represented by the CUSIP number 59501T700), Second Preferred
Non-Voting Shares (represented by the CUSIP number 59501T809), Class A
Restricted Voting Shares (represented by the CUSIP number 59501T882), and Class
B Non-Voting Shares (represented by the CUSIP number 59501T874), as well as the
Warrants 2005 (represented by CUSIP number 59501T163) and the Warrants 2008
(represented by CUSIP number 59501T171). The issue price of all the new shares
was $15 per share.

Shareholders, at the close of business on April 30, 2003, received, on May
1, 2003, one new Microcell class B non-voting share in exchange for every
10,630 Old Microcells shares, as well as one Warrant 2005 in exchange for
every 90 Old Microcells shares and one Warrant 2008 in exchange for every 54
Old Microcell shares. Fractional securities were not issued, nor any
compensation paid for any such fraction. Where the exchange resulted in less
than one new security being otherwise issuable, no new security was issued.

Each whole Warrant 2005 entitles its holder to purchase either one Class A
Restricted Voting Share or one Class B Non-Voting Share at a price of $19.91
until May 1, 2005. Similarly, each whole Warrant 2008 entitles its holder to
purchase either one Class A Restricted Voting Share or one Class B Non-Voting
Share at a price of $20.69 until May 1, 2008.

Non-voting shares are exchangeable, at the option of the holder, at any
time, into voting shares of the same class upon provision by the holder of a
residency declaration in prescribed form to the Companys transfer agent
(Computershare Trust Company of Canada) certifying that the holder is Canadian.

62



---



##### Table of Contents



The new Microcell shares and Warrants were listed for trading on the TSX
on May 1, 2003. There is no comparable listing on any recognized U.S.-based
exchange. The following table indicates the trading symbol for each of the new
equity-based securities, as well as the total number of shares or Warrants
issued and outstanding as of May 31, 2003:

|                                   |  |                |  |                        |            |  |  | 
|---------------------------------- |  | -------------- |  | ---------------------- | ---------- |  |  | 
|                                   |  | TSX            |  | Issued and Outstanding
|Security                           |  | Trading Symbol |  | May 31, 2003          
|                                   |  |                |  |                       
|First Preferred Voting Shares      |  | MT.PR.A        |  |                        | 497,461    | 
|First Preferred Non-Voting Shares  |  | MT.PR.B        |  |                        | 11,221,839 | 
|Second Preferred Voting Shares     |  | MT.PR.C        |  |                        | 92,282     | 
|Second Preferred Non-Voting Shares |  | MT.PR.D        |  |                        | 7,093,972  | 
|Class A Restricted Voting Shares   |  | MT.A           |  |                        | 30,000     | 
|Class B Non-Voting Shares          |  | MT.B           |  |                        | 3,662,630  | 
|Warrants 2005                      |  | MT.WT.A        |  |                        | 3,998,302  | 
|Warrants 2008                      |  | MT.WT.B        |  |                        | 6,663,943  | 

The following table sets forth for the month indicated the range of high
and low closing sale prices for each new class of Microcell shares and Warrants
as reported on the TSX.

|                                   |  |                          |       |         |  |        |       |  |  |  |       | 
|---------------------------------- |  | ------------------------ | ----- | ------- |  | ------ | ----- |  |  |  | ----- | 
|                                   |  | TSX                     
|                                   |  | Price Range for May 2003
|                                   |  |                         
|                                   |  | (Cdn.$)                  |       | (Cdn.$) |  | (000s)
|                                   |  | High                     |       | Low     |  | Volume
|                                   |  |                          |       |         |  |       
|First Preferred Voting Shares      |  |                          | 11.90 |         |  |        | 10.02 |  |  |  | 144   | 
|First Preferred Non-Voting Shares  |  |                          | 14.01 |         |  |        | 10.06 |  |  |  | 670   | 
|Second Preferred Voting Shares     |  |                          | 10.00 |         |  |        | 10.00 |  |  |  | 29    | 
|Second Preferred Non-Voting Shares |  |                          | 14.01 |         |  |        | 9.51  |  |  |  | 356   | 
|Class A Restricted Voting Shares   |  |                          | 14.25 |         |  |        | 9.25  |  |  |  | 1     | 
|Class B Non-Voting Shares          |  |                          | 15.00 |         |  |        | 9.70  |  |  |  | 576   | 
|Warrants 2005                      |  |                          | 2.00  |         |  |        | 0.52  |  |  |  | 561   | 
|Warrants 2008                      |  |                          | 3.00  |         |  |        | 1.46  |  |  |  | 1,860 | 

Old Microcells Senior Discount Notes

In June 1996, we issued the 2006 Notes with a nominal value of U.S.$418
million. In October 1997, we issued 11.125% senior discount notes (the 2007
Notes) with a nominal value of $429 million. In May 1999, we issued 12% senior
discount notes (the 2009 Notes) with a nominal value of U.S.$270 million (the
2006 Notes, the 2007 Notes and the 2009 Notes are referred to collectively as
the Notes). All the notes were unsecured and were due June 1, 2006, October
15, 2007, and June 1, 2009, respectively, with cash interest payable in arrears
semi-annually commencing June 1, 2002, April 15, 2003, and December 1, 2004.
Pursuant to the Plan, the Notes were tendered by a nominee for The Depository
Trust Company and CDS & Co. (the record holders), and cancelled by us in
exchange for equity in Microcell. On May 1, 2003, holders of the Notes received
their pro rata distribution (based on the principal or accreted amount of the
outstanding unsecured notes plus any accrued interest as of April 30, 2003) of
Second Preferred Shares, in an aggregate amount of $54.0 million, and common
equity, in an aggregate amount of $54.1 million, as well as their pro rata
distribution of 1,329,312 Warrants 2005 and 2,215,521 Warrants 2008, subject to
certain conditions. The following table sets forth the conversion rates per
$1,000 principal amount at maturity of the Notes into the equity-based
securities of Microcell:

|           |  |                                                         |        |                    |  |                    |        |               |  |               |        |  |  |  |        |  |  |  |        | 
|---------- |  | ------------------------------------------------------- | ------ | ------------------ |  | ------------------ | ------ | ------------- |  | ------------- | ------ |  |  |  | ------ |  |  |  | ------ | 
|           |  | Conversion rate per $1,000 principal amount at maturity
|           |  |                                                        
|           |  | Second Preferred                                        |        | Class A Restricted |  | Class B Non-Voting |        |               |  |               |        |  |  | 
|           |  | Non-Voting Shares                                       |        | Voting Shares      |  | Shares             |        | Warrants 2005 |  | Warrants 2008
|           |  |                                                         |        |                    |  |                    |        |               |  |              
|2006 Notes |  |                                                         | 3.9710 |                    |  |                    | 0.0331 |               |  |               | 3.9473 |  |  |  | 1.4662 |  |  |  | 2.4437 | 
|2007 Notes |  |                                                         | 2.5677 |                    |  |                    | 0.0214 |               |  |               | 2.5524 |  |  |  | 0.9481 |  |  |  | 1.5802 | 
|2009 Notes |  |                                                         | 3.1026 |                    |  |                    | 0.0259 |               |  |               | 3.0841 |  |  |  | 1.1456 |  |  |  | 1.9093 | 

63



---



##### Table of Contents






ITEM 10  ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

By-laws

The General By-laws of the Company do not contain any provisions with
respect to directors power to vote on a proposed arrangement or contract in
which directors are materially interested. The CBCA, the corporate statute
governing the Company, imposes certain disclosure obligations upon a director
where such director:



| | (1) |  | is party to a contract or transaction with the Company;                                 
| | --- |  | ----------------------------------------------------------------------------------------
|
| | (2) |  | is a director or an officer of a party to a contract or
transaction with the Company; or
|
| | (3) |  | has a material interest in a party to a contract or transaction with the Company.       

In any such event the director is restricted in voting on any resolution
to approve such contract or transaction (subject to statutory exceptions).

In accordance with the General By-laws of the Company, the remuneration to
be paid to directors may be fixed by the board from time to time. Decisions of
the board with respect to such matter are subject to general quorum and voting
rules governing meetings of directors.

The General By-laws of the Company provide that the board may from time to
time on behalf of the Company, without authorization of the shareholders,
exercise borrowing powers. Borrowing powers exercisable by the directors may
be varied by way of an amendment to the General By-laws, which amendment must
be approved by the shareholders by ordinary resolution.

The General By-laws do not provide for mandatory retirement of directors
based on age.

The directors need not own shares of the Company to be qualified to act in
such capacity.

Share Capital

The Companys authorized share capital consists of four classes of shares:



| | (1) |  | an unlimited number of First Preferred Shares, issuable as
First Preferred Voting Shares, First Preferred Non-Voting Shares,
First Preferred Voting 2 Shares and First Preferred Non-Voting 2
Shares;    
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | an unlimited number of Second Preferred Shares issuable as
Second Preferred Voting Shares, Second Preferred Non-Voting Shares,
Second Preferred Voting 2 Shares and Second Preferred Non-Voting 2
Shares;
|
| | (3) |  | an unlimited number of Class A Restricted Voting Shares; and                                                                                                                                             
|
| | (4) |  | an unlimited number of Class B Non-Voting Shares.                                                                                                                                                        

First Preferred Shares

Issue price.First Preferred Voting Shares and First Preferred Non-Voting
Shares were issued at $15 per share.

Rights upon liquidation.Holders of First Preferred Shares are entitled to
receive, on the winding-up, liquidation or dissolution of the Company and in
priority to any payment or distribution in respect of shares of any other
class, an amount per share equal to the FPS Redemption Price (as described
below) plus any declared but unpaid dividends.

Voting.Holders of First Preferred Voting Shares are entitled to receive
notice of and to attend and vote at all meetings of the shareholders of the
Company (except meetings at which only the holders of another specified class
or series of shares (other than the Class A Restricted Voting Shares or Class B
Non-Voting Shares, as the case may be) are entitled to vote separately as a
class or series as provided by law or in the Articles of the Company) and each
First Preferred Voting Share confers the right to one vote (in person or by
proxy) at all such meetings. Holders of First Preferred Voting Shares are also
entitled to vote together with the Class A Restricted Voting Shares and, if
applicable, the Class B Non-Voting Shares on an as converted basis, on any
matter on which the Class A Restricted Voting Shares or Class B Non-Voting
Shares, as the case may be, are entitled to vote. Except as otherwise provided
by law or in the Articles of the Company, holders of First Preferred Non-Voting
Shares are not entitled to vote at any meetings of the shareholders of the
Company, but otherwise enjoy the same rights, privileges and economic
entitlements as are enjoyed by holders of the First Preferred Voting Shares.
The holders of First Preferred Non-Voting Shares are entitled to receive notice
of and to attend

64



---



##### Table of Contents



meetings of the holders of First Preferred Voting Shares and
Class A Restricted Voting Shares. Each First Preferred Non-Voting Share
confers the right to one vote (in person or by proxy) at any meeting at
which the holders of First Preferred Non-Voting Shares are entitled to vote and
is entitled to vote on an as converted basis at any meeting at which the
Class B Non-Voting Shares, as the case may be, are entitled to vote.

Non-Cumulative Dividend.The holders of First Preferred Voting Shares and
First Preferred Non-Voting Shares are entitled to a fixed, non-cumulative
preferential dividend at the rate of 9% per annum, from time to time and
payable semi-annually in arrears in cash. All dividends declared on the First
Preferred Shares shall be declared and paid at the same time, and in equal
amounts, share for share, without any preference or priority of one series over
the other.

Maturity.The First Preferred Shares shall be mandatorily redeemed on May
1, 2013.

First Preferred Shares Redemption Price.The First Preferred Shares
Redemption Price is initially the issue price therefor, increased at the
beginning of each semi-annual period commencing on November 1, 2003 by (1) an
amount equal to the dividend accrued during such period; less (2) the amount of
any cash dividend that has been declared and paid in respect of such
semi-annual period.

In the event of any redemption or mandatory conversion of First Preferred
Shares other than as at the end of a semi-annual period, the FPS Redemption
Price is to be adjusted by adding the accrued dividend on a pro rata basis with
reference to the number of days from the beginning of the then current
semi-annual period to the date of such redemption or conversion, less the
amount of any cash dividend that has been declared and paid in respect of such
period.

Redemption.The First Preferred Shares are redeemable as follows:



| | (1) |  | in whole or in part at any time at the option of the Company at
the then current FPS Redemption Price, payable in cash, provided
however that holders of First Preferred Shares may exercise any
conversion rights prior to any such redemption;                                                                                                                                                                                                                                                                         
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | at maturity, (a) mandatorily at a price per share equal to the
then current FPS Redemption Price payable in cash or (b) at the
Companys option, if the Class A Restricted Voting Shares and the
Class B Non-Voting Shares continue to be listed and posted for
trading on a recognized exchange, in consideration of the issuance of
a number of Class A Restricted Voting Shares or Class B Non-Voting
Shares (as the case may be) equal to the FPS Redemption Price divided
by the average share price of such shares;
|
| | (3) |  | mandatorily prior to maturity at the then current FPS
Redemption Price to the extent that the Company has funds available
for such purpose (determined by reference to certain thresholds
established in the Articles); and                                                                                                                                                                                                                                                                                              
|
| | (4) |  | at any time prior to maturity, in whole or in part, at the
option of the Company upon payment of the then current FPS Redemption
Price by issuing First Units comprised of a note and a First
Preferred Voting 2 Share or First Preferred Non-Voting 2 Share.                                                                                                                                                                                                                                                            

Intra Class Exchange Rights.The First Preferred Non-Voting Shares are
exchangeable, at the option of the holders, into First Preferred Voting Shares
on a share-for-share basis, in the following circumstances:



| | (1) |  | at any time upon provision by a holder of First Preferred
Non-Voting Shares of a residency declaration to the Company and the
transfer agent of First Preferred Shares certifying that the holder
is a Canadian;                                                                        
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | upon a bid being made for the First Preferred Voting Shares
where no equivalent bid is made for the First Preferred Non-Voting
Shares for the purposes of allowing the First Preferred Non-Voting
Shares to tender to an exclusionary bid;                                              
|
| | (3) |  | automatically upon the repeal or relaxation of the Canadian
rules restricting the Companys ownership and control, but only to
the extent of such repeal or relaxation and non-Canadian ownership
and control of the Company and its subsidiaries not otherwise being
restricted by law.

The First Preferred Voting Shares are exchangeable, at the option of the
holders, into First Preferred Non-Voting Shares on a share-for-share basis.

Conversion Features.The First Preferred Shares have the following
conversion features:



| | (1) |  | at any time, the First Preferred Voting Shares and the First
Preferred Non-Voting Shares are convertible, at the option of the
holders into Class A Restricted Voting Shares and Class B Non-Voting
Shares respectively on a share-for-share basis;
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | if at any time prior to May 1, 2008, the Company shall complete
an offering of Class A Restricted Voting Shares or Class B Non-Voting
Shares for gross proceeds of not less than $150 million and at a per
share price equal to or                 

65



---



##### Table of Contents





| |     |  | greater than 200% of the then current FPS
Redemption Price and the proceeds thereof are used as provided in the
Articles, the First Preferred Voting Shares and the First Preferred
Non-Voting Shares which remain outstanding
after the application of such proceeds will be converted, at the
option of the Company, into Class A Restricted Voting Shares and
Class B Non-Voting Shares respectively on a share-for-share basis;
and                                                                                                                                                                                                          
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (3) |  | if at any time on or after May 1, 2008, on the 25th day (or if
such day is not a trading day, then on the next following trading
day) following the release by the Company of its quarterly or annual
financial statements, as the case may be, the First Preferred Voting
Shares and the First Preferred Non-Voting Shares are In-the-Money
(namely that the FPS Redemption Price is less than the average share
price of the Class A Restricted Voting Shares and Class B Non-Voting
Shares), they will be converted automatically into Class A Restricted
Voting Shares and Class B Non-Voting Shares respectively on a
share-for-share basis.

Upon conversion of any First Preferred Voting Shares or First Preferred
Non-Voting Shares into Class A Restricted Voting Shares or Class B Non-Voting
Shares, the holders of such First Preferred Voting Shares or First Preferred
Non-Voting Shares will have no right to receive any payment in cash on account
of the FPS Redemption Price.

All conversion rights described above are subject to a registration
statement having been filed by the Company and having become effective under
the United States Securities Act of 1933 (the 1933 Act) or to an exemption
being available under the 1933 Act in connection with the issuance of shares
resulting from the exercise of such conversion right. If such exemption is not
available, the Company will file, on a date not earlier than six months and not
later than seven months after May 1, 2003, a registration statement with the
SEC in respect of shares to be issued upon the exercise of conversion rights
and will use reasonable commercial efforts to have such commission declare such
registration statement effective.

Anti-layering provisions.The Articles of the Company provide that, so
long as there remain outstanding First Preferred Shares (or First Units, if
issued) representing in the aggregate an initial issue price in excess of $75
million, the approval: (1) by written resolution signed by the holders of a
majority of the aggregate number (or principal amount, as the case may be) of
First Preferred Shares (or First Units, if issued) then outstanding or (2) by a
majority of the holders of First Preferred Shares (or First Units, if issued)
then outstanding represented in person or by proxy at a meeting of such holders
called for such purpose, will be required before the Company and its
subsidiaries either (X) issue any shares ranking prior to or pari passu with
the First Preferred Shares (or First Units, if issued) or (Y) incur funded debt
(other than permitted debt under the Companys credit facilities, First Units
and Second Units), as a result of which the aggregate consolidated funded debt
thereof would be in excess of 4.0 times consolidated annual EBITDA, calculated
on a pro forma basis based upon the four consecutive quarters ended as at the
fiscal quarter-end immediately prior to the date of the resolution of the board
of the Company approving such issuance or incurrence, as the case may be.

Foreign Ownership Restrictions.The First Preferred Shares shall be
subject to sale in a manner that will ensure compliance with the Canadian rules
governing the ownership and control of the Company, for so long as same remain
in effect.

Second Preferred Shares

Issue price.Second Preferred Voting Shares and Second Preferred
Non-Voting Shares were issued at $15 per share.

Rights upon liquidation.Holders of Second Preferred Shares are entitled
to receive, on the winding-up, liquidation or dissolution of the Company and in
priority to any payment or distribution in respect of shares of any other
class, other than the First Preferred Shares, an amount per share equal to the
Second Preferred Shares Redemption Price (as described below) plus any declared
but unpaid dividends.

Voting.Holders of Second Preferred Voting Shares are entitled to receive
notice of and to attend and vote at all meetings of the shareholders of the
Company (except meetings at which the holders of another specified class or
series of shares (other than the Class A Restricted Voting Shares or Class B
Non-Voting Shares, as the case may be) are entitled to vote separately as a
class or series as provided by law or in the Articles of the Company) and each
Second Preferred Voting Share confers the right to one vote (in person or by
proxy) at all such meetings. Holders of Second Preferred Voting Shares are also
entitled to vote together with the Class A Restricted Voting Shares and, if
applicable, the Class B Non-Voting Shares on an as converted basis on any
matter on which the Class A Restricted Voting Shares or Class B Non-Voting
Shares, as the case may be, are entitled to vote. Except as otherwise provided
in the CBCA or in the Articles of the Company, holders of Second Preferred
Non-Voting Shares are not entitled to vote at any meetings of the shareholders
of the Company, but otherwise enjoy the same rights, privileges and economic
entitlements as are enjoyed by holders of the Second Preferred Voting Shares.
The holders of Second Preferred Non-Voting Shares are entitled to receive
notice of and to attend meetings of the holders of Second Preferred Voting
Shares and Class A Restricted Voting Shares. Each Second Preferred Non-Voting
Share confers the right to one vote (in person or by proxy) at any meeting at
which the holders of Second Preferred Non-Voting Shares are entitled to vote
and shall be entitled to vote on an as converted basis at any meeting at
which the Class B Non-Voting Shares, as the case may be, are entitled to vote.

66



---



##### Table of Contents



Non-Cumulative Dividend.The holders of Second Preferred Voting Shares and
Second Preferred Non-Voting Shares are entitled to a fixed, non-cumulative
preferential dividend at the rate of 9% per annum, from time to time and
payable semi-annually in arrears in cash. All dividends declared on the Second
Preferred Shares shall be declared and paid at the same time, and in equal
amounts, share for share, without any preference or priority of one series
over the other, but subject to the prior declaration and payment (or setting
apart for payment) of dividends on the First Preferred Shares in respect of the
corresponding period.

Maturity.The Second Preferred Shares shall be mandatorily redeemed on May
1, 2013.

Second Preferred Shares Redemption Price.The redemption price of each
Second Preferred Share is initially the issue price therefor, increased at the
beginning of each semi-annual period beginning on November 1, 2003 by (1) an
amount equal to divided accrued during such period; less (2) the amount of any
cash dividend that has been declared and paid in respect of such semi-annual
period.

In the event of any redemption or conversion other than as at the end of a
semi-annual period, the SPS Redemption Price is to be adjusted by adding the
accrued dividend on a pro rata basis with reference to the number of days from
the beginning of the then current semi-annual period to the date of such
redemption or conversion, less the amount of any cash dividend that has been
declared and paid in respect of such period. (SPS Redemption Price)

Redemption.The Second Preferred Shares are redeemable as follows:



| | (1) |  | Subject to the prior redemption for cash of all First Preferred
Shares (except for any First Preferred Shares which have been
voluntarily redeemed or converted for shares by the holder thereof),
in whole or in part at any time at the option of the Company at the
then current SPS Redemption Price, payable in cash, provided however
that holders of Second Preferred Shares may exercise any conversion
rights prior to any such redemption;                                                                                                                                                                                                                                                                        
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | at maturity, (a) mandatorily at a price per share equal to the
then current SPS Redemption Price payable in cash, subject to the
prior redemption for cash of all First Preferred Shares (except for
any First Preferred Shares which have been voluntarily redeemed or
converted for shares by the holder thereof) or (b) at the Companys
option, if the Class A Restricted Voting Shares and the Class B
Non-Voting Shares continue to be listed and posted for trading on a
recognized exchange, in consideration of the issuance of a number of
Class A Restricted Voting Shares or Class B Non-Voting Shares (as the
case may be) equal to the SPS Redemption Price divided by the average
share price of such shares;
|
| | (3) |  | mandatorily prior to maturity at the then current SPS
Redemption Price to the extent that the Company has remaining funds
available for such purpose (determined by reference to certain
thresholds established in the Articles), subject to the prior
redemption for cash of all outstanding First Preferred Shares; and                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (4) |  | at any time prior to maturity, in whole or in part, at the
option of the Company upon payment of the then current SPS Redemption
Price by issuing Second Units composed of a note and a Second
Preferred Voting 2 Share or Second Preferred Non-Voting 2 Share.                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Intra Class Exchange Rights.The Second Preferred Non-Voting Shares are
exchangeable, at the option of the holders, into Second Preferred Voting Shares
on a share-for-share basis, in the following circumstances:



| | (1) |  | at any time upon provision by a holder of Second Preferred
Non-Voting Shares of a residency declaration to the Company and the
transfer agent of Second Preferred Shares certifying that the holder
is a Canadian;                                                                      
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | upon a bid being made for the Second Preferred Voting Shares
where no equivalent bid is made for the Second Preferred Non-Voting
Shares, for the purposes of allowing the Second Preferred Non-Voting
Shares to tender to an exclusionary bid; and                                      
|
| | (3) |  | automatically upon the repeal or relaxation of the Canadian
rules restricting the Companys ownership and control, but only to
the extent of such repeal or relaxation and non-Canadian ownership
and control of the Company and its subsidiaries not otherwise being
restricted by law.

The Second Preferred Voting Shares will at any time be exchangeable, at
the option of the holders, into Second Preferred Non-Voting Shares on a
share-for-share basis.

Conversion Features.The Second Preferred Shares have the following
conversion features:



| | (1) |  | at any time, the Second Preferred Voting Shares and the Second
Preferred Non-Voting Shares are convertible, at the option of the
holders, into Class A Restricted Voting Shares and Class B Non-Voting
Shares respectively on a share-for-share basis;
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | if at any time prior to May 1, 2008, the Company shall complete
an offering of Class A Restricted Voting Shares or Class B Non-Voting
Shares for gross proceeds of not less than $150 million and at a per
share price equal to or                    

67



---



##### Table of Contents





| |     |  | greater than 200% of the then current SPS
Redemption Price and the proceeds thereof are used as provided in the
Articles, the Second Preferred Voting Shares and the Second Preferred
Non-Voting Shares which remain outstanding after the application of
such proceeds will be converted, at the option of the Company, into
Class A Restricted Voting Shares and Class B Non-Voting Shares
respectively on a share-for-share basis; and                                                                                                                                                                                                 
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (3) |  | if at any time on or after May 1, 2008, on the 25th day (or if
such is not a trading day, then on the next following trading day)
following the release of the Companys quarterly or annual financial
statements, as the case may be, the Second Preferred Voting Shares
and the Second Preferred Non-Voting Shares are In-the-Money (namely
that the SPS Redemption Price is less than the average share price of
the Class A Restricted Voting Shares and Class B Non-Voting Shares),
they will be converted automatically into Class A Restricted Voting
Shares and Class B Non-Voting Shares respectively on a
share-for-share basis.

Upon conversion of any Second Preferred Voting Shares or Second Preferred
Non-Voting Shares into Class A Restricted Voting Shares or Class B Non-Voting
Shares, the holders of such Second Preferred Voting Shares or Second Preferred
Non-Voting Shares will have no right to receive any payment in cash on account
of the SPS Redemption Price.

All conversion rights described above are subject to a registration
statement having been filed by the Company and having become effective under
the 1933 Act or to an exemption being available under the 1933 Act in
connection with the issuance of shares resulting from the exercise of such
conversion right. If such exemption is not available, the Company will file, on
a date not earlier than six months and not later than seven months after the
Effective Date (i.e. by the end of November 2003), a registration statement
with the SEC in respect of shares to be issued upon the exercise of conversion
rights and will use reasonable commercial efforts to have such commission
declare such registration statement effective.

Anti-Layering Provisions.The Articles of the Company provide that, so
long as there remain outstanding Second Preferred Shares (or Second Units, if
issued) representing in the aggregate an initial issue price in excess of $50
million, the approval: (1) by written resolution signed by the holders of a
majority of the aggregate number (or principal amount, as the case may be) of
Second Preferred Shares (or Second Units, if issued) then outstanding or (2) by
a majority of the holders of Second Preferred Shares (or Second Units, if
issued) represented in person or by proxy at a meeting of such holders called
for such purposes will be required before the Company and its subsidiaries
either (X) issue any shares ranking prior to or pari passu with the Second
Preferred Shares (or Second Units, if issued) (other than First Preferred
Shares issued on May 1, 2003), or (Y) incur funded debt (other than permitted
debt under the Companys credit facilities, First Units and Second Units), as a
result of which the aggregate consolidated funded debt thereof would be in
excess of 4.0 times consolidated annual EBITDA, calculated on a pro forma basis
based upon the four consecutive quarters ended as at the fiscal quarter-end
immediately prior to the date of the resolution of the board of the Company
approving such issuance or incurrence, as the case may be.

Class A Restricted Voting Shares

Voting.Holders of Class A Restricted Voting Shares are entitled to
receive notice of and to attend and vote at all meetings of the shareholders of
the Company (except meetings at which only the holders of another specified
class or series are entitled to vote separately as a class as provided in the
CBCA or in the Articles of the Company) and each Class A Voting Share confers
the right to one vote (in person or by proxy) at all such meetings.

Except as to voting the Class A Restricted Voting Shares will have equal
rights to the Class B Non-Voting Shares on a share-for-share basis.

Dividends.All dividends declared on the Class A Restricted Voting Shares
and the Class B Non-Voting Shares shall be declared and paid at the same time,
and in equal amounts, share for share, without any preference or priority of
one class over the other.

Rights upon liquidation.Holders of Class A Restricted Voting Shares are
entitled to receive the remaining assets of the Company on the winding up,
liquidation or dissolution of the Company, pari passu with the holders of Class
B Non-Voting Shares, on a per share basis.

Foreign Ownership Restrictions.The Class A Restricted Voting Shares are
subject to sale in a manner that will ensure compliance with the Canadian rules
relating to the Companys ownership and control, for so long as same remain in
effect. For more information on these rules, readers are referred to the
description of these rules under the heading Foreign Ownership Restrictions
below.

Class B Non-Voting Shares

Voting.Except as otherwise provided by law or in the Articles of the
Company, holders of Class B Non-Voting Shares are not entitled to vote at any
meetings of the shareholders of the Company, but otherwise enjoy the same
rights, privileges and economic

68



---



##### Table of Contents



entitlements as are enjoyed by holders of the
Class A Restricted Voting Shares. The holders of Class B Non-Voting Shares are
entitled to receive notice of and to attend meetings of the holders of Class A
Restricted Voting Shares. Each Class B Non-Voting Share confers the right to
one vote (in person or by proxy) at any meeting at which the holders of Class B
Non-Voting Shares are entitled to vote.

Dividends.All dividends declared on the Class A Restricted Voting Shares
and the Class B Non-Voting Shares shall be declared and paid at the same time,
and in equal amounts, share for share, without any preference or priority of
one class over the other.

Rights upon liquidation.Holders of Class B Non-Voting Shares are entitled
to receive the remaining assets of the Company on the winding up, liquidation
or dissolution of the Company, pari passu with the holders of Class A
Restricted Voting Shares, on a per share basis.

Exchange Right.The Class B Non-Voting Shares are exchangeable, at the
option of the holders, into Class A Restricted Voting Shares on a
share-for-share basis, in the following circumstances:



| | (1) |  | any time upon provision by a holder of Class B Non-Voting
Shares of a residency declaration to the Company and the transfer
agent of the Class A Restricted Voting Shares certifying that the
holder is a Canadian;                                                                   
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | upon a bid being made for the Class A Restricted Voting Shares
where no equivalent bid is made for the Class B Non-Voting Shares,
for the purposes of allowing the Class B Non-Voting Shares to tender
to an exclusionary bid; and                                                    
|
| | (3) |  | automatically upon the repeal or relaxation of the Canadian
rules governing the Companys ownership and control, but only to the
extent of such repeal or relaxation and non-Canadian ownership and
control of the Company and its subsidiaries not otherwise being
restricted by law.

Warrants

The Company issued on May 1, 2003 two series of Warrants entitling holders
thereof to purchase Class A Restricted Voting Shares or Class B Non-Voting
Shares (based on Canadian residency status) being the Warrants 2005 (having a
two-year term and an exercise price per share of $19.91) and Warrants 2008
(having a five-year term and an exercise price per share of $20.69).

The indentures relating to the Warrants provide that in the event of
certain fundamental transactions, (1) the holders of Warrants shall, upon
exercise of the Warrants following any such fundamental transactions, be
entitled to receive the same number and kind of securities, cash or other
property that they would have been entitled to receive had they exercised their
Warrants prior to any such fundamental transactions; (2) where the
consideration payable to holders of equity shares of the Company is payable
solely in cash, the holders of Warrants are required to surrender or exercise
their Warrants and are entitled to receive, upon surrender or exercise thereof,
payments on an equal basis with holders of such shares as if the Warrants had
been exercised immediately prior to such fundamental transactions, less the
exercise price thereof, and upon receipt of such payment, if any, the rights of
a holder of such Warrant shall terminate and cease and such holders Warrants
shall expire (for greater certainty, in all cases without regard to whether or
not the holders have exercised their Warrants); and (3) where applicable, the
successor corporation to the Company (if applicable) shall expressly assume the
performance of the Company covenants and conditions under the indentures
relating to the Warrants.

No Warrants may be exercised until the date that a registration statement
filed by the Company under the U.S. Securities Act with respect to the exercise
of Warrants has been declared effective by the SEC. The Company has agreed to
file, on a date not earlier than six months and not later than seven months
from May 1, 2003, a registration statement with the SEC in respect of the
shares issuable upon exercise of the Warrants and will use reasonable
commercial efforts to have such commission declare such registration statement
effective.

Description of Units

First Unit and Second Unit

The First Preferred Voting Shares and First Preferred Non-Voting Shares
are redeemable at any time prior to maturity at the option of the Company in
consideration of the issuance of First Units (Voting and Non-Voting series).
The Second Preferred Voting Shares and Second Preferred Non-Voting Shares are
redeemable at any time prior to maturity by the Company in consideration of the
issuance of Second Units (Voting and Non-Voting series).

The First Units and Second Units are hybrid instruments designed to
duplicate the economic interest and other features (including as to voting
entitlements) attaching to the First Preferred Shares and Second Preferred
Shares. Each Unit is composed of a note, which provides the holder of the Unit
with an economic interest similar to that of a holder of First Preferred Share,
together with

69



---



##### Table of Contents



a First Preferred Voting 2 Share or First Preferred Non-Voting 2
Share (in the case of First Units) or with a Second Preferred Voting 2 Share or
Second Preferred Non-Voting 2 Share (in the case of Second Units).

The First Units are senior in right of payment to the Second Units.

The Company has entered into two Unit Indentures, respectively in respect
of First Units and Second Units, which provide for similar redemption and
conversion features attaching to the Units as those attaching to the First
Preferred Shares and Second Preferred Shares under the Articles. The indentures relating to the Units
also provide for certain adjustment mechanisms in the event of fundamental
transactions, as well as provisions customarily found in indentures governing
issuances of notes.

No Units may be converted into Class A Restricted Voting Shares or Class B
Non-Voting Shares until the date that a registration statement filed by the
Company under the U.S. Securities Act has been declared effective by the SEC.

Meetings of Shareholders

Subject to the provisions of the CBCA and the Articles of the Company, an
annual meeting of the shareholders of the Company will be held on such date in
each year, at such time and place as the New Board may determine, to receive
and consider the financial statements with the report of the auditor or
auditors, to elect directors, to appoint an auditor or auditors and to fix or
to authorize the New Board to fix the auditors remuneration and to consider,
deal with and dispose of such other business as may properly come before a
meeting of shareholders.

Special meetings of the shareholders may be called at any time by
resolution of the New Board or by the president or the chairman of the New
Board and shall be called when required by the shareholders in conformity with
the CBCA.

Any person entitled to attend a meeting of shareholders may participate in
the meeting, to the extent and in the manner permitted by law, by means of a
telephonic, electronic or other communication facility that permits all
participants to communicate adequately with each other during the meeting, if
the Company makes available such a communication facility.

Notice of each annual meeting and of each special meeting of the
shareholders is given in the manner provided in the By-laws of the Company to
the shareholders entitled to vote thereat, to the shareholders entitled to
receive such notice, to the directors and to the auditor or auditors at their
respective addresses as they appear in the records of the Company.

The quorum of shareholders at an annual or special meeting of shareholders
is fixed at five shareholders entitled to vote at such meeting, present in
person or represented either by proxy or by an individual acting on behalf of a
body corporate or association and duly authorized by a resolution of the board
or governing body of the body corporate or association to represent it at
meetings of shareholders of the Company, irrespective of the number of shares
held by such shareholders. If a quorum is present at the opening of the
meeting, the shareholders present or represented may proceed with the business
of the meeting, notwithstanding the fact that a quorum is not present
throughout the meeting.

Every question submitted to any meeting of shareholders shall be decided
by a show of hands unless a ballot is ordered or required in the manner
hereinafter set out. The chairman of such meeting may, in his discretion, order
a ballot. Moreover, any shareholder or its representative, where the
shareholder is a body corporate or an association, or his proxyholder, either
before or after any vote by show of hands, may require a ballot on any question
at any time before the termination of the meeting. A demand for a ballot may be
withdrawn.

At all meetings of shareholders, every shareholder entitled to vote
thereat, whether present in person or by proxyholder, or, in the case of a body
corporate or association by a duly authorized representative, shall be entitled
to exercise the number of votes per share as is prescribed in the Articles of
the Company; however, if by virtue of the CBCA another scale of voting rights
is fixed with respect to a particular matter or to another class of shares,
such scale of voting shall be adopted.

Foreign Ownership Restrictions

Solutions and Inukshuk are required, as radiocommunication carriers and by
the conditions of their respective licenses, to comply with the Canadian
Ownership and Control Provisions. The Canadian Ownership and Control Provisions
must also be respected by Solutions and Inukshuk to maintain their eligibility
to operate as Canadian carriers under the Telecommunications Act and to hold
and have renewed the PCS License and MCS Licenses.

The Canadian Ownership and Control Provisions require Solutions and
Inukshuk to be Canadian-owned and controlled corporations incorporated or
continued under the laws of Canada or a province of Canada. Solutions and
Inukshuk are deemed to be Canadian-owned and controlled as long as: (1) not
less than 80% of the members of their respective boards of directors are

70



---



##### Table of Contents



individual Canadians; (2) Canadians beneficially own not less than 80% of their
respective issued and outstanding voting shares; and (3) they are not otherwise
controlled in fact by non-Canadians.

A Canadian is defined to include a Canadian citizen who is ordinarily
resident in Canada, a permanent resident of Canada, various Canadian government
agencies, various qualified trusts, mutual insurance companies, and
corporations in which Canadians beneficially own and control in the aggregate
not less than 66 2/3% of the issued and outstanding voting shares and which are
not otherwise controlled in fact by non-Canadians.

In the case of Microcell, as the ultimate parent corporation of both
Solutions and Inukshuk, the Canadian Ownership and Control Provisions require,
for Solutions and Inukshuk to be considered eligible thereunder, that not less
than 66 2/3% of the issued and outstanding voting shares of Microcell be owned
by Canadians, and that Microcell not otherwise be controlled in fact by
non-Canadians. A voting share for purposes of the Telecommunications Act
means a share or class of shares of a corporation carrying voting rights under
all circumstances or by reason of an event that has occurred and is continuing
or by reason of a condition that has been fulfilled and includes a security
that is convertible into such a share at the time that a calculation referred
to in that clause is made.

Microcell may restrict the issue, transfer and ownership of shares, if
necessary, to ensure that Microcell remains in conformity with the Canadian
Ownership and Control Provisions. For such purposes, in particular but without
limitation, Microcell may, in accordance with the provisions of the Canadian
Ownership and Control Provisions, to the extent applicable: (1) refuse to
accept any subscription for any voting shares; (2) refuse to allow any transfer
of voting shares to be recorded in Microcells share register; (3) suspend the
rights of a holder of voting shares to vote at a meeting of the shareholders of
Microcell; and (4) sell, repurchase or redeem any voting shares.

Microcells Articles of Incorporation provide that Microcell may, in
connection with the issue, or transfer of ownership, of voting shares in its
capital, take any action, or refuse to take any action, as the case may be, to
the extent necessary to ensure that any subsidiary of Microcell is and
continues to be eligible to operate as a Canadian carrier under the
Telecommunications Act or to be issued, to hold and to renew radio
authorizations or radio licenses under the Radiocommunication Act, if and only
to the extent that the business activities of such subsidiary require such
eligibility.

Microcell, Solutions and Inukshuk may not be otherwise controlled by
non-Canadians. In other words, a non-Canadian cannot exercise control in fact
over these companies.

Failure by Microcell to comply with the requirements relating to the
Canadian Ownership and Control Provisions may affect the ability of Solutions
and Inukshuk to operate as Canadian carriers and to hold and have renewed the
PCS License and the MCS Licenses.

Corporate Stability Provisions

The Articles of the Company provide that, until May 1, 2005 (except if
varied or waived by a special resolution of holders of all voting and
non-voting shares (and all units comprised of Notes and Preferred Shares, if
issued, voting on an as converted basis), voting as a single class, of the
Company adopted by a 66 2/3% majority thereof represented and voting in person
or by proxy at a meeting called for such purpose and, for greater certainty, at
which the voting limitations provided for herein shall be applicable), no
person or company, acting alone or acting jointly or in concert with any other
person or company with respect to the acquisition, disposition or voting of
securities of the Company, shall be permitted to exercise on any resolution
submitted to a vote of holders of securities, voting rights representing in
excess of 20% of the aggregate voting rights exercisable with respect to the
particular resolution. Such restriction do not apply to any person or company
that makes an offer to acquire all the preferred and common shares (and units
comprised of notes and preferred shares, if any are issued) of the Company and
acquires such number of such securities so as to hold thereafter at least 66
2/3% of the equity securities of the Company on a fully diluted basis.

Shareholder Rights Plan

This is a summary of the Companys Rights Plan only; reference should be
made to the Rights Plan itself attached to this annual report, in particular to
defined terms used herein, for details.

The objective of the Rights Plan is to ensure, to the extent possible,
that all shareholders of the Company will be treated equally and fairly in
connection with any take-over offer for the Company.

The Rights Plan is designed to prevent the use of coercive and/or abusive
takeover techniques and to encourage any potential acquiror to negotiate
directly with the New Board for the benefit of all shareholders of the Company.
In addition, the Rights Plan is intended to provide increased assurance that a
potential acquiror would pay an appropriate control premium in connection with
any acquisition of the Company.

71



---



##### Table of Contents



The Rights Plan utilizes the mechanism of a Permitted Bid (as described
therein) to attempt to ensure that a person seeking to acquire beneficial
ownership of 10% or more of the shares (and units if issued) of the Company
(treated for such purposes as though they were a single class and on a fully
diluted basis, assuming full conversion but without giving effect to management
and employee options and exercise of Warrants), gives shareholders and the New
Board sufficient time to evaluate the transaction, negotiate with the proposed
acquiror, encourage competing bids to emerge, and ensure that all alternatives
to the transaction designed to maximize shareholder value have been considered.

The Rights Plan will provide the New Board with time to review any
unsolicited take-over bid that may be made and to take action, if appropriate,
to enhance shareholder value. The Rights Plan attempts to protect shareholders
by requiring all potential bidders to comply with the conditions specified in
the Permitted Bid provisions, failing which such bidders are subject to the
dilutive features of the Rights Plan. By creating the potential for substantial
dilution of a bidders position, the Rights Plan encourages an offeror to
proceed by way of a Permitted Bid or to approach the New Board with a view to a
negotiation.

Pursuant to the Rights Plan, one Right has been issued in respect of each
share issued on May 1, 2003. In addition, one Right will be issued for each
additional share (or unit) issued thereafter. Each Right initially entitles the
registered holder thereof to purchase from the Company one Class A Restricted
Voting Share or one Class B Non-Voting Share, as the case may be, at a price of
$100, subject to certain anti-dilution adjustments. The Rights are not
exercisable until the Separation Time (as defined in the Rights Plan).

Trading and Exercise of Rights

Until the Separation Time, the Rights trade together with the shares (or
units, if issued). After the Separation Time, the Rights are exercisable, and
are transferable separately from the shares (or units, if issued).

Flip-In Event

The acquisition by a person making an unsolicited take-over bid for
Microcell (the Acquiring Person), including others acting jointly or in
concert, of beneficial ownership of 10% of the shares (or units, if issued)
(treated for such purposes as though they were a single class and on a fully
diluted basis assuming full conversion but without giving effect to management
and employee options and exercise of the Warrants), other than by way of a
Permitted Bid is referred to as a Flip-In Event. Any Rights beneficially
owned by an Acquiring Person upon the occurrence of any Flip-In Event will be
void, as will any Rights beneficially owned by associates, affiliates or
Persons acting jointly or in concert with an Acquiring Person, and transferees
thereof. After the occurrence of a Flip-In Event, each Right (other than those
that are void) will permit the holder to purchase from the Company Class A
Restricted Voting Shares or Class B Non-Voting Shares, as the case may be, with
a total market value on the date of occurrence of the Flip-In Event equal to
twice the exercise price for an amount in cash equal to the exercise price.

Permitted Bid Requirements

The requirements of a Permitted Bid include the following:



| | (a) |  | the take-over bid must be made by way of a take-over bid circular;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | the take-over bid must be made to all registered holders of all
outstanding shares (and units, if issued) (other than shares (and
units, if issued) held by the offeror or any associate or affiliate
of the offeror);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (c) |  | the take-over bid must contain, and the take-up and payment for
securities tendered or deposited thereunder is subject to,
irrevocable and unqualified conditions that (1) no new instruments
shall be taken up or paid for pursuant to the take-over bid prior to
the close of business on the date which is not less than 60 days
following the date of the take-over bid and (2) no shares (and units,
if issued) shall be taken up or paid for pursuant to the take-over
bid unless, at the date referred to in (1) above, more than 50% of
the aggregate outstanding shares (and units, if issued) held by
independent shareholders shall have been deposited or tendered
pursuant to the take-over bid and not withdrawn;
|
| | (d) |  | the take-over bid must contain an irrevocable and unqualified
provision that, unless the take-over bid is withdrawn, shares (and
units, if issued) may be deposited pursuant to such take-over bid at
any time prior to the close of business on the date of first take-up
or payment for shares (and units, if issued) and that any shares (and
units, if issued) deposited pursuant to the take-over bid may be
withdrawn until taken up and paid for; and                                                                                                                                                                                                                                                                     
|
| | (e) |  | the take-over bid must contain an irrevocable and unqualified
provision that if, on the date on which shares (and units, if issued)
may be taken up or paid for, more than 50% of the aggregate
outstanding shares (and units, if issued) held by independent
shareholders shall have been deposited or tendered pursuant to the
take-over bid and not withdrawn, the offeror will make a public
announcement of that fact and the take-over bid will remain open for
deposits and tenders of shares (and units, if issued) for not less
than ten business days from the date of such public announcement.                                                                                                                     

72



---



##### Table of Contents



The usual provisions regarding permitted lock-up agreements are included
in the Rights Plan.

The Rights Plan allows a Competing Bid to be made while a Permitted Bid is
in existence. A Competing Bid must satisfy all the requirements of a Permitted
Bid.

MATERIAL CONTRACTS

The following is a list of each material contract, other than contracts in
the ordinary course of business, to which the Company is party, for the two
years preceding the publication of this document:



| | 1. |  | First Unit Indenture made as of May 30, 2003 among Microcell
Telecommunications Inc. and Computershare Trust Company of Canada as trustee,
providing for the issuance of first units, consisting of a first note and First
Preferred 2 Share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Second Unit Indenture made as of May 30, 2003 among Microcell
Telecommunications Inc. and Computershare Trust Company of Canada as trustee,
providing for the issuance of second units, consisting of a second note and
Second Preferred 2 Share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | 3. |  | Warrant Indenture for the Warrants 2005 dated as of May 1, 2003 among
Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as
Trustee, providing for the issuance of a 2-year warrants entitling the holders
thereof to subscribe, until May 1, 2005 for Class A Restricted Voting Shares or
Class B Non-Voting Shares of the Company, as the case may be, at an exercise
price of $19.91 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | 4. |  | Warrant Indenture for the Warrants 2008 dated as of May 1, 2003 among
Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as
Trustee, providing for the issuance of a 5-year warrants entitling the holders
thereof to subscribe, until May 1, 2008 for Class A Restricted Voting Shares or
Class B Non-Voting Shares of the Company, as the case may be, at an exercise
price of $20.69 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | 5. |  | Shareholder Rights Plan Agreement dated as of May 1, 2003 between Microcell
Telecommunications Inc. and Computershare Trust Company of Canada, as Rights
Agent, to ensure, to the extent possible, that all shareholders of the Company
will be treated equally and fairly in connection with any take-over offer for
the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | 6. |  | Tranche A Exit Facility Agreement dated as of May 1, 2003 entered into among
Microcell Telecommunications Inc., as parent, Microcell Solutions Inc., as
borrower, the financial institutions from time to time parties hereto as
lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent,
Collateral Agent and Issuing Bank, providing for a credit facility of $25
million, which may be increased up to $75 million, established in favor of
Solutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | 7. |  | Tranche B Credit Agreement dated as of May 1, 2003 entered into among
Microcell Telecommunications Inc., as parent, Microcell Solutions Inc., as
borrower, the financial institutions from time to time parties hereto, as
lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent and
Collateral Agent, providing for a term loan to Solutions of Cdn.$300,000,000,
consisting of a Cdn. dollar series in the amount of Cdn.$100,000,000 and a U.S.
dollar series in the amount of the U.S. dollar equivalent of Cdn.$200,000,000.                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | 8. |  | Tranche C Credit Agreement dated as of May 1, 2003 entered into among
Microcell Telecommunications Inc., as parent, Microcell Solutions Inc., as
borrower, the financial institutions from time to time parties hereto as
lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent and
Collateral Agent, providing for a term loan to Solutions in the aggregate
amount of $50,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | 9. |  | Intercreditor and Collateral Agency Agreement, dated as of May 1, 2003, made
among Microcell Solutions Inc., as borrower, Microcell Telecommunications Inc.,
as guarantor, each of the persons listed on the execution pages thereto under
the Tranche A Lenders heading, each of the persons listed on the execution
pages thereto under the Tranche B Lenders heading, each of the persons listed
on the execution pages thereto under the Tranche C Lenders heading, JP Morgan
Chase Bank, Toronto Branch, as administrative agent under the Tranche A Exit
Facility Agreement, the Tranche B Credit Agreement and the Tranche C Credit
Agreement, JP Morgan Chase Bank, Toronto Branch, as collateral agent for each
of the Tranche A Lenders, the Tranche B Lenders and the Tranche C Lenders and
as fondé de pouvoir pursuant to the terms of the Tranche A Exit Facility
Agreement, the Tranche B Credit Agreement and the Tranche C Credit

73



---



##### Table of Contents





| |     |  | Agreement, Computershare Trust Company Of Canada, as Trustee for the holders of the First
Units, and Computershare Trust Company Of Canada, as Trustee for the holders of
the Second Units.                                                                                          
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10. |  | Lease dated as of August 1, 1998, as amended from time to time, among
Microcell Telecommunications Inc. and WPBI Property Management Inc. for the
lease of approximately 300,000 square feet of office and switchroom space at
800 de La Gauchetière Street West in Montreal, Quebec.

EXCHANGE CONTROLS

There are currently no laws, decrees, regulations or other legislation in
Canada that restricts the export or import of capital, or affects the
remittance of dividends, interest or other payments to non-resident holders of
the Companys securities, other than withholding tax requirements.

There is no limitation imposed by Canadian law or by the Articles of
Incorporation or other charter documents of the Company on the right of a
non-resident to hold voting shares of the Company, other than as provided by
the Canadian Ownership and Control Provisions, the Investment Canada Act, as
amended (the Act), as amended by the North American Free Trade Agreement
(NAFTA) Implementation Act(Canada), and the World Trade Organization (WTO)
Agreement Implementation Act. The Act requires notification and, in certain
cases, advance review and approval by the Government of Canada of the
acquisition by a non-Canadian of control of a Canadian business, all as
defined in the Act. Generally, the threshold for review will be higher in
monetary terms for a member of the WTO or NAFTA.

TAXATION

Certain Canadian Federal Income Tax Considerations

The following is a summary of certain Canadian federal income tax
considerations relating to an investment in either: (1) First Preferred Shares
and Second Preferred Shares; (2) Class A Restricted Voting Shares and Class B
Non-Voting Shares; (3) First Notes and Second Notes and (4) Warrants (together,
also referred to as the Securities or the Microcell Securities).

The summary is only applicable to a holder of Microcell Securities who,
for the purposes of the Income Tax Act (Canada) (also referred to as ITA) and
the Canada-United States Income Tax Convention (also referred to as the
Convention), is a resident of the United States and is not resident in Canada,
deals at arms length with Microcell and is not affiliated with Microcell and
holds its Securities as capital property (also referred to as the U.S. Holder).
For this purpose, related persons are deemed not to deal with each other at
arms length. A person and a corporation are related if the person controls the
corporation or is a member of a related group that controls the corporation. It
is a question of facts whether persons not related to each other are dealing
with each other at arms length. The Securities will generally be considered to
be capital property for this purpose to a U.S. Holder unless either the U.S.
Holder holds such securities in the course of carrying on a business, or the
U.S. Holder has acquired such securities in a transaction or transactions
considered to be an adventure in the nature of trade.

This summary is not applicable to a U.S. Holder that is a financial
institution (as defined in the ITA) for purposes of the mark-to-market rules.
In addition, this discussion does not apply to an insurer or an authorized
foreign bank, who carries on an insurance business or a bank business in Canada
and elsewhere.

This summary is based upon the current provisions of the ITA and counsels
understanding of the current published administrative practices and policies of
the Canada customs and revenue agency (CCRA). It also takes into account all
specific proposals to amend the ITA publicly announced by or on behalf of the
Canadian Minister of Finance prior to the date of this Circular (the Tax
Proposals), and assumes that all such Tax Proposals will be enacted. This
summary does not otherwise take into account or anticipate any changes in law,
whether by way of legislative, judicial or administrative action or
interpretation, nor does it address any provincial, territorial or foreign tax
considerations. No assurance can be given that the Tax Proposals will be
enacted in the form proposed or at all.

This summary is of a general nature only and is not intended to be, nor
should it be construed to be, legal or tax advice to any particular U.S.
Holder. Consequently, U.S. Holders are urged to consult their own tax advisors
for advice as to the tax considerations in respect of holding Microcell
Securities having regard to their particular circumstances.

All amounts, including the cost of interest or dividends received and
accrued on, and proceeds of disposition from the First Preferred Shares and
Second Preferred Shares, Class A Restricted Voting Shares and Class B
Non-Voting Shares, First Notes and Second Notes and Warrants must be determined
in Canadian dollars at applicable exchange rates for the purposes of the ITA.
The amount of interest and any capital gain or capital loss of a U.S. Holder
may be affected by fluctuations in Canadian dollar exchange rates.

74



---



##### Table of Contents



Holding and Disposition of First Preferred Shares, Second Preferred Shares,
Class A Restricted Voting Shares and Class B Non-Voting Shares.

Dividends paid or deemed paid by Microcell to a U.S. Holder on its First
Preferred Shares, Second Preferred Shares, Class A Restricted Voting Shares and
Class B Non-Voting Shares will be subject to a Canadian withholding tax in the
amount of 25%. Such withholding tax may be reduced by virtue of the provisions
of any income tax treaty or convention. Under the Convention, the rate of
withholding tax in respect of dividends or deemed dividends beneficially owned
by a resident of the United States is generally reduced to 15%.
Moreover, under the Convention, dividends paid to certain
religious, scientific, literary, education or charitable organizations that are
resident in, and generally exempt from tax in, the United States, are exempt
from Canadian non-resident withholding tax. Provided certain administrative
procedures are observed by such an organization, Microcell would not be
required to withhold such tax from dividends paid or credited to such
organization.

A U.S. Holder will not be subject to tax under the ITA on any Taxable
Capital Gain (or will not be entitled to deduct any Allowable Capital Loss in
computing taxable income earned in Canada) realized on a disposition of First
Preferred Shares, Second Preferred Shares, Class A Restricted Voting Shares,
Class B Non-Voting Shares and Warrants, as the case may be, unless the shares
or the Warrants constitute taxable Canadian property (as defined in the ITA)
at the time of their disposition. First Preferred Shares, Second Preferred
Shares, Class A Restricted Voting Shares, Class B Non-Voting Shares and the
Warrants, assuming they remain listed on a recognized exchange at the time of
such disposition, generally would not constitute taxable Canadian property to a
U.S. Holder unless at any time during the 60-month period immediately preceding
their disposition, the U.S. Holder, persons with whom the U.S. Holder did not
deal at arms length, or the U.S. Holder together with all such persons, owned
25% or more of the issued shares of any class or series of Microcell. For this
purpose, a U.S. Holder will be considered to own any share if such person has
an interest in option or other right, such as the Warrants, to acquire such
share, either by virtue of holding First Preferred Shares, Second Preferred
Shares, Class A Restricted Voting Shares and Class B Non-Voting Shares or
otherwise.

The Convention provides for an exemption under the terms of which capital
gain on shares of Canadian corporations, the value of which is not derived
principally from real estate situated in Canada, are exempt from Canadian
income tax, and, as a result, U.S. Holders may not be liable to Canadian tax
(or will not be entitled to deduct any allowable capital loss in computing
taxable income earned in Canada).

Redemption and Conversion of First Preferred Shares and Second Preferred Shares

If Microcell redeems the First Preferred and Second Preferred Shares for
cash or for First Units in lieu of First Preferred Shares, or Second Units in
lieu of Second Preferred Shares, as the case may be, the U.S. Holder will be
deemed to have received a dividend equal to the amount, if any, by which the
fair market value of the consideration received for the redemption (cash, First
Units or Second Units, as the case may be) exceeds the paid-up capital of the
First Preferred and Second Preferred Shares at such time as computed for
purposes of the ITA. The amount of any such deemed dividend will generally not
be included in computing the U.S. Holders proceeds of disposition for the
purposes of computing the capital gain or loss, if any, arising on disposition
of such First Preferred and Second Preferred Shares. A U.S. Holder will also
realize a Capital Gain (or a capital loss) on the redemption of its First
Preferred and Second Preferred Shares equal to the amount by which the proceeds
of disposition (reduced by the amount of the deemed dividend discussed above)
exceed (or are exceeded by) the adjusted cost base to the U.S. Holder of such
First Preferred and Second Preferred Shares, and any reasonable cost of
disposition.

The tax consequences relating to such dividend and to such Capital Gains
(or to capital loss) attributable to the redemption of First Preferred and
Second Preferred Shares will be the same as the those described above under the
heading Holding and Dispositions of First Preferred Shares, Second Preferred
Shares, Class A Restricted Voting Shares and Class B
Non-Voting Shares.

If Microcell, at the discretion of Microcell or the U.S. Holder, converts
the First Preferred and Second Preferred Shares into Class A Restricted Voting
Shares or Class B Non-Voting Shares, the U.S. Holder will generally be treated
as not having disposed of the shares and the cost of the Class A Restricted
Voting Shares and the Class B Non-Voting Shares to such U.S. Holder will be
equal to the aggregate adjusted cost base to the U.S. Holder of the converted
shares immediately before conversion. However, a U.S. Holder may be required to
comply with the requirements of section 116 of the ITA as a result of the
conversion, if the First Preferred Shares or Second Preferred Shares, as the
case may be, do not remain listed on a prescribed stock exchange (which
includes the TSX) at the time of such conversion. In addition, the Class A
Restricted Voting Shares and the Class B Non-Voting Shares received on a
conversion at a time when the First Preferred Shares or Second Preferred Shares
as converted are taxable Canadian property, will be deemed to be taxable
Canadian property, irrespective of whether such Class A Restricted Voting
Shares and Class B Non-Voting Shares are themselves listed.

Exercise of Warrants

No gain or loss will be realized by a U.S. Holder upon exercise of
Warrants. When a Warrant is exercised, the cost to the U.S. Holder of the Class
A Restricted Voting Shares thus acquired will be the aggregate of the adjusted
cost base, for that U.S. Holder,

75



---



##### Table of Contents



of the Warrant and the price paid for the
Class A Restricted Voting Shares upon exercise of the Warrant. The adjusted
cost base of the Warrants acquired at the time of the plan of arrangement of
Microcell under the Companies Creditor Arrangement Act (Canada) is equal to
their fair market value on the issuance date.

To the extent that a U.S. Holder receives a cash payment in lieu of a
fractional share as a result of the exercise of a Warrant, the CCRA generally
allows a shareholder who receives cash not exceeding $200 in lieu of a
fractional share to recognize a capital gain or capital loss on the disposition
of the fractional share in the taxation year in which the cash payment was
received in lieu of the fractional share or, alternatively, to reduce the
adjusted cost base of the shares received by such shareholder by the cash
amount.

Expiry of Warrants

The expiry of an unexercised Warrant will generally result in a capital
loss to the U.S. Holder equal to the adjusted cost base of the Warrant
immediately before its expiry. Provided that such Warrant consisted of taxable
Canadian property to such U.S. Holder one-half of such loss will be considered
an Allowable Capital Loss deductible against Taxable Capital Gains from
taxable Canadian property. For more details on this issue, see the discussion
above under the heading Holding and Disposition of First Preferred Shares,
Second Preferred Shares, Class A Restricted Voting Shares and Class B
Non-Voting Shares.

Exchange of Class B Non-Voting Shares for Class A Restricted Voting Shares

A U.S. Holder will not be subject to Canadian tax in respect of the
exchange of Class B Non-Voting Shares for Class A Restricted Voting Shares. The
adjusted cost base of Class A Restricted Voting Shares into which the Class B
Non-Voting Shares were exchanged will equal the adjusted cost base of the Class
B Non-Voting Shares.

Holding and Disposition of First Notes and Second Notes

Withholding tax is imposed under the ITA at a rate of 25% of the amount of
interest which is or is deemed to be paid or credited, subject to reduction in
accordance with the provisions of any applicable income tax treaty or
convention. Under the Convention, the rate of withholding tax in respect of
interest beneficially owned by a resident of the United States for the purposes
of that convention is generally reduced to 10%. Moreover, under the Convention,
interest paid to certain religious, scientific, literary, education or
charitable organizations that are resident in, and generally exempt from tax
in, the United States, are exempt from Canadian non-resident withholding tax.
Provided certain administrative procedures are observed by such an
organization, Microcell would not be required to withhold such tax from
interest paid or credited to such organization.

Based on the terms and conditions of the First Notes and Second Notes, the
following consequences should arise to a U.S. Holder holding First Notes and/or
Second Notes:

Upon the conversion of the First Notes and Second Notes into Class A
Restricted Voting Shares and Class B Non-Voting Shares, a U.S. Holder will
generally be deemed to have received the amount of interest accrued or deemed
to accrue to the date of such conversion.

Interest which is or is deemed to be paid or credited by Microcell to a
U.S. Holder who deals at arms length with Microcell on First Notes and Second
Notes should not be subject to withholding tax under the ITA as a maximum of
25% of the principal amount of First Notes and Second Notes, as the case may
be, will be payable within five years from the date on which they are issued.
No other taxes on income (including Taxable Capital Gains) will be payable
under the ITA in respect of the acquisition, holding, redemption or disposition
of the First Notes and Second Notes or the receipt of interest, principal and
premium (if any) thereon by a U.S. Holder.

Consequences to Microcell

According to an advanced income tax ruling which has been obtained from
CCRA in connection with the First Preferred Shares and Second Preferred Shares,
such shares will meet, for at least the first five years following their
issuance, the statutory requirements for such shares to qualify as Distress
Preferred Shares and therefore dividends paid on those shares during that
period will not result in Microcell being subject to tax under Part VI.1 of the
ITA.

Certain U.S. Federal Income Tax Considerations

The following is a summary of the principal U.S. federal income tax
considerations applicable to an investment in Class A Restricted Voting Shares,
Class B Non-Voting Shares, First Preferred Shares, Second Preferred Shares,
Warrants, First Units or Second Units acquired pursuant to a redemption of
First Preferred Shares or Second Preferred Shares, and First Notes or Second
Notes constituting a part of the First Units or Second Units, in each case by a
U.S. holder that holds such securities as capital assets within the meaning of
the U.S. Internal Revenue Code of 1986, as amended, which we refer to herein as
the Code. In this summary, we refer to Class A Restricted Voting Shares and
Class B Non-Voting Shares collectively as Common Shares, to First Preferred
Shares

76



---



##### Table of Contents



and Second Preferred Shares collectively as Preferred Shares, to
Common Shares and Preferred Shares collectively as Shares, to First Units and
Second Units collectively as Units, and to First Notes and Second Notes
collectively as Notes.

For purposes of this discussion, the term U.S. holder means a beneficial
owner of Shares, Warrants, Units or Notes that is, for U.S. federal income tax
purposes:



| |  |  | an individual who is a citizen or resident of the United
States;                                                                                                                                            
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a corporation, or other entity treated as a corporation for
U.S. federal income tax purposes, created or organized in or under
the laws of the United States, any State thereof or the District of
Columbia;
|
| |  |  | an estate the income of which is includible in gross income for
U.S. federal income tax purposes regardless of its source; or                                                                               
|
| |  |  | a trust the administration of which is subject to the primary
supervision of a court in the United States and for which one or more
U.S. persons have the authority to control all substantial decisions.   

If a partnership holds Shares, Warrants, Units or Notes, the U.S. federal
income tax treatment of a partner generally will depend upon the status of the
partner and the activities of the partnership.

This summary is based on the Code, Treasury regulations promulgated under
the Code, and judicial and administrative interpretations thereof, all as in
effect on the date hereof and all of which are subject to change, which change
may be retroactive and may affect the tax consequences described herein.

This summary is for general information only and does not take into
account the individual circumstances of any particular investor. Therefore,
investors who are U.S. holders are strongly urged to consult their own tax
advisors with respect to the tax consequences of an investment in Shares,
Warrants, Units or Notes based on their particular circumstances, including any
consequences of an investment in Shares, Warrants, Units or Notes arising under
state or local tax law or foreign tax laws of jurisdictions outside of the
United States.

Shares

Distributions

Distributions on Shares, whether in cash or in property, that are paid out
of our current or accumulated earnings and profits (as determined for U.S.
federal income tax purposes) will be includible in income by a U.S. holder as a
dividend when actually or constructively received. The amount of the dividend
will equal the amount of cash and the fair market value of the property
received. To the extent a U.S. holder receives a distribution that exceeds our
current and accumulated earnings and profits, the distribution will be treated
first as a non-taxable return of capital that reduces the holders adjusted tax
basis in the relevant Shares (to the extent of such basis) and thereafter as
taxable gain from the sale or exchange of such Shares. Generally, the dividends
received deduction and Code section 1059 extraordinary dividend provisions will
not apply to U.S. holders.

For taxable years beginning after December 31, 2002 and before January 1,
2009, dividends received by an individual from a qualified foreign
corporation are eligible for preferential rates of taxation. For this purpose,
we believe that we are a qualified foreign corporation. Such dividends
generally are eligible for the preferential tax rates except to the extent that
the individual (1) holds a share of stock for 60 days or less during the
120-day period beginning 60 days before the ex-dividend date (or, in the case
of certain preferred stock, 90 days or less during the 180-day period beginning
90 days before the ex-dividend date) as measured under Section 246(c) of the
Code, (2) is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially
similar or related property or (3) elects to treat the dividend as investment
income for purposes of determining the amount of deductible investment interest
under Section 163(d)(4)(B) of the Code. Further, if an individual receives,
with respect to any share of stock, an extraordinary dividend (within the
meaning of Section 1059(c) of the Code) eligible for the preferential tax
rates, any loss on a subsequent sale of the stock is treated as a long-term
capital loss to the extent of the extraordinary dividend.

Dividends paid in Canadian dollars (including the amount of any Canadian
taxes withheld therefrom) will be included in a U.S. holders income in a U.S.
dollar amount calculated by reference to the exchange rate in effect on the day
the dividends are received by the U.S. holder, regardless of whether the
Canadian dollars are converted to U.S. dollars at that time. U.S. holders
should consult their own tax advisors regarding the possible effect and rate of
any Canadian withholding tax and the reduction of such withholding rate under
the income tax treaty between the United States and Canada.

77



---



##### Table of Contents



In the case of certain preferred stock that is redeemable at a premium,
Code section 305 provides that the premium generally must be taken into income
by a holder as a deemed distribution (generally treated as described above)
under an economic accrual method over the period ending with the redemption
date. Generally, the premium includes both (1) the excess of the redemption
value over the initial stated value and (2) the excess of the initial stated
value over the issue price of the preferred stock (i.e., its purchase price
or initial fair market value). Although the application of these rules to the
Preferred Shares is not entirely clear, the economic accrual rules will likely
apply to the Preferred Shares. U.S. holders should consult their tax advisors
about the application of these rules to the Preferred Shares.

Sales, Exchanges, Redemptions and Conversions

Upon the sale, exchange or other disposition of Shares to a person other
than us, a U.S. holder will recognize capital gain or loss equal to the
difference between the amount realized and the U.S. holders adjusted tax basis
in the Shares. Such gain or loss will be long-term capital gain or loss if the
Shares have been held for more than one year and otherwise will be short-term
capital gain or loss. Long-term capital gains of individuals are eligible for
preferential rates of taxation, which have been reduced for long-term capital
gains recognized on or after May 6, 2003, and before January 1, 2009.
Short-term capital gains are taxed at the rates applicable to ordinary income,
which, for gains recognized on or after May 6, 2003, and before January 1,
2009, will be higher than the rates applicable to dividends. The deductibility
of capital losses is subject to limitations.

A redemption of Preferred Shares for cash or for First Units or Second
Units will be treated under Code section 302 as a taxable distribution
(generally treated as described above under Distributions) unless the
redemption (1) results in a complete termination of the holders stock
interest in our company under Code section 302(b)(3); (2) is substantially
disproportionate with respect to the holder under Code section 302(b)(2); or
(3) is not essentially equivalent to a dividend with respect to the holder
under Code section 302(b)(1). In determining whether any of these tests has
been met, Shares considered to be owned by the holder by reason of certain
constructive ownership rules set forth in Code section 318, as well as Shares
actually owned, generally must be considered.

If any of the above three tests is met, the redemption of the Preferred
Shares for cash or for First Units or Second Units will be treated as a sale of
the Preferred Shares and will result in the recognition of gain or loss equal
to the difference between the amount of cash or the amount of First Units or
Second Units received (including the issue price of the First Notes or Second
Notes received) and the adjusted tax basis in the Preferred Shares redeemed.
Such gain or loss will be taxed as described above.

Generally, a U.S. holder will recognize no gain or loss upon a conversion
of Preferred Shares to Common Shares or upon redemption at maturity of
Preferred Shares for Common Shares. The U.S. holders adjusted tax basis in the
Common Shares received in the conversion or redemption will generally equal the
holders adjusted tax basis in the Preferred Shares so converted or redeemed.
It is possible that, under Code section 305, a redemption of Preferred Shares
at maturity for Common Shares could result in a taxable constructive
distribution (generally treated as described above under Distributions) to a
U.S. holder. U.S. holders should consult their tax advisors regarding that
possibility.

A U.S. holder will recognize no gain or loss upon an exchange of Class B
Non-Voting Shares for Class A Restricted Voting Shares. The U.S. holders
adjusted tax basis in the Class A Restricted Voting Shares received in the
exchange will equal the holders adjusted tax basis in the Class B Non-Voting
Shares exchanged therefor, and the U.S. holders holding period for the Class A
Restricted Voting Shares will include the holding period for the Class B
Non-Voting Shares exchanged therefor.

Warrants

Upon the exercise of Warrants with cash, a U.S. holder will not recognize
gain or loss and will have a tax basis in the Common Shares acquired pursuant
to such exercise equal to such holders tax basis in the exercised Warrants
plus the exercise price. The holding period for such Common Shares will
commence on the date of exercise of the Warrants.

Upon the sale, exchange or other disposition of a Warrant, a U.S. holder
will recognize gain or loss in an amount equal to the amount realized and the
U.S. holders tax basis in the Warrant. Such gain or loss will be long-term
capital gain or loss if the Warrant has been held for more than one year, and
otherwise will be short-term capital gain or loss. Long-term capital gains of
individuals are eligible for preferential rates of taxation, which have been
reduced for long-term capital gains recognized on or after May 6, 2003, and
before January 1, 2009. Short-term capital gains are taxed at rates applicable
to ordinary income. The deductibility of capital losses is subject to
limitations.

If a Warrant expires unexercised, a U.S. holder will recognize a capital
loss equal to the holders tax basis in the expired Warrant.

78



---



##### Table of Contents



Units

The discussion in this section assumes the Notes, when issued, will be
properly treated as indebtedness for U.S. federal income tax purposes.

The Notes will be issued with original issue discount for U.S. federal
income tax purposes, which generally requires a holder to accrue ordinary
income on a constant yield to maturity basis, regardless of the receipt of cash
payments.

Notes that are part of Units purchased subsequent to their original
issuance may be subject to the market discount or bond premium rules.

Upon the sale, exchange or other disposition of a Unit, a U.S. holder will
recognize capital gain or loss equal to the difference between the amount
realized and the U.S. holders adjusted tax basis in the Unit. Such gain or
loss will be long-term capital gain or loss (except to the extent of recognized
accrued market discount arising from the Note) if the Unit has been held for
more than one year and otherwise will be short-term capital gain. Long-term
capital gains of individuals are eligible for preferential rates of taxation,
which have been reduced for long-term capital gains recognized on or after May
6, 2003, and before January 1, 2009. Short-term capital gains are taxed at
rates applicable to ordinary income. The deductibility of capital losses is
subject to limitations. A holders adjusted tax basis in a Unit will include
the adjusted tax basis in the Note constituting a part of the Unit, which
generally will equal the issue price of the Note, increased by the original
issue discount that the holder previously included in income (and reduced by
any cash payments).

A U.S. holder generally will not recognize any income, gain or loss upon
conversion of a Note into Common Shares except with respect to cash received in
lieu of a fractional share. Cash received in lieu of a fractional share upon
conversion will be treated as a payment in exchange for the fractional share.
Accordingly, the receipt of cash in lieu of a fractional share generally will
result in capital gain or loss (measured by the difference between the cash
received for the fractional share and the holders adjusted tax basis in the
fractional share). A U.S. holders tax basis in the Common Shares received on
conversion of a Note will be the same as such holders adjusted tax basis in
the Note at the time of conversion (reduced by any basis allocable to a
fractional share interest), and the holding period for the Common Shares
received on conversion will generally include the holding period of the Note
converted.

U.S. holders should consult their tax advisors regarding the U.S. federal
income tax consequences of converting a voting Unit into a non-voting Unit or a
conversion of a non-voting Unit into a voting Unit.

Constructive Dividends

Under Code section 305, adjustments to the conversion ratio of Preferred
Shares or Notes or to the exercise price of Warrants, or the failure to make
any such adjustments, may result in the receipt of taxable constructive
distributions (generally treated as described above under Shares 
Distribution by the holders of Preferred Shares, Notes, Warrants or, in
certain cases, holders of Common Shares, regardless of whether or not there is
an associated distribution of cash or property.

Foreign Currency and Foreign Tax Credit Considerations

U.S. holders should consult their tax advisors regarding the U.S. federal
income tax consequences of foreign currency exchange gain or loss arising from
the receipt of Canadian dollars or the acquisition, ownership or disposition of
Canadian dollar-denominated securities.

For U.S. foreign tax credit limitation purposes, dividends, interest
(including additional amounts, if any) and original issue discount generally
will be treated as foreign source income, and gain or loss recognized on the
sale, exchange or other disposition of Shares, Warrants or Units generally will
be treated as from U.S. sources. To the extent Canadian withholding tax is
payable in respect of a distribution or payment to a U.S. holder, such holder
may be eligible for a foreign tax credit or deduction. Further, foreign source
income has an effect on a U.S. holders ability to absorb foreign tax credits.
The rules relating to U.S. foreign tax credits are extremely complex, and U.S.
holders should consult their tax advisors regarding the application of the U.S.
foreign tax credit rules to their particular situations.

Passive Foreign Investment Company Considerations

The Code provides special anti-deferral rules regarding certain
distributions received by U.S. persons with respect to, and sales and other
dispositions (including pledges) of stock of, a passive foreign investment
company, which we refer to as a PFIC. A foreign corporation, such as our
company, will be treated as a PFIC if 75% or more of its gross income is
passive income for a taxable year or if the average percentage of its assets
(by value) that produce, or are held for the production of, passive income is
at least 50% for a taxable year.

79



---



##### Table of Contents



We do not believe that we are currently a PFIC, and we anticipate that we
will not become a PFIC. If we become a PFIC, U.S. holders of Shares or Warrants
may become subject to adverse U.S. federal income tax consequences. U.S.
holders should consult their tax advisors regarding the consequences and
possible ameliorative actions.

Backup Withholding and Information Reporting

The payment within the United States of dividends or interest on, or the
proceeds from a disposition of, Shares, Warrants or Units, in each case held by
certain non-corporate holders may be subject to U.S. information reporting
rules. Such payments may also be subject to U.S. backup withholding at the
applicable backup withholding rate, unless a holder provides a taxpayer
identification number and satisfies certain other conditions or otherwise
establishes an exemption under the Code. Backup withholding is not an
additional tax, and may be credited against a holders U.S. federal income tax
liability or refunded if the amounts so withheld exceed the holders U.S.
federal income tax liability.

DOCUMENTS ON DISPLAY

Any documents referred to in this annual report may be inspected at the
office of the Company at 800 de La Gauchetière Street West, Suite 4000,
Montreal, Quebec, Canada, H5A 1K3.




ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

PRE- REORGANIZATION

Qualitative Market Risk Disclosures

Market Risk

As of December 31, 2002, the Company was involved in its debt
restructuring process. In July 2002, the Company unhedged its currency exposure
on the 2009 Notes, which had an accreted value of U.S.$270.0 million,
generating a total net proceeds of approximately Cdn.$40.6 million. As of
December 31st 2002, all of the other hedging instruments of Old Microcell were
also terminated.

Quantitative Market Risk Disclosure

Fair Value

The fair value of the Senior Discount Notes due in 2006, 2007 and 2009 is
determined based on an amount quoted on the over-the-counter market as at
December 31st 2002.

The fair value of the swaps and the options is determined based on market
rates prevailing at the balance sheet date obtained from the Companys
financial institutions for similar derivative instruments.

Sensitivity is tested based upon the new debt structure, i.e. post
effectiveness of the Plan.

Balance Sheet Positions as of Dec 31, 2002

|                       |                                    |  |  |  |  |      |  |            |  |  |  |     |  |  |  | 
|---------------------- | ---------------------------------- |  |  |  |  | ---- |  | ---------- |  |  |  | --- |  |  |  | 
|(Dollars in Thousands) |                                    |  |  |  |  | 2002 |  | Thereafter
|                       |                                    |  |  |  |  |      |  |           
|ASSETS                 |                                    |  |  |  |  |      |  |            |  |  |  |    
|                       | Cash and cash equivalents ($)      |  |  |  |  |      |  | 110,324    |  |  |  | n/a | 
|                       | Weighted-average interest rate (%) |  |  |  |  |      |  | 3.8        |  |  |  | n/a | 

80



---



##### Table of Contents



|                                                           |  |                            |                    |                       |            |      |       |            |  |  |         |  |  |  |     | 
|---------------------------------------------------------- |  | -------------------------- | ------------------ | --------------------- | ---------- | ---- | ----- | ---------- |  |  | ------- |  |  |  | --- | 
|(Dollars in Thousands)                                     |  |                            |                    |                       |            | 2002 |       | Thereafter
|                                                           |  |                            |                    |                       |            |      |       |           
|LIABILITIES                                                |  |                            |                    |                       |            |      |       |            |  |  |         | 
|Long-term debt, including current portion (fixed rate):    |  |                            |                    |                       |            |      |       |            |  |  |         | 
|                                                           |  | Senior discount notes:     |                    |                       |            |      |       |            |  |  |         |  |  | 
|                                                           |  |                            | Principal/Accreted |                       | Fair value |      |       |            |  |  |         |  | 
|                                                           |  |                            |                    | Due in 2006 ($)       |            |      | 1,986 |            |  |  | 284,819 |  |  |  | n/a | 
|                                                           |  |                            |                    | Accreted interest ($) |            |      | 2,612 |            |  |  | 374,575 |  |  |  | n/a | 
|                                                           |  |                            |                    | Due in 2007 ($)       |            |      | 1,500 |            |  |  | 250,000 |  |  |  | n/a | 
|                                                           |  |                            |                    | Accreted interest ($) |            |      | 1,077 |            |  |  | 179,443 |  |  |  | n/a | 
|                                                           |  |                            |                    | Due in 2009 ($)       |            |      | 1,394 |            |  |  | 237,387 |  |  |  | n/a | 
|                                                           |  |                            |                    | Accreted interest ($) |            |      | 728   |            |  |  | 123,906 |  |  |  | n/a | 
|                                                           |  |                            | Interest rate      |                       |            |      |       |            |  |  |         |  |  |  |    
|                                                           |  |                            |                    | Due in 2006 (%)       |            |      |       |            |  |  | 14.000  |  |  |  | n/a | 
|                                                           |  |                            |                    | Due in 2007 (%)       |            |      |       |            |  |  | 11.125  |  |  |  | n/a | 
|                                                           |  |                            |                    | Due in 2009 (%)       |            |      |       |            |  |  | 12.000  |  |  |  | n/a | 
|Long-term debt, including current portion (floating rate): |  |                            |                    |                       |            |      |       |            |  |  |         | 
|                                                           |  | Senior secured term loans: |                    |                       |            |      |       |            |  |  |         |  |  | 
|                                                           |  |                            | Principal          |                       |            |      |       |            |  |  |         |  |  |  |    
|                                                           |  |                            |                    | Tranche A ($)         |            |      |       |            |  |  | 143,640 |  |  |  | n/a | 
|                                                           |  |                            |                    | Tranche B ($)         |            |      |       |            |  |  | 79,955  |  |  |  | n/a | 
|                                                           |  |                            |                    | Tranche C ($)         |            |      |       |            |  |  | 17,860  |  |  |  | n/a | 
|                                                           |  |                            |                    | Tranche D ($)         |            |      |       |            |  |  | 33,345  |  |  |  | n/a | 
|                                                           |  |                            |                    | Tranche E ($)         |            |      |       |            |  |  | 215,984 |  |  |  | n/a | 
|                                                           |  |                            |                    | Tranche F ($)         |            |      |       |            |  |  | 99,264  |  |  |  | n/a | 
|                                                           |  |                            | Interest rate      |                       |            |      |       |            |  |  |         |  |  |  |    
|                                                           |  |                            |                    | Tranche A (%)         |            |      |       |            |  |  | 5.50    |  |  |  | n/a | 
|                                                           |  |                            |                    | Tranche B (%)         |            |      |       |            |  |  | 6.25    |  |  |  | n/a | 
|                                                           |  |                            |                    | Tranche C (%)         |            |      |       |            |  |  | 5.50    |  |  |  | n/a | 
|                                                           |  |                            |                    | Tranche D (%)         |            |      |       |            |  |  | 5.50    |  |  |  | n/a | 
|                                                           |  |                            |                    | Tranche E (%)         |            |      |       |            |  |  | 6.50    |  |  |  | n/a | 
|                                                           |  |                            |                    | Tranche F (%)         |            |      |       |            |  |  | 6.75    |  |  |  | n/a | 

POST- REORGANIZATION

Qualitative Market Risk Disclosures

Market Risk

As most of the Companys revenues are expected to be received in Canadian
dollars, the Company is exposed to foreign exchange risk on repayments at
maturity of the Tranche B Debt denominated in U.S. dollars. The Company uses
derivatives such as foreign exchange swap agreements to manage certain elements
of its cash flow exposure resulting from foreign exchange fluctuations. The
Company does not hold derivatives for trading purposes.

It is the Companys policy to enter into foreign currency and other
hedging transactions to manage financial risk exposures and to protect cash
flow from market volatility, while minimizing the costs associated with any
hedging program. To date, the Company has hedged its foreign exchange risk
exposure to mitigate the impact of changes in foreign exchange rates on its
cash flow (100% of permitted equivalent of Cdn.$100.0 million denominated in
U.S. dollars).

Interest Rate Risk Management

Of the secured term loans, the Tranche B Debt of Cdn.$300.0 million has a
floating interest rate. A fluctuation of one percentage point would affect cash
flow by approximately Cdn.$7.6 million over the maturity period (2008) of the
Tranche. The other Term Loan, carrying a floating interest rate is the Tranche
A Exit Facility of Cdn.$25.0 million which remains undrawn as of May 2003. In
the case that the Tranche A Exit Facility was fully drawn, a one percentage
point change in interest rates could affect the Companys cash flow by
approximately Cdn.$0.25 million annually up to 2006. As of May 2003, the
Company did not hold any interest rate swap agreements related to interest rate
exposure.

81



---



##### Table of Contents



As the Companys policy is to hold all cash equivalents and short-term
investments to maturity, short-term fluctuations in interest rates would not
impact the realization value of these investments.

Foreign Exchange Risk Management

The Companys objective in managing foreign exchange risk is to protect
against cash flow and balance sheet volatility resulting from changes in
foreign exchange rates. Long-term debt denominated in U.S. dollars exposes the
Company to changes in foreign exchange rates. Starting on May 23rd, 2003, a
foreign exchange swap instrument was used to convert U.S.$35.8 million of debt
into Cdn.$50.0 million of debt. This foreign exchange swap has resulted in a
favorable position of Cdn.$1.9 million. Starting on June 16th, 2003, a foreign
exchange swap instrument was used to convert the remaining U.S.$36.9 million of
debt into Cdn.$50.0 million of debt. This foreign exchange swap has resulted in
a favorable position of Cdn.$3.4 million.

Only the U.S. dollars portion of Tranche B Debt carries a foreign exchange
risk (U.S. dollar equivalent of Cdn.$195.0 million, over Cdn.$300 million, is
denominated in U.S. dollars). Thus, the unhedged Cdn.$95.0 million denominated
in U.S. dollars exposes the Company to approximately Cdn.$3.1 million of
foreign exchange loss for a fluctuation of 1% in the Canadian dollar to the
U.S. dollar up to the Tranches maturity in 2008.

Quantitative Market Risk Disclosure

Interest Rate Sensitivity

The following table provides information about the Companys derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates. For short-term investments, the table presents
principal cash flows and related weighted-average interest rates by expected
maturity dates.

For long-term debt, the table presents principal cash flows and related
interest by expected maturity dates.

Interest Rate Sensitivity

|                                           |                             |                        |         |      |         |      |         |      |         |      |  |            |        |       |  |   |        |  |  |     |        |  |  |  |         |  |  |  |         | 
|------------------------------------------ | --------------------------- | ---------------------- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- |  | ---------- | ------ | ----- |  | - | ------ |  |  | --- | ------ |  |  |  | ------- |  |  |  | ------- | 
|(Dollars in Thousands)                     |                             | 2003                   |         | 2004 |         | 2005 |         | 2006 |         | 2007 |  | Thereafter |        | Total
|                                           |                             |                        |         |      |         |      |         |      |         |      |  |            |        |      
|LIABILITIES                                |                             |                        |         |      |         |      |         |      |         |      |  |            |        |       |  |   |        |  |  |     |        |  |  |  |         |  |  | 
|Long-term debt, including current portion: |                             |                        |         |      |         |      |         |      |         |      |  |            |        |       |  |   |        |  |  |     |        |  |  |  |         |  |  | 
|                                           | Secured Loans               |                        |         |      |         |      |         |      |         |      |  |            |        |       |  |   |        |  |  |     |       
|                                           | Tranche A Exit Facility ($) |                        | Undrawn |      | Undrawn |      | Undrawn |      | Undrawn |      |  | N/A        |        |       |  |  |        |  |  |    |       
|                                           |                             | Tranche B Debt ($)     |         |      | 7,500   |      |         |      | 10,000  |      |  |            | 10,000 |       |  |   | 15,000 |  |  |     | 15,000 |  |  |  | 242,500 |  |  |  | 300,000 | 
|                                           |                             | Tranche
C Notes ($)(1) |         |      |        |      |         |      |        |      |  |            |       |       |  |   |       |  |  |     |       |  |  |  | 109,594 |  |  |  | 109,594 | 
|                                           | Interest rate               |                        |         |      |         |      |         |      |         |      |  |            |        |       |  |   |        |  |  |     |        |  |  |  |         |  |  |  |        
|                                           | Tranche A Exit Facility (%) |                        |         |     |         |      |         |     |         |      |  |           |        |       |  |  |        |  |  | N/A |        |  |  |  |         |  |  |  |        
|                                           |                             | Tranche B Debt (%)     |         |      | 5.5     |      |         |      | 6.0     |      |  |            | 6.5    |       |  |   | 7.0    |  |  |     | 7.5    |  |  |  | 8.0     |  |  |  | N/A     | 
|                                           |                             | Tranche C Notes (%)    |         |      | 8.0     |      |         |      | 8.0     |      |  |            | 8.0    |       |  |   | 8.0    |  |  |     | 8.0    |  |  |  | 8.0     |  |  |  | N/A     | 

(1) This amount includes accredited
interest.

Foreign Currency Sensitivity

The following table provides information about the Companys financial
instruments by functional currency and presents such information in Canadian
dollar equivalents. The table summarizes information on instruments and
transactions that are sensitive to foreign currency exchange rates, including
currency denominated debt obligations. For foreign currency denominated debt
obligations, the table presents principal cash flows, related interest rates by
expected maturity dates and the assumed applicable current average forward
foreign currency exchange rates.

82



---



##### Table of Contents



Foreign Currency Sensitivity

|                                                     |                                            |      |  |        |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  |         |  | 
|---------------------------------------------------- | ------------------------------------------ | ---- |  | ------ |  | ---- |  | ----- |  | ---- |  | ---------- |  | ----- |  | ------ |  |  |  | ------ |  |  |  | ------- |  |  |  | ------- |  | 
|(Dollars in Millions)                                |                                            | 2003 |  | 2004   |  | 2005 |  | 2006  |  | 2007 |  | Thereafter |  | Total
|                                                     |                                            |      |  |        |  |      |  |       |  |      |  |            |  |      
|LONG-TERM DEBT DENOMINATED IN FOREIGN CURRENCY ($US) |                                            |      |  |        |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  |        
|Canadian dollars:                                    |                                            |      |  |        |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  |        
|                                                     | Secured Loan                               |      |  |        |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  |         | 
|                                                     | Tranche B Debt ($)                         |      |  | 5,000  |  |      |  | 6,667 |  |      |  | 6,667      |  |       |  | 10,000 |  |  |  | 10,000 |  |  |  | 161,667 |  |  |  | 200,000 | 
|                                                     | Interest rate  Floating                   |      |  |        |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  |         | 
|                                                     | Tranche B Debt (%)                         |      |  | 5.50   |  |      |  | 6.00  |  |      |  | 6.50       |  |       |  | 7.00   |  |  |  | 7.50   |  |  |  | 8.00    |  |  |  | N/A     | 
|                                                     | Forward foreign currency exchange rate ($) |      |  |        |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  |         | 
|                                                     | Tranche B Debt ($)                         |      |  |        |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  |         | 
|                                                     | Swap (May 23, 2003) ($)                    |      |  | 50,000 |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  | 50,000  | 
|                                                     | Forward F/X Rate                           |      |  |        |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  |         | 
|                                                     | (Cdn/US)                                   |      |  | 1.3986 |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  | 1.3986  | 
|                                                     | Swap (June 16, 2003) ($)                   |      |  | 50,000 |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  | 50,000  | 
|                                                     | Forward F/X Rate                           |      |  |        |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  |         | 
|                                                     | (Cdn/US)                                   |      |  | 1.3548 |  |      |  |       |  |      |  |            |  |       |  |        |  |  |  |        |  |  |  |         |  |  |  | 1.3548  | 




ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable




PART II




ITEM 13  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Incorporated by reference in this annual report is: (1) the section
entitled The Plan presented at pages 27 to 50 of the Circular filed on Form
6-K on February 20, 2003; and (2) the material change report filed on Form 6-K
on January 6, 2003.




ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Incorporated by reference in this annual report is: (1) the section
entitled Development and Description of the Plan presented at pages 30 to 35
of the Circular filed on Form 6-K on February 20, 2003; and (2) the material
change report filed on Form 6-K on January 6, 2003.




ITEM 15  CONTROLS AND PROCEDURES

As of a date (the evaluation date) within 90 days prior to the date of
this report, Microcell Telecommunications Inc. conducted an evaluation (under
the supervision and with the participation of Microcell Telecommunications
Inc.s management, including the chief executive officer and chief financial
officer), pursuant to Rule 13a-15 promulgated under the Exchange Act, of the
effectiveness of the design and operation of Microcells disclosure controls
and procedures. Based on this evaluation, Microcells chief executive officer
and chief financial officer concluded that as of the evaluation date, such
disclosure controls and procedures were reasonably designed to ensure that
information required to be disclosed by Microcell in reports it files or
submits under the

83



---



##### Table of Contents



Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.

Since the evaluation date, there have not been any significant changes in
the internal controls or in other factors that could significantly affect the
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.




ITEM 16. A.  AUDIT COMMITTEE FINANCIAL EXPERT

Not applicable




ITEM 16. B.  CODE OF ETHICS

Not applicable




ITEM 16. C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not applicable




PART III




ITEM 17  FINANCIAL STATEMENTS

Not applicable




ITEM 18  FINANCIAL STATEMENTS

The financial statements contained in this item 18 are the audited
consolidated financial statements for the year ended December 31, 2002 of Old
Microcell, and do not contain information pertaining to subsequent
developments, including the consummation of the Plan and Microcells succession
to Old Microcell, except for note 1. The financial statements appearing in this
item may use different defined terms than those appearing elsewhere in this
annual report on Form 20-F.

84



---



##### Table of Contents



AUDITORS REPORT

To the Shareholders ofMicrocell Telecommunications Inc.

We have audited the consolidated balance sheets of Microcell Telecommunications
Inc.as at December 31, 2002 and 2001, and the consolidated statements of loss
and deficit and cash flows for each of the years in the three-year period ended
December 31, 2002. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with Canadian and United States 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 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 the Company as at December 31,
2002 and 2001, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2002 in accordance with
Canadian generally accepted accounting principles.

As described in note 3, in 2002, the Company has changed its method of
accounting for goodwill and other intangible assets, stock-based compensation
and other stock-based payments and consideration given by a vendor to a
customer or a reseller of the vendors product.



|                                                                | -S- Ernst & Young LLP
|--------------------------------------------------------------- | ---------------------
|Montréal, Canada,                                               | Chartered Accountants
|January 31, 2003
(except for note 1 which is as at May 1, 2003) |                      

85



---



##### Table of Contents



Microcell Telecommunications Inc.

CONSOLIDATED BALANCE SHEETS

As at December 31
(In thousands of Canadian dollars)

|                                                          |                 |  |             |        |      |  |            |         |           |  |            |         | 
|--------------------------------------------------------- | --------------- |  | ----------- | ------ | ---- |  | ---------- | ------- | --------- |  | ---------- | ------- | 
|                                                          |                 |  | Pro forma   |        |      |  |            |         |           |  |           
|                                                          |                 |  | 2002        |        | 2002 |  | 2001      
|                                                          |                 |  | $           |        | $    |  | $         
|                                                          |                 |  |             |        |      |  |           
|                                                          |                 |  | (note 1)    |        |      |  |            |         | (Restated
|                                                          |                 |  | (Unaudited) |        |      |  |            |         | note 3)  
|ASSETS(note 11)                                           |                 |  |             |        |      |  |            |         |           |  |            |        
|Current assets                                            |                 |  |             |        |      |  |            |         |           |  |            |        
|Cash and cash equivalents                                 |                 |  | 26,979      |        |      |  | 26,979     |         |           |  | 19,005     |        
|Short-term investments and marketable securities (note 4) |                 |  | 83,345      |        |      |  | 83,345     |         |           |  | 159,524    |        
|Receivables (note 5)                                      |                 |  | 71,813      |        |      |  | 71,813     |         |           |  | 85,973     |        
|Receivables from related companies                        |                 |  | 866         |        |      |  | 866        |         |           |  | 489        |        
|Inventories                                               |                 |  | 19,527      |        |      |  | 19,527     |         |           |  | 19,897     |        
|Other current assets                                      |                 |  | 30,740      |        |      |  | 39,616     |         |           |  | 40,604     |        
|                                                          |                 |  |             |        |      |  |            |         |           |  |            |        
|Total current assets                                      |                 |  | 233,270     |        |      |  | 242,146    |         |           |  | 325,492    |        
|Capital assets (note 6)                                   |                 |  | 312,113     |        |      |  | 655,646    |         |           |  | 764,048    |        
|Intangible assets (note 7)                                |                 |  | 250,410     |        |      |  | 2,727      |         |           |  | 226,126    |        
|Long-term investments (note 8)                            |                 |  | 10,671      |        |      |  | 10,671     |         |           |  | 34,983     |        
|Deferred charges and other assets (note 9)                |                 |  | 1,664       |        |      |  | 1,664      |         |           |  | 44,610     |        
|                                                          |                 |  |             |        |      |  |            |         |           |  |            |        
|                                                          |                 |  | 808,128     |        |      |  | 912,854    |         |           |  | 1,395,259  |        
|                                                          |                 |  |             |        |      |  |            |         |           |  |            |        
|LIABILITIES AND SHAREHOLDERS DEFICIENCY                  |                 |  |             |        |      |  |            |         |           |  |            |        
|Current liabilities                                       |                 |  |             |        |      |  |            |         |           |  |            |        
|Accounts payable and accrued liabilities                  |                 |  |             |        |      |  |            |         |           |  |            |        
|Related companies                                         |                 |  | 23          |        |      |  | 23         |         |           |  | 445        |        
|                                                          | Other (note 10) |  |             | 51,536 |      |  |            | 132,306 |           |  |            | 106,334 | 
|Deferred revenues                                         |                 |  | 37,573      |        |      |  | 37,573     |         |           |  | 38,115     |        
|Current portion of long-term debt (note 11)               |                 |  | 7,500       |        |      |  | 7,500      |         |           |  | 16,523     |        
|                                                          |                 |  |             |        |      |  |            |         |           |  |            |        
|Total current liabilities                                 |                 |  | 96,632      |        |      |  | 177,402    |         |           |  | 161,417    |        
|Long-term debt (note 11)                                  |                 |  | 342,500     |        |      |  | 2,032,678  |         |           |  | 1,887,048  |        
|Deferred income tax liabilities (note 16)                 |                 |  |            |        |      |  |           |         |           |  | 73,519     |        
|                                                          |                 |  |             |        |      |  |            |         |           |  |            |        
|                                                          |                 |  | 439,132     |        |      |  | 2,210,080  |         |           |  | 2,121,984  |        
|                                                          |                 |  |             |        |      |  |            |         |           |  |            |        
|Shareholders deficiency                                  |                 |  |             |        |      |  |            |         |           |  |            |        
|Share capital (note 12)                                   |                 |  | 368,996     |        |      |  | 1,167,678  |         |           |  | 1,167,371  |        
|Warrants (note 12)                                        |                 |  |            |        |      |  | 1,770      |         |           |  | 2,077      |        
|Deficit                                                   |                 |  |            |        |      |  | (2,466,674 | )       |           |  | (1,896,173 | )      
|                                                          |                 |  |             |        |      |  |            |         |           |  |            |        
|                                                          |                 |  | 368,996     |        |      |  | (1,297,226 | )       |           |  | (726,725   | )      
|                                                          |                 |  |             |        |      |  |            |         |           |  |            |        
|                                                          |                 |  | 808,128     |        |      |  | 912,854    |         |           |  | 1,395,259  |        
|                                                          |                 |  |             |        |      |  |            |         |           |  |            |        

Commitments (note 17)
Contingency (note 21)

See accompanying notes

On behalf of the Board:



|André Tremblay (signed)
    Director, President and Chief Executive Officer | Charles Sirois (signed)
 Chairman of the Board
|--------------------------------------------------------------------------- | ----------------------------------------------

86



---



##### Table of Contents



Microcell Telecommunications Inc.

CONSOLIDATED STATEMENTS
OF LOSS AND DEFICIT

Years ended December 31
(In thousands of Canadian dollars, except for per-share data)

|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  
|--------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | --------- | --------- | --------- |  |  | --------- | -
|                                                                                                    |  | 2002 |           | 2001 |  | 2000     
|                                                                                                    |  | $    |           | $    |  | $        
|                                                                                                    |  |      |           |      |  |          
|                                                                                                    |  |      |           |      |  | (Restated |           | (Restated
|                                                                                                    |  |      |           |      |  | note 3)   |           | note 3)  
|Revenues                                                                                            |  |      |           |      |  |           |           |           |  |  |           |  
|Services                                                                                            |  |      | 566,706   |      |  |           | 509,082   |           |  |  | 365,665   |  
|Equipment sales                                                                                     |  |      | 24,356    |      |  |           | 32,408    |           |  |  | 40,321    |  
|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  
|                                                                                                    |  |      | 591,062   |      |  |           | 541,490   |           |  |  | 405,986   |  
|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  
|Costs and expenses(note 14)                                                                         |  |      |           |      |  |           |           |           |  |  |           |  
|Cost of products and services                                                                       |  |      | 285,252   |      |  |           | 336,753   |           |  |  | 306,391   |  
|Selling and marketing                                                                               |  |      | 105,386   |      |  |           | 115,638   |           |  |  | 119,049   |  
|General and administrative                                                                          |  |      | 109,412   |      |  |           | 98,902    |           |  |  | 92,878    |  
|Depreciation and amortization                                                                       |  |      | 242,416   |      |  |           | 177,990   |           |  |  | 131,304   |  
|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  
|                                                                                                    |  |      | 742,466   |      |  |           | 729,283   |           |  |  | 649,622   |  
|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  
|Operating loss before impairment of intangible
assets and restructuring charges                     |  |      | 151,404   |      |  |           | 187,793   |           |  |  | 243,636   |  
|Impairment of intangible assets (note 7)                                                            |  |      | 223,399   |      |  |           |          |           |  |  |          |  
|Restructuring charges (note 15)                                                                     |  |      | 7,494     |      |  |           | 5,226     |           |  |  |          |  
|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  
|Operating loss                                                                                      |  |      | 382,297   |      |  |           | 193,019   |           |  |  | 243,636   |  
|Interest income                                                                                     |  |      | (5,479    | )    |  |           | (6,553    | )         |  |  | (20,341   | )
|Interest expense                                                                                    |  |      | 216,256   |      |  |           | 215,888   |           |  |  | 185,471   |  
|Financing charges                                                                                   |  |      | 10,573    |      |  |           | 8,349     |           |  |  | 8,742     |  
|Foreign exchange loss (gain)                                                                        |  |      | (926      | )    |  |           | 51,129    |           |  |  | 24,638    |  
|Write-down of deferred financing costs and deferred
gain and loss on financial instruments (note 9) |  |      | 16,947    |      |  |           |          |           |  |  |          |  
|Gain on financial instruments (note 9)                                                              |  |      | (6,570    | )    |  |           |          |           |  |  |          |  
|Net gain on disposal of investments (note 8)                                                        |  |      |          |      |  |           |          |           |  |  | (285,967  | )
|Loss in value of investments, marketable securities
and other assets (notes 4, 8 and 9)             |  |      | 16,086    |      |  |           | 33,093    |           |  |  | 248,336   |  
|Share of net loss (net income) in investees (note 8)                                                |  |      | 13,212    |      |  |           | 5,282     |           |  |  | (20,573   | )
|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  
|Loss before income taxes                                                                            |  |      | 642,396   |      |  |           | 500,207   |           |  |  | 383,942   |  
|Income tax benefit (note 16)                                                                        |  |      | (71,895   | )    |  |           | (1,722    | )         |  |  | (115,515  | )
|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  
|Net loss                                                                                            |  |      | 570,501   |      |  |           | 498,485   |           |  |  | 268,427   |  
|Deficit, beginning of year                                                                          |  |      | 1,896,173 |      |  |           | 1,397,688 |           |  |  | 1,129,261 |  
|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  
|Deficit, end of year                                                                                |  |      | 2,466,674 |      |  |           | 1,896,173 |           |  |  | 1,397,688 |  
|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  
|Basic and diluted loss per share(note 13)                                                           |  |      | 2.37      |      |  |           | 4.56      |           |  |  | 2.79      |  
|                                                                                                    |  |      |           |      |  |           |           |           |  |  |           |  

See accompanying notes

87



---



##### Table of Contents



Microcell Telecommunications Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31
(In thousands of Canadian dollars)

|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |          |  
|---------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ |  | -------- | ------- | ---- |  | -------- | ------- | - |  | -------- | -------- | -
|                                                                       |                                                                                            |  | 2002     |         | 2001 |  | 2000    
|                                                                       |                                                                                            |  | $        |         | $    |  | $       
|                                                                       |                                                                                            |  |          |         |      |  |         
|OPERATING ACTIVITIES                                                   |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Net loss                                                               |                                                                                            |  | (570,501 | )       |      |  | (498,485 | )       |   |  | (268,427 | )       
|Adjustments to reconcile net loss to cash used in operating
activities |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Depreciation and amortization                                          |                                                                                            |  | 242,416  |         |      |  | 177,990  |         |   |  | 131,304  |         
|                                                                       | Accreted interest on long-term debt                                                        |  |          | 72,762  |      |  |          | 158,194 |   |  |          | 142,812  |  
|                                                                       | Financing charges                                                                          |  |          | 9,128   |      |  |          | 7,674   |   |  |          | 7,341    |  
|                                                                       | Foreign exchange loss (gain)                                                               |  |          | (493    | )    |  |          | 50,281  |   |  |          | 25,449   |  
|                                                                       | Write down of deferred financing costs and deferred gain and
loss on financial instruments |  |          | 16,947  |      |  |          |        |   |  |          |         |  
|                                                                       | Reversal of provision for sales tax                                                        |  |          | (13,806 | )    |  |          |        |   |  |          |         |  
|                                                                       | Deferred income taxes                                                                      |  |          | (73,519 | )    |  |          | (3,966  | ) |  |          | (116,968 | )
|                                                                       | Net gain on disposal of investments                                                        |  |          |        |      |  |          |        |   |  |          | (285,967 | )
|                                                                       | Gain on financial instruments                                                              |  |          | (6,570  | )    |  |          |        |   |  |          |         |  
|                                                                       | Impairment of intangible assets                                                            |  |          | 223,399 |      |  |          |        |   |  |          |         |  
|                                                                       | Loss in value of investments, marketable securities and other
assets                       |  |          | 16,005  |      |  |          | 33,079  |   |  |          | 248,336  |  
|                                                                       | Share of net loss (net income) in investees                                                |  |          | 13,212  |      |  |          | 5,282   |   |  |          | (20,573  | )
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|                                                                       |                                                                                            |  | (71,020  | )       |      |  | (69,951  | )       |   |  | (136,693 | )       
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Changes in operating assets and liabilities                            |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Decrease (increase) in trade receivables                               |                                                                                            |  | 15,941   |         |      |  | (27,234  | )       |   |  | (15,560  | )       
|                                                                       | Decrease (increase) in interest receivable                                                 |  |          | 874     |      |  |          | 2,771   |   |  |          | (1,067   | )
|                                                                       | Decrease (increase) in taxes receivable                                                    |  |          | (2,655  | )    |  |          | 6,005   |   |  |          | (1,970   | )
|                                                                       | Increase in receivables from related companies                                             |  |          | (377    | )    |  |          | (489    | ) |  |          |         |  
|                                                                       | Decrease (increase) in inventories                                                         |  |          | 370     |      |  |          | 17,545  |   |  |          | (11,868  | )
|                                                                       | Decrease (increase) in other current assets                                                |  |          | 42      |      |  |          | 4,409   |   |  |          | (9,185   | )
|                                                                       | Increase (decrease) in accounts payable and accrued liabilities                            |  |          | 16,385  |      |  |          | (61,289 | ) |  |          | 52,837   |  
|                                                                       | Increase (decrease) in deferred revenues                                                   |  |          | (542    | )    |  |          | 5,979   |   |  |          | 17,774   |  
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|                                                                       |                                                                                            |  | 30,038   |         |      |  | (52,303  | )       |   |  | 30,961   |         
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Cash used in operating activities                                      |                                                                                            |  | (40,982  | )       |      |  | (122,254 | )       |   |  | (105,732 | )       
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|INVESTING ACTIVITIES                                                   |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Reduction of (additions to) short-term investments                     |                                                                                            |  | 75,262   |         |      |  | (157,985 | )       |   |  | 23,919   |         
|Reduction of (additions to) short-term investments  restricted        |                                                                                            |  |         |         |      |  | 120,710  |         |   |  | (120,710 | )       
|Proceeds from sale of marketable securities                            |                                                                                            |  | 589      |         |      |  | 72,804   |         |   |  | 87,128   |         
|Additions to capital assets                                            |                                                                                            |  | (124,683 | )       |      |  | (277,395 | )       |   |  | (257,191 | )       
|Additions to intangible assets                                         |                                                                                            |  |         |         |      |  | (130,000 | )       |   |  | (20,000  | )       
|Additions to deferred charges and other assets                         |                                                                                            |  | (2,377   | )       |      |  | (9,488   | )       |   |  | (6,756   | )       
|Additions to long-term investments                                     |                                                                                            |  | (1,351   | )       |      |  | (2,535   | )       |   |  | (35,965  | )       
|Proceeds from termination of derivative instruments                    |                                                                                            |  | 31,041   |         |      |  |         |         |   |  |         |         
|Proceeds from long-term investments                                    |                                                                                            |  | 949      |         |      |  |         |         |   |  |         |         
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Cash used in investing activities                                      |                                                                                            |  | (20,570  | )       |      |  | (383,889 | )       |   |  | (329,575 | )       
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|FINANCING ACTIVITIES                                                   |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Issuance of shares                                                     |                                                                                            |  |         |         |      |  | 450,755  |         |   |  | 402,426  |         
|Share issuance costs                                                   |                                                                                            |  |         |         |      |  | (11,434  | )       |   |  | (5,523   | )       
|Increase in long-term debt                                             |                                                                                            |  | 100,000  |         |      |  | 270,813  |         |   |  | 67       |         
|Repayment of long-term debt                                            |                                                                                            |  | (10,732  | )       |      |  | (270,809 | )       |   |  | (92      | )       
|Financing costs                                                        |                                                                                            |  | (19,742  | )       |      |  | (1,555   | )       |   |  | (125     | )       
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Cash provided by financing activities                                  |                                                                                            |  | 69,526   |         |      |  | 437,770  |         |   |  | 396,753  |         
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Increase (decrease) in cash and cash equivalents for the year          |                                                                                            |  | 7,974    |         |      |  | (68,373  | )       |   |  | (38,554  | )       
|Cash and cash equivalents, beginning of year                           |                                                                                            |  | 19,005   |         |      |  | 87,378   |         |   |  | 125,932  |         
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Cash and cash equivalents, end of year                                 |                                                                                            |  | 26,979   |         |      |  | 19,005   |         |   |  | 87,378   |         
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Additional information                                                 |                                                                                            |  |          |         |      |  |          |         |   |  |          |         
|Interest paid                                                          |                                                                                            |  | 82,348   |         |      |  | 49,933   |         |   |  | 43,863   |         
|Income taxes paid                                                      |                                                                                            |  | 2,294    |         |      |  | 2,249    |         |   |  | 1,289    |         
|                                                                       |                                                                                            |  |          |         |      |  |          |         |   |  |          |         

See accompanying notes

88



---



##### Table of Contents



1. DESCRIPTION OF BUSINESS AND REORGANIZATION

Description of business

Microcell Telecommunications Inc. (Microcell) was incorporated under the laws
of Canada by articles of incorporation dated October 16, 1992, and conducts its
business of wireless communications through five wholly owned subsidiaries
(collectively, the Company) which are: Microcell Capital II Inc. (Microcell
Capital), Microcell Connexions Inc. (Microcell Connexions), Microcell Labs
Inc. (Microcell Labs), Microcell Solutions Inc. (Microcell Solutions) and
Inukshuk Internet Inc. (Inukshuk).

The Company carries on its operations through three strategic business
segments: Personal Communications Services (PCS), Wireless Internet and
Investments. Under its PCS business segment, the Company is a provider of PCS
in Canada under one of the two national 30 MHz PCS authorizations (the PCS
License) awarded in Canada in 1995 and renewed for five years in March 2001.
The terms and conditions for the renewal of the license are identical to those
established for the first license in April 1996. Through its Wireless Internet
business segment, the Company provides mobile Internet services to its PCS
subscribers and had planned to build a high-speed Internet Protocol-based data
network using Multipoint Communications Systems (MCS) technology in the 2500
MHz range. However, the current challenging capital market conditions, which
have made raising financing difficult, Inukshuk has suspended building the MCS
network on its own for the time being. Finally, under its Investments business
segment, the Company invests in various wireless or high technology companies
and, as a result, is exposed to normal market risk fluctuation which may be
significant.

The Company continues to experience growth-related capital requirements arising
from the need to fund of network capacity improvements and ongoing maintenance
and to fund the cost of acquiring new PCS customers. Microcells ability to
generate positive net income and cash flow in the future is dependent upon
various factors, including the level of market acceptance of its services, the
degree of competition encountered by the Company, the cost of acquiring new
customers, technology risks, general economic conditions and regulatory
requirements.

At the time of the release of its second quarter 2002 results on August 9,
2002, the Company announced that there was significant uncertainty regarding
its ability to continue as a going concern, such ability being dependent, among
other factors, on the Companys ability to reduce its financing costs and
improve its liquidities and operating performance. The Company also announced
on that date that it had retained the services of a financial advisor and
formed a special committee composed of independent directors with a view of
evaluating various strategic options in the circumstances. In light of the
going concern uncertainty, the mandate of the special committee was to review
and evaluate the alternatives of the Company with a view to reducing its
financing costs and improving its liquidity. To that end, the special
committee obtained the advice and recommendations of the financial advisor.
The significant uncertainty resulted from the fact that the Company disclosed
that it believed it would be in default of certain covenants in its long-term
debt agreements within a twelve-month period, unless it could successfully
renegotiate some of these covenants. With such default, the senior secured
lenders could have chosen not to provide the Company with further access to
funds under the senior secured revolving credit facility and could also
accelerate debt repayment.

On October 31, 2002, the Company entered into a forbearance and amending
agreement with its secured bank lenders in which the lenders agreed to forbear
until December 23, 2002, subject to certain conditions, the exercise of any
rights with respect to certain possible defaults. The covenants to which the
forbearance agreement applied related to the non-payment of interest on the
Companys Senior Discount Notes due in 2006 (the 2006 Notes) and the
possibility of the non-payment to a vendor under a material contract. On
December 2, 2002, the Company announced that it would not make its interest
payment on its 2006 Notes due on that day. Before the end of the forbearance
period, the Company reached an agreement with the vendor on the amount due and
settled such amount.

On December 23, 2002 the Company announced that its secured lenders, holding
approximately 74% of the outstanding secured debt, have agreed on the terms of
a recapitalization plan. In this regard, the Companys secured lenders have
agreed to forbear until January 6, 2003 the exercise of any rights with respect
to a default resulting from the non-payment of interest on the 2006 Notes. In
addition, both parties agreed to terminate the senior secured revolving credit
facility. The Company was subsequently not in compliance with certain
covenants under its long-term debt agreements and as such all the long-term
debt is in default. Microcell also continued to have constructive discussions
regarding the plan with an ad hoc committee of unsecured noteholders.

89



---



##### Table of Contents



1. DESCRIPTION OF BUSINESS AND REORGANIZATION (CONTD)

On January 3, 2003, the Company announced that it had received signed
commitments from certain of its secured lenders and noteholders, representing
approximately 75% and 55% respectively of the estimated aggregate voting claims
that may be represented at the secured creditors meeting and the affected
unsecured creditors meeting. In view of its then current and anticipated
financial position, the status of its discussions with financial and strategic
investors, the non-payment of U.S.$29.3 million of interest due on the 2006
Notes in December 2002 and the options available to the Company under the
circumstances, the Company elected to restructure its operations under the
Companies Creditors Arrangement Act(CCAA) protection and filed for and
received protection under the CCAA on January 3, 2003 in the form of an Initial
Order. Until the Plan became effective on May 1, 2003, the Company did not
make any further payments of principal or interest on its secured debt or
unsecured notes, including the interest payment on its 2006 Notes, which was
due December 1, 2002, and quarterly principal repayments on its secured term
loans due December 31, 2002 and March 31, 2003.

On February 19, 2003, the Company filed its Information Circular and Proxy
Statement (the Circular), which included a Plan of Reorganization and of
Compromise and Arrangement (the Plan), setting out the terms of the Companys
proposed plan. Subsequently, on March 17, 2003 the Plan was voted upon and
approved by 98% of the secured creditors and 100% of the affected unsecured
creditors, representing 93% and 100%, respectively, of the total value of the
secured claims and affected unsecured claims that were voted. On March 18,
2003, the Superior Court of the Province of Quebec issued a Sanction Order
approving the Plan. On May 1, 2003, the Plan became effective. The Plan
reduced the Companys debt obligations by approximately $1.7 billion.

These consolidated financial statements do not reflect any adjustments arising
from the Plan, except that the current portion of long-term debt is equivalent
to the current portion of the new debt contracted on the implementation date of
the plan. The Company is conducting a revaluation of its assets and liabilities
and will adjust their carrying values to reflect the value of the Company as an
entity established by the capital reorganization. The revaluation adjustments
are expected to be presented in the 2003 second quarter consolidated interim
financial statements, the period encompassing the expected implementation date
of the Plan, May 1, 2003. The Companys balance sheet after the implementation
date will be presented on a comprehensive revaluation basis after giving effect
to both the financial reorganization and the revaluation adjustments.

Reorganization (unaudited)

The following is a summary of the principal transactions and corporate changes
provided in the Plan.



|(a) |  | A new company (New Microcell) would be incorporated under the Canada
Business Corporations Act;                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Microcell would cause the amalgamation of its principal subsidiaries
(Amalco);                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(c) |  | A reorganization of the share capital of Microcell would be completed;                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(d) |  | New Microcell would subscribe for non-redeemable common shares of
Microcell, the subscription price therefore being payable by way of a
nominal cash consideration and delivery of an undertaking to deliver Class
A Restricted Voting Shares, Class B Non-Voting Shares and Warrants upon
the redemption by the Company of the current shareholdings;                                                                                                                   
|   
|(e) |  | Microcell would redeem the current shareholdings, for Class A Restricted
Voting Shares, Class B Non-Voting Shares and Warrants in the capital of
New Microcell as provided in the Plan and all of the issued and
outstanding options or other rights to acquire shares of Microcell would
be cancelled, without payment of any consideration;                                                                                                                            
|   
|(f) |  | Amalcos Tranche B Debt and Tranche C Notes (if applicable) would be
created having an aggregate Canadian dollar equivalent value as of the
effective date of the Plan of $350,000,000;                                                                                                                                                                                                                                                                                  
|   
|(g) |  | Assuming an exchange rate of 1.5363, new Microcell would issue, to the
secured creditors of Microcell (which are the holders of the Senior
Secured Loans described in note 11), First Preferred Shares and Second
Preferred Shares (Voting or Non-Voting Series) for an amount of
$176,500,000 and $74,417,000 respectively, in consideration for equivalent
principal amounts of the secured debt.                                                                      
|   
|    |  | If the advance tax ruling requested by Microcell is not obtained regarding
the qualification as distress preferred shares and, pursuant to the Plan,
the administrative agent as agent on behalf of the secured creditors,
elects to receive First Units and Second Units on the effective date of the
Plan in lieu of First Preferred Shares and Second Preferred Shares, First
Units and Second Units would be issued by New Microcell as distributions
under the Plan;

90



---



##### Table of Contents



1. DESCRIPTION OF BUSINESS AND REORGANIZATION (CONTD)



|(h) |  | Assuming an exchange rate of 1.5363, new Microcell would issue, to the
affected unsecured creditors (which are the holders of the Senior Discount
Notes described in note 11), Second Preferred Shares (Voting or Non-Voting
series) in the amount of $74,417,000, and Class A Restricted Voting Shares
or Class B Non-Voting Shares and Warrants in the aggregate amount of
$43,293,000 in consideration for the payment of the Senior Discount Notes
due 2006, 2007 and 2009, if the secured creditors elect to receive First
and Second Preferred Shares;
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | If the secured creditors elect to receive First and Second Units, New
Microcell would issue, to the affected unsecured creditors, Second Units in
the amount of $74,417,000, and Class A Restricted Voting Shares or Class B
Non-Voting Shares and Warrants in the aggregate amount of $43,293,000 in
consideration for the payment of the Senior Discount Notes due 2006, 2007
and 2009,                                                                                                                                                                   
|   
|(i) |  | New Microcell would issue to the current shareholders Class A Restricted
Voting Shares, Class B Non-Voting Shares and Warrants in the aggregate
amount of $369,000;                                                                                                                                                                                                                                                                                                                                                                                         

The pro forma column of the balance sheet reflects the acceptance and
implementation of the Plan on the assets and liabilities included in the
December 31, 2002 consolidated balance sheet, including revaluation adjustments
as a result of comprehensive revaluation as if the Plan was implemented at that
date. The final adjustments may change based on the value of the assets and
liabilities on the implementation date of the plan.

91Table of Contents1. DESCRIPTION OF BUSINESS AND REORGANIZATION (CONTD)

|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |    | 
|------------------------------------------------ | ------------------------- |  | ----------------- | --------- | ----------- |  | ----------- | ---------- | - | ----- | ----------------- | - | ----------- | ------- | ------- | -- | 
|                                                 |                           |  | Microcell         |           |             |  |             |            |   |       |                   |   | Microcell  
|                                                 |                           |  | as at             |           | Pro Forma   |  |             |            |   |       | Pro Forma as at  
|                                                 |                           |  | December 31, 2002 |           | Adjustments |  |             |            |   |       | December 31, 2002
|                                                 |                           |  | $                 |           | $           |  |             |            |   |       | $                
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                  
|                                                 |                           |  |                   |           |             |  | (Unaudited) |            |   |       |                   |   | (Unaudited)
|Current assets                                   |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|Cash and cash equivalents                        |                           |  | 26,979            |           |             |  |            |            |   |       |                   |   |             |         | 26,979  |   
|Short-term investments and marketable
securities |                           |  | 83,345            |           |             |  |            |            |   |       |                   |   |             |         | 83,345  |   
|Receivables                                      |                           |  | 71,813            |           |             |  |            |            |   |       |                   |   |             |         | 71,813  |   
|Receivables from related companies               |                           |  | 866               |           |             |  |            |            |   |       |                   |   |             |         | 866     |   
|Inventories                                      |                           |  | 19,527            |           |             |  |            |            |   |       |                   |   |             |         | 19,527  |   
|Other current assets                             |                           |  | 39,616            |           |             |  | (8,876      | )          |   |       | (i                | ) |             |         | 30,740  |   
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|                                                 |                           |  | 242,146           |           |             |  | (8,876      | )          |   |       |                   |   |             |         | 233,270 |   
|Capital assets                                   |                           |  | 655,646           |           |             |  | (343,533    | )          |   |       | (i                | ) |             |         | 312,113 |   
|Intangible assets                                |                           |  | 2,727             |           |             |  | 247,683     |            |   |       | (i                | ) |             |         | 250,410 |   
|Long-term investments                            |                           |  | 10,671            |           |             |  |            |            |   |       |                   |   |             |         | 10,671  |   
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|Deferred charges and other assets                |                           |  | 1,664             |           |             |  |            |            |   |       |                   |   |             |         | 1,664   |   
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|                                                 |                           |  | 912,854           |           |             |  | (104,726    | )          |   |       |                   |   |             |         | 808,128 |   
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|Current liabilities                              |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|Accounts payable and accrued liabilities:        |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|                                                 | Related companies         |  |                   | 23        |             |  |             |           |   |       |                   |   |             |         |         | 23 | 
|                                                 | Other                     |  |                   | 132,306   |             |  |             | (80,770    | ) |       | (i) (ii) (iii)    |   |             | 51,536  |        
|Deferred revenues                                |                           |  | 37,573            |           |             |  |            |            |   |       |                   |   |             |         | 37,573  |   
|Other current liabilities:                       |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|                                                 | Senior Secured Term Loans |  |                   | 7,500     |             |  |             |           |   |       | (ii)              |   |             | 7,500   |        
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|                                                 |                           |  | 177,402           |           |             |  | (80,770     | )          |   |       |                   |   |             |         | 96,632  |   
|Long-term liabilities:                           |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|                                                 | Senior Secured Term Loans |  |                   | 582,548   |             |  |             | (240,048   | ) |       | (ii)              |   |             | 342,500 |        
|                                                 | Senior Discount Notes     |  |                   | 1,450,130 |             |  |             | (1,450,130 | ) |       | (iii)             |   |             |        |        
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|                                                 |                           |  | 2,210,080         |           |             |  | (1,770,948  | )          |   |       |                   |   |             |         | 439,132 |   
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|Share capital and Warrants (note 1 h and I)      |                           |  | 1,169,448         |           |             |  | (1,169,079  | )          |   | (iv)  |                   |   | 368,996     |        
|                                                 |                           |  |                   |           |             |  | 250,917     |            |   | (ii)  |                   |   |             |        
|                                                 |                           |  |                   |           |             |  | 117,710     |            |   | (iii) |                   |   |             |        
|Deficit                                          |                           |  | (2,466,674        | )         |             |  | 2,466,674   |            |   |       | (i                | ) |             |         |        |   
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|                                                 |                           |  | (1,297,226        | )         |             |  | 1,666,222   |            |   |       |                   |   |             |         | 368,996 |   
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   
|                                                 |                           |  | 912,854           |           |             |  | (104,726    | )          |   |       |                   |   |             |         | 808,128 |   
|                                                 |                           |  |                   |           |             |  |             |            |   |       |                   |   |             |         |         |   

92



---



##### Table of Contents



1. DESCRIPTION OF BUSINESS AND REORGANIZATION (CONTD)

Pro forma adjustments (unaudited)



|(i)   |  | This unaudited pro forma balance sheet of Microcell has been prepared on
the fresh start basis of accounting. The Companys financial advisors
assisted in the determination of the enterprise value of the Company
assuming effectiveness of the Plan, and a range of value was developed.
The final enterprise value utilized was $718,996,000, which has been
allocated between long-term debt of $350,000,000 and equity of
$368,996,000. This enterprise value was determined based on several
traditional valuation methodologies, utilizing projections developed by
management including discounted cash flow analysis and comparable company
trading analysis. A comprehensive revaluation of the assets and
liabilities of Microcell has been done based on this enterprise value.
Pursuant to this revaluation the Company assigned a value, calculated at
managements best estimate, to Microcells intangible assets, which are,
the PCS Licenses at $189,356,000, the Customer list at $32,356,000 and the
Fido® brand name at $28,698,000 The Customer list will be amortized over
30 months. The PCS Licenses and the Fido® brand name were determined to
have an indefinite life and will not be amortized but will be tested for
impairment on an annual basis;
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|(ii)  |  | Pursuant to the Plan, the existing Senior Secured Term Loans and the net
payable to the secured creditors with respect to the cross currency and
interest rate swaps terminated in December 2002 (see note 9) will be
converted into new Tranche B Debt ($300,000,000) and Tranche C Notes
($50,000,000) as well as First Preferred Shares or First Units
($176,500,000) and Second Preferred Shares or Second Units ($74,417,000);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     
|(iii) |  | Pursuant to the Plan, the existing Senior Discount Notes and the unpaid
accrued interest will be converted into Second Preferred Shares or Second
Units for an amount of $74,417,000 and Class A Restricted Voting Shares or
Class B Non-Voting Shares and Warrants for an aggregate amount of
$43,293,000;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     
|(iv)  |  | Pursuant to the Plan, the current shareholdings will be converted into
Class A Restricted Voting Shares, Class B Non-Voting Shares and Warrants
for an aggregate amount of $369,000;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     
|(v)   |  | This unaudited pro forma balance sheet has been prepared in accordance
Canadian GAAP. No material adjustments to this unaudited pro forma
balance sheet would be required to conform with U.S. GAAP and the
accounting principles and practices required by the SEC, except as related
to the First and Second Preferred Shares as well as to the First and
Second Units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     
|      |  | Under U.S. GAAP, redeemable preferred shares subject to mandatory
redemption requirements that are outside the control of the issuer are
excluded from shareholders equity (deficiency) and presented separately
in the issuers balance sheet between liabilities and shareholders equity
(deficiency). Under Canadian GAAP, such shares are presented as equity
($325,334,000 at December 31, 2002, on a pro-forma basis). The FASB is in
the process of finalizing a new standard dealing with accounting for
liabilities and equity. The final standard, which is expected to be issued
in the second quarter of 2003, may affect the balance sheet presentation of
these instruments under U.S. GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     
|      |  | As described above, the secured creditors have the option to receive First
and Second Units instead of First and Second Preferred Shares. Under
Canadian GAAP these First and Second Units are presented as equity. Under
U.S. GAAP these instruments would be classified as debt instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     
|      |  | The following table outlines the adjustments to the unaudited pro forma
balance sheet that would be required to conform with U.S. GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

93



---



##### Table of Contents



1. DESCRIPTION OF BUSINESS AND REORGANIZATION (CONTD)

|                                  |                           |  |                   |         |             |  |                         |   |                 |  |                   |         |  |  |                 |         |  |  |         |         | 
|--------------------------------- | ------------------------- |  | ----------------- | ------- | ----------- |  | ----------------------- | - | --------------- |  | ----------------- | ------- |  |  | --------------- | ------- |  |  | ------- | ------- | 
|                                  |                           |  |                   |         |             |  | First and               |   | First and      
|                                  |                           |  |                   |         |             |  | Second Preferred Shares |   | Second Units   
|                                  |                           |  |                   |         |             |  |                         |   |                
|                                  |                           |  | Microcell         |         |             |  |                         |   | Microcell       |  |                   |         |  |  | Microcell      
|                                  |                           |  | Pro Forma as at   |         |             |  |                         |   | Pro Forma as at |  |                   |         |  |  | Pro Forma as at
|                                  |                           |  | December 31, 2002 |         | Pro Forma   |  | December 31, 2002       |   | Pro Forma       |  | December 31, 2002
|                                  |                           |  | Canadian GAAP     |         | Adjustments |  | U.S. GAAP               |   | Adjustments     |  | U.S. GAAP        
|                                  |                           |  |                   |         |             |  |                         |   |                 |  |                  
|Current portion of long-term debt |                           |  | 7,500             |         |             |  |                        |   |                 |  | 7,500             |         |  |  |                |         |  |  | 7,500   |        
|Long-term debt:                   |                           |  |                   |         |             |  |                         |   |                 |  |                   |         |  |  |                 |         |  |  |         |        
|                                  | Senior Secured Term Loans |  |                   | 342,500 |             |  |                         |  |                 |  |                   | 342,500 |  |  |                 |        |  |  |         | 342,500 | 
|                                  | First Units               |  |                   |        |             |  |                         |  |                 |  |                   |        |  |  |                 | 176,500 |  |  |         | 176,500 | 
|                                  | Second Units              |  |                   |        |             |  |                         |  |                 |  |                   |        |  |  |                 | 148,834 |  |  |         | 148,834 | 
|                                  |                           |  |                   |         |             |  |                         |   |                 |  |                   |         |  |  |                 |         |  |  |         |        
|Total long-term debt              |                           |  |                   |         |             |  |                         |   |                 |  |                   |         |  |  |                 |         |  |  |         |        
|(including current portion)       |                           |  | 350,000           |         |             |  |                        |   |                 |  | 350,000           |         |  |  | 325,334         |         |  |  | 675,334 |        
|                                  |                           |  |                   |         |             |  |                         |   |                 |  |                   |         |  |  |                 |         |  |  |         |        
|First and Second Preferred Shares |                           |  |                  |         |             |  | 325,334                 |   |                 |  | 325,334           |         |  |  | (325,334        | )       |  |  |        |        
|Shareholders equity (deficiency) |                           |  |                   |         |             |  |                         |   |                 |  |                   |         |  |  |                 |         |  |  |         |        
|Share capital and Warrants        |                           |  | 368,996           |         |             |  | (325,334                | ) |                 |  | 43,662            |         |  |  |                |         |  |  | 43,662  |        
|                                  |                           |  |                   |         |             |  |                         |   |                 |  |                   |         |  |  |                 |         |  |  |         |        

Other information regarding the Plan (unaudited)



|(i)  |  | The Plan should result in a forgiveness of indebtedness of approximately
$1,100,000,000, for tax purposes, that is expected to reduce the Companys
non-capital losses by approximately $140,000,000 and capital losses by
approximately $960,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | Management is under the assumption that non-capital losses of
approximately $2,000,000,000 and the undepreciated capital costs of
depreciable property of approximately $310,000,000 of the new subsidiary
created pursuant to the Plan, as described in note 1(b), should be
preserved. The losses will expire in the years 2003 through 2008. The
use of these losses will generally be restricted in future years to
profits from the Microcell and similar businesses. The amounts of these
tax attributes and the expiration dates may vary, as they are dependent on
the Plan and valuation matters. The tax benefits of the losses and net
deductible temporary differences have not been recorded in the unaudited
pro forma balance sheet of Microcell.                                                                                                               
|    
|(ii) |  | The long-term debt after giving effect to the Plan consists of Senior
Secured Term Loans, in the aggregate amount of $350,000,000 which are
divided into Tranche B Debt and Tranche C Notes as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|     |  | Term loan (Tranche B Debt) consisting of a Canadian dollar Series in the
amount of $100,000,000 and a U.S. dollar Series with a principal amount
equivalent to Canadian $200,000,000, bearing interest at the Tranche A
Exit Facilitys rate plus 0.5%, payable in quarterly installments starting
in June 2003 and maturing in December 2008. The Tranche B Debt will be
collateralized by a second lien on all assets post-reorganization, subject
to customary exceptions and covenants. Reimbursements of Tranche B Debt
are as follows: 2.5% of the principal amount in 2003; 3.33% in 2004; 3.33%
in 2005; 5% in 2006; 5% in 2007; and 80.84% in 2008.                                                                                                                                                                                                                   
|    
|     |  | Tranche C Notes in the amount of $50,000,000, bearing interest at 8.0%
paid semi-annually at the Companys discretion (i) in cash; or (ii)
accruing and compounding such interest semi-annually until paid, due on
the tenth anniversary of the effective date of the Plan. Mandatory
prepayments are as follows: amount remaining of any excess cash flow from
operations and asset sales not previously applied (subject to customary
exceptions), determined on an annual basis, to be applied first to pay
accrued but unpaid interest and any balance to mandatory prepayments of
principal, subject to maximum of 25% of principal amount in the aggregate
(except as to major sales of assets) during the first five years. The
Tranche C Notes will be collateralized by a third lien on all assets
post-reorganization, subject to customary exceptions and covenants.
|    
|     |  | In addition to the Tranche B Debt and the Tranche C Notes, the Company may
borrow an amount between $25,000,000 and $75,000,000 as Tranche A Exit
Facility in the form of a revolving credit loan with its terms to be
negotiated with the lender(s) thereof. The Tranche A Exit Facility will
be collateralized by a first lien on all assets post-effectiveness of the
Plan, subject to customary exceptions and covenants.                                                                                                                                                                                                                                                                                                                                                                                                                                                  

94



---



##### Table of Contents



1. DESCRIPTION OF BUSINESS AND REORGANIZATION (CONTD)



|(iii) |  | The authorized share capital after giving effect to the Plan would be as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|      |  | An unlimited number of First Preferred Shares, issuable as First Preferred
Voting Shares (convertible under certain conditions into First Preferred
Non-Voting Shares or Class A Restricted Voting Shares) and First Preferred
Non-Voting Shares (convertible under certain conditions into First
Preferred Voting Shares or Class B Non-Voting Shares), with fixed,
non-cumulative preferential dividends of 9% per annum, redeemable in cash
at any time at the option of Microcell and mandatorily redeemable in cash
or Class A Restricted Voting Shares and Class B Non-Voting Shares on the
tenth anniversary of the effective date of the Plan, based on a redemption
price equal to the issuance price per share plus a premium equivalent to
the unpaid dividends;                                                                                                                                                                                     
|     
|      |  | An unlimited number of Second Preferred Shares, issuable as Second
Preferred Voting Shares (convertible under certain conditions into Second
Preferred Non-Voting Shares or Class A Restricted Voting Shares) and
Second Preferred Non-Voting Shares (convertible under certain conditions
into Second Preferred Voting Shares or Class B Non-Voting Shares), with
fixed, non-cumulative preferential dividends of 9% per annum, redeemable
in cash at any time at the option of Microcell and mandatorily redeemable
in cash or Class A Restricted Voting Shares and Class B Non-Voting Shares
on the tenth anniversary of the effective date of the Plan, based on a
redemption price equal to the issuance price per share plus a premium
equivalent to the unpaid dividends;                                                                                                                                                                                
|     
|      |  | An unlimited number of Class A Restricted Voting Shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     
|      |  | An unlimited number of Class B Non-Voting Shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     
|      |  | 2005 Warrants and 2008 Warrants;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     
|      |  | First Units consisting of (i) Subordinated Convertible 9% notes in an
amount equal to the First Preferred Shares Redemption Price (with accrued
and unpaid interest payable only at maturity) having the same terms and
conditions as the First Preferred Shares (including as to the right to
convert into Class A Restricted Voting Shares or Class B Non-Voting Shares
and as to the application of Excess Cash Flow) and a term to maturity
equal to the term to maturity of the First Preferred Shares (or remainder
thereof, as the case may be) and (ii) a series of voting and non-dividend
bearing First Preferred Shares or a series of non-voting and non-dividend
bearing series of First Preferred Shares, as the case may be, redeemable
at the redemption price of $0.0001 per share upon the repayment or the
conversion of the notes related thereto. The First Units shall be senior
in right of payment to the Second Units.                 
|     
|      |  | Second Units consisting of (i) Subordinated Convertible 9% notes in an
amount equal to the Second Preferred Shares Redemption Price (with accrued
and unpaid interest payable only at maturity) having the same terms and
conditions as the Second Preferred Shares (including as to the right to
convert into Class A Restricted Voting Shares or Class B Non-Voting Shares
and as to the application of Excess Cash Flow) and a term to maturity
equal to the term to maturity of the Second Preferred Shares (or remainder
thereof, as the case may be) and (ii) a series of voting and non-dividend
bearing First Preferred Shares or a series of non-voting shares and
non-dividend bearing series of Second Preferred Shares, as the case may
be, redeemable at the redemption price of $0.0001 per share upon the
repayment or the conversion of the notes related thereto. The Second
Units shall be subordinate in right of payment to the First Units.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared by management in
accordance with Canadian generally accepted accounting principles (Canadian
GAAP), the more significant of which are outlined below. A reconciliation to
accounting principles generally accepted in the United States (U.S. GAAP) and
to the accounting principles and practices required by the United States
Securities and Exchange Commission (SEC) is shown in note 20.

Use of estimates

The preparation of the Companys consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

95



---



##### Table of Contents



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)

Long-term investments

Consolidation

The consolidated financial statements include the results of operations of
Microcell and all of its subsidiaries as well as its share of assets,
liabilities, revenues and expenses of all joint ventures, if any, in which the
Company participates. Intercompany transactions and balances are eliminated on
consolidation.

Other

The Company accounts for investments in which it exercises significant
influence using the equity method. Other investments are accounted for at
cost. The investments are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable, and
a provision for loss in value is recorded when a decline in value below the
carrying amount is considered to be other than temporary.

Revenue recognition

Monthly access charges are billed in advance and recognized when the services
are provided and collection is reasonably assured. Airtime charges are
recognized as revenue when provided. Sales of handsets and related equipment
are recognized when goods and services are delivered and collection is
reasonably assured. Prepaid service revenues are deferred and recognized when
services are provided. When prepaid airtime vouchers are sold to dealers, the
revenue for the airtime is measured at the face value of the time sold, when
services are provided. Commissions to dealers are classified within cost of
products and services.

Advertising costs

Advertising costs are expensed as incurred.

Cash equivalents

Cash equivalents are short-term, highly liquid, held-to-maturity,
investment-grade debt securities with maturities of 90 days or less from the
date of purchase.

Short-term investments

Short-term investments consist of highly liquid, held-to-maturity,
investment-grade debt securities, such as term deposits, commercial paper and
similar instruments, with maturities greater than 90 days but not exceeding
twelve months. Short-term investments are accounted for at the lower of cost
and market value.

Marketable securities

Marketable securities are recorded at the lower of cost and fair market value.

Inventories

Inventories consist of handsets, Subscriber Identity Module (SIM) cards and
accessories held for resale, and are stated at the lower of cost (on a
first-in, first-out basis) and replacement cost.

Capital assets

Capital assets are recorded at cost. The PCS network includes direct costs
such as equipment, material, labor, engineering, site development, interest
incurred during the network buildout, depreciation of capital assets used in
connection with the construction of the network, and overhead costs. The costs
of PCS network construction in progress are transferred to the PCS network in
service as construction projects are completed and put into commercial service.
Depreciation starts when the assets are in service, and is provided on a
straight-line basis over their estimated useful lives as follows:

|                                  |  |                           
|--------------------------------- |  | --------------------------
|PCS networkSwitches              |  | 10years                   
|PCS networkBase stations         |  | 5years                    
|Computer hardware and software    |  | 3years                    
|Application hardware and software |  | 5years                    
|Office furniture and equipment    |  | 5years                    
|Leasehold improvements            |  | Term of the related leases

The costs of maintenance and replacement of minor items of capital assets are
charged to maintenance expense. Renewals and improvements are capitalized.

96



---



##### Table of Contents



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)

Intangible assets

Intangible assets consist of the Companys PCS and MCS licenses. The Company
has determined that both licenses have an indefinite useful life. Therefore no
amortization is calculated but these intangible assets are tested for
impairment on an annual basis. As disclosed in note 7, an impairment charge
was recorded for the MCS licenses in 2002. The annual licensing fees are
charged to expense as incurred.

Derivative instruments

Derivative financial instruments are utilized to reduce foreign currency and
interest rate risk on the Companys debt. The Company does not enter into
financial instruments for trading or speculative purposes.

The Companys policy is to formally designate each derivative financial
instrument as a hedge of a specifically identified debt instrument. The
Company believes the derivative financial instruments are effective as hedges,
both at inception and over the term of the instrument, as the term to maturity,
the principal amount and the interest rate basis in the instruments all match
the terms of the debt instrument being hedged.

Interest rate swap agreements are used as part of the Companys program to
manage the fixed and floating interest rate mix of the Companys total debt
portfolio and related overall cost of borrowing. The interest rate swap
agreements involve the periodic exchange of payments without the exchange of
the notional principal amount upon which the payments are based, and are
recorded as an adjustment of interest expense on the hedged debt instrument.
The related amount payable to or receivable from counterparties is included as
an adjustment to accrued interest.

Foreign currency swap agreements are used to manage exchange rate exposures
relating to certain debt instruments denominated in foreign currencies.
Foreign currency swap agreements are designated as hedges of firm commitments
to pay interest and principal on the foreign currency denominated debt, which
would otherwise expose the company to foreign currency risk. Translation gains
and losses on the principal swapped are offset by corresponding translation
losses and gains on the related foreign currency denominated debt.

Gains and losses on terminations of interest rate and foreign currency swap
agreements or on termination of the Companys designation of the hedging
relationship are deferred under deferred gain or loss on financial instruments
on the balance sheet and amortized as an adjustment to foreign exchange loss
(gain) over the remaining term of the original contract life of the terminated
swap agreement. In the event of early extinguishment of the debt obligation,
any realized or unrealized gain or loss from the swap would be recognized in
the consolidated statement of loss at the time of extinguishment.

Financing costs

The costs of obtaining debt financing are deferred and amortized over the life
of the debt to which they relate. The costs of issuing equity are recorded as
a reduction of the item to which they relate.

Stock option plans

The Company has stock option plans, which are described in note 12. No
compensation expense is recognized for these plans when stock options are
issued to employees. Any consideration paid by employees on exercise of stock
options is credited to share capital.

Income taxes

The Company follows the liability method of accounting for income tax
allocation. Under this method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities, and are measured using the substantively
enacted tax rates and laws that are expected to be in effect in the periods in
which the deferred income tax assets or liabilities are expected to be realized
or settled. Deferred income tax assets, net of an appropriate valuation
allowance, are recognized only to the extent that management believes it to be
more likely than not that the assets will be realized.

97



---



##### Table of Contents



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)

Research and development

Research costs are charged against income in the year of expenditure.
Development costs are charged against income in the year of expenditure unless
a development project meets the criteria under Canadian generally accepted
accounting principles for deferral and amortization.

Foreign currency

The Companys currency of measurement (functional currency) is the Canadian
dollar. Monetary assets and liabilities denominated in foreign currencies are
translated at the rates of exchange prevailing at the period-end. Revenues and
expenses denominated in foreign currencies are translated at the rates of
exchange prevailing on the transaction dates. Realized and unrealized gains
and losses on currency transactions are included in income as they arise.

Earnings (loss) per share

Basic and diluted earnings (loss) per share are calculated using the treasury
stock method. Basic earnings (loss) per share is calculated using the weighted
average number of Common Shares, Class A Non-Voting Shares, Class B Non-Voting
Shares and the total number of initial warrants exercisable for little or no
cash consideration outstanding at the end of the period as if the warrants had
been converted at the beginning of the period. Diluted earnings (loss) per
share are calculated taking into consideration the effect of the exercise of
securities which have a dilutive effect. As outlined in note 13, the number of
shares used in calculating both basic and diluted earnings (loss) per share was
adjusted retroactively as a result of the rights offering completed in 2001.

Recent developments

The Canadian Institute of Chartered Accountants (CICA) recently issued
Section 3063, Impairment of Long-Lived Assets. This Section establishes
standards for the recognition, measurement and disclosure of the impairment of
long-lived assets held for use. The new standard replaces requirements on the
write-down of assets previously contained in Section 3061, Property, Plant and
Equipment and is effective for 2004. The Company is currently assessing the
new standards and the impact that adoption will have on its consolidated
financial statements. Similar requirements were also issued in the United
States under Statement of Financial Accounting Standard No. 144.

In November 2001, the CICA issued Accounting Guideline 13, Hedging
Relationships (AcG-13). AcG-13 establishes new criteria for hedge accounting
and will apply to all hedging relationships in effect for the Companys fiscal
year commencing on September 1, 2003 under Canadian GAAP. To qualify for hedge
accounting, consistent with U.S. GAAP, the hedging relationship must be
appropriately documented at the inception of the hedge and there must be
reasonable assurance, both at the inception and throughout the term of the
hedge, that the hedging relationship will be effective. Effectiveness requires
a high correlation of changes in fair values or cash flows between the hedged
item and the hedge. The Company currently documents all hedging relationships
on an ongoing basis.

3. CHANGE IN CANADIAN ACCOUNTING POLICIES

Revenue recognition

Effective January 1, 2002, the Company adopted, for both Canadian and U.S.
GAAP, on a retroactive basis, the provisions set forth in the Financial
Accounting Standards Boards Emerging Issues Task Force (the Task Force)
issue 01-9 Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendors Products(EITF 01-9). The consensus reached by the
Task Force indicates that a cash consideration (including a sales incentive)
given by a vendor to a customer is presumed to be a reduction of the selling
price of the vendors products or services and, therefore, should be accounted
for as a reduction of revenues. Previously, these considerations were
presented as marketing expenses with the corresponding amount as revenues. For
the years ended December 31, 2002, 2001 and 2000, the impact of the change was
to reduce operating revenues and selling and marketing expenses for the PCS
operating segment by $20,941,000, $19,347,000 and $22,827,000 respectively.
The adoption of EITF 01-9 did not have an effect on the Companys net loss,
operating measures or cash flows.

98



---



##### Table of Contents



3. CHANGE IN CANADIAN ACCOUNTING POLICIES (CONTD)

Stock-based compensation and other stock-based payments

Effective January 1, 2002, the Company adopted the standard set forth in
Section 3870 of the CICA Handbook entitled Stock-based Compensation and Other
Stock-based Payments. As permitted by Section 3870, the Company has applied
this change prospectively for new stock options granted on or after January 1,
2002. The Company has chosen to recognize no compensation when stock options
are granted to employees and directors under stock option plans with no cash
settlement features. Direct awards of stock to employees and stock and stock
option awards granted to non-employees are accounted for in accordance with the
fair value method of accounting for stock-based compensation. No such awards
were granted in 2002. The fair value of direct awards of stock is determined
by the quoted market price of the Companys stock on the grant date, and the
fair value of stock options is determined using the Black-Scholes option
pricing model. In periods prior to January 1, 2002, the Company recognized no
compensation when stock or stock options were issued. Pro forma information
regarding net income is required and has been determined as if the Company had
accounted for its employee stock options under the fair value method (see note
12).

Goodwill and other intangible assets

Intangible assets consist of the Companys PCS and MCS licenses. Effective
January 1, 2002, the Company adopted the new standard set forth in Section 3062
of the Canadian Institute of Chartered Accountants (CICA) Handbook entitled
Goodwill and Other Intangible Assets,to be applied on or after January 1,
2002. Under the new standard, goodwill and other indefinite-life intangible
assets are no longer amortized but tested for impairment on an annual basis.
The excess of the carrying amount over the fair value is charged to earnings.
The Company has determined that the PCS license it has been awarded has an
indefinite useful life. Therefore, pursuant to Section 3062 of the CICA
Handbook, the Company will not amortize this PCS license until it determines
that the PCS license has a finite life. The impact on the consolidated
financial statements has been a reduction of the annual amortization of the PCS
license in the amount of $140,000. As disclosed in note 7, an impairment
charge was recorded for the MCS licenses in 2002. The annual licensing fees
are charged to expense as incurred.

Foreign exchange gains and losses

Effective in 2001, the Company has retroactively adopted the new accounting
recommendations with respect to accounting for foreign exchange gains or losses
on monetary items and non-monetary items carried at market that have a fixed or
ascertainable life extending beyond the end of the following year. Previously,
these gains and losses were deferred and amortized on a straight-line basis
over the term of the related items. The new recommendations require that these
gains and losses be included in the determination of net income as they arise.
This change in accounting policy has been applied retroactively and has had the
following impact on the financial statements: For 2001, total assets decreased
by $16,584,000, deficit increased by $16,584,000, and loss per share increased
by $0.01. For 2000, total assets decreased by $15,331,000, deficit increased
by $15,331,000, and loss per share increased by $0.19.

4. SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES

|                       |  |      |        |      |  |  |         | 
|---------------------- |  | ---- | ------ | ---- |  |  | ------- | 
|                       |  | 2002 |        | 2001
|                       |  | $    |        | $   
|                       |  |      |        |     
|Short-term investments |  |      | 83,181 |      |  |  | 158,443 | 
|Marketable securities  |  |      | 164    |      |  |  | 1,081   | 
|                       |  |      | 83,345 |      |  |  | 159,524 | 

During 2002, the Company reduced the value of its marketable securities to
their net estimated realizable value. Accordingly, non-cash charges of
$343,000 were recorded in 2002 ($5,066,000 in 2001 and $225,716,000 in 2000).

5. RECEIVABLES

|                                |  |      |         |      |  |  |         |  
|------------------------------- |  | ---- | ------- | ---- |  |  | ------- | -
|                                |  | 2002 |         | 2001
|                                |  | $    |         | $   
|                                |  |      |         |     
|Trade receivables               |  |      | 83,814  |      |  |  | 95,587  |  
|Allowance for doubtful accounts |  |      | (14,885 | )    |  |  | (10,717 | )
|Taxes receivable                |  |      | 2,866   |      |  |  | 211     |  
|Interest receivable             |  |      | 18      |      |  |  | 892     |  
|                                |  |      | 71,813  |      |  |  | 85,973  |  

Bad debt expenses for the twelve months ended December 31, 2002 amounted to
$32,306,000 ($16,133,000 for 2001 and $11,297,000 for 2000).

99



---



##### Table of Contents



6. CAPITAL ASSETS

|                                  |               |  |           |         |              |  |             |         |              |  |                     |         |             |  |         |         | 
|--------------------------------- | ------------- |  | --------- | ------- | ------------ |  | ----------- | ------- | ------------ |  | ------------------- | ------- | ----------- |  | ------- | ------- | 
|                                  |               |  | 2002      |         | 2001        
|                                  |               |  |           |         |             
|                                  |               |  |           |         |              |  | Accumulated |         |              |  |                     |         | Accumulated
|                                  |               |  | Cost      |         | depreciation |  | Cost        |         | depreciation
|                                  |               |  | $         |         | $            |  | $           |         | $           
|                                  |               |  |           |         |              |  |             |         |             
|                                  |               |  |           |         |              |  |             |         |              |  | (Restated -
note 3)
|PCS network
Switches              |               |  | 533,511   |         |              |  | 199,433     |         |              |  | 474,994             |         |             |  | 124,984 |        
|                                  | Base stations |  |           | 608,894 |              |  |             | 400,190 |              |  |                     | 572,820 |             |  |         | 302,989 | 
|Computer hardware and software    |               |  | 26,426    |         |              |  | 22,432      |         |              |  | 26,444              |         |             |  | 18,609  |        
|Application hardware and software |               |  | 198,215   |         |              |  | 110,413     |         |              |  | 171,027             |         |             |  | 61,522  |        
|Office furniture and equipment    |               |  | 32,588    |         |              |  | 23,196      |         |              |  | 31,250              |         |             |  | 18,338  |        
|Leasehold improvements            |               |  | 26,912    |         |              |  | 15,236      |         |              |  | 24,055              |         |             |  | 10,100  |        
|                                  |               |  |           |         |              |  |             |         |              |  |                     |         |             |  |         |        
|                                  |               |  | 1,426,546 |         |              |  | 770,900     |         |              |  | 1,300,590           |         |             |  | 536,542 |        
|Accumulated depreciation          |               |  | (770,900  | )       |              |  |             |         |              |  | (536,542            | )       |             |  |         |        
|                                  |               |  |           |         |              |  |             |         |              |  |                     |         |             |  |         |        
|Net carrying value                |               |  | 655,646   |         |              |  |             |         |              |  | 764,048             |         |             |  |         |        
|                                  |               |  |           |         |              |  |             |         |              |  |                     |         |             |  |         |        

The PCS network includes both PCS network construction in progress, amounting
to $1,036,000 in 2002 ($10,867,000 in 2001), and PCS network in service.

During 2002, the Company wrote down the value of certain of its capital assets
to their net recoverable amount. Accordingly, the depreciation and
amortization for the year ended December 31, 2002 included write-downs of
$31,351,000 related to the network and application software in the PCS segment
and $5,940,000 related to the portal in the Wireless Internet segment.

7. INTANGIBLE ASSETS

|             |  |      |       |      |  |  |         | 
|------------ |  | ---- | ----- | ---- |  |  | ------- | 
|             |  | 2002 |       | 2001
|             |  | $    |       | $   
|             |  |      |       |     
|PCS Licenses |  |      | 2,727 |      |  |  | 2,727   | 
|MCS Licenses |  |      |      |      |  |  | 223,399 | 
|             |  |      |       |      |  |  |         | 
|             |  |      | 2,727 |      |  |  | 226,126 | 

In 2001, the Company acquired for $150,000,000 the 50% share in Inukshuk owned
by Look Communications Inc., a company controlled, at that time, by a major
shareholder of Microcell. This brought the Companys total ownership interest
in Inukshuk to 100%. The only asset in Inukshuk is a License for spectrum in
the 2500 MHz range from Industry Canada (the MCS Licenses) that can be used
to build a high-speed Internet protocol-based data network using MCS technology
in 12 out of 13 regional service areas across Canada. However, the current
challenging capital market conditions, which have made raising financing
difficult, Inukshuk has suspended building the MCS network on its own for the
time being. The estimated deferred tax liabilities related to the MCS
Licenses, in the amount of $72,896,000, resulting from the difference between
the carrying value and the tax basis of the asset acquired, was included in the
cost of the MCS Licenses.

In the second quarter of 2002, the Company wrote down the value of the MCS
licenses to nil. Accordingly, a non-cash expense affecting the Wireless
Internet segment in the amount of $223,399,000 has been recorded in 2002. A
related deferred income tax recovery of $72,896,000 was also recorded.

8. LONG-TERM INVESTMENTS

|                                 |  |      |        |      |  |  |        | 
|-------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                 |  | 2002 |        | 2001
|                                 |  | $    |        | $   
|                                 |  |      |        |     
|Long-term investments, at equity |  |      | 9,898  |      |  |  | 24,051 | 
|Long-term investments, at cost   |  |      | 773    |      |  |  | 10,932 | 
|                                 |  |      |        |      |  |  |        | 
|                                 |  |      | 10,671 |      |  |  | 34,983 | 

100



---



##### Table of Contents





|8. |  | LONG-TERM INVESTMENTS (CONTD)
|-- |  | ------------------------------

The Company, through Microcell Capital, has long-term investments accounted for
at equity and at cost. The Company has committed to invest, in the form of a
subscription for units, U.S.$10,000,000 in Argo II: the Wireless Internet Fund
Limited Partnership (Argo II) and, as of December 31, 2002, U.S.$5,500,000
had been paid (U.S.$4,500,000 as at December 31, 2001). During 2002, the
Company was asked to contribute an additional U.S.$500,000, as part of its
original commitment. The Company asked for a grace period to pay its capital
contribution and Argo IIs general partner agreed to postpone the payment until
the end of the Companys recapitalization. This investment has been reduced to
its estimated fair value of nil as at December 31, 2002.

In light of management estimates and based on the decline in market conditions
for high-technology companies during 2002, the Company reduced the value of
certain other investments to their net estimated realizable value.
Accordingly, non-cash charges of $11,805,000 were recorded in 2002 ($28,027,000
in 2001 and $22,620,000 in 2000). In addition, the Company recorded its share
of net income (loss) in its equity investments, resulting in net losses of
$13,212,000 and $5,282,000 in 2002 and 2001 respectively, and net income of
$20,573,000 in 2000.

During 2000, the Company sold its equity investment in saraide.com inc.
(Saraide) to InfoSpace and received in exchange 2,281,326 InfoSpace shares
(stock-split adjusted) and an interest of 4.3% in the new company created by
InfoSpace following this transaction (Saraide, Inc.), recorded at-cost by the
Company. The resulting gain of $291,942,000, net of income taxes, and the
corresponding deferred tax liabilities of $108,653,000, were recorded at the
time of the transaction. With respect to benefits from previously unrecognized
losses and temporary differences, a corresponding tax asset of $108,653,000 was
also recognized. Following this transaction, 961,894 InfoSpace shares were
sold in 2000, at an average price of U.S.$61.19, resulting in a loss on
disposal of $6,835,000.



|9. |  | DEFERRED CHARGES AND OTHER ASSETS
|-- |  | ---------------------------------

|                         |  |      |       |      |  |  |        | 
|------------------------ |  | ---- | ----- | ---- |  |  | ------ | 
|                         |  | 2002 |       | 2001
|                         |  | $    |       | $   
|                         |  |      |       |     
|Deferred financing costs |  |      |      |      |  |  | 8,300  | 
|Derivative instruments   |  |      |      |      |  |  | 25,029 | 
|Other                    |  |      | 1,664 |      |  |  | 11,281 | 
|                         |  |      |       |      |  |  |        | 
|                         |  |      | 1,664 |      |  |  | 44,610 | 
|                         |  |      |       |      |  |  |        | 

In conjunction with the new Tranche F of the senior secured term loans (see
note 11), the Company paid, in 2002, $19,742,000 of financing costs which are
being deferred and amortized over the term of the loan.

On July 15, 2002, the Company decided to unhedge the 2009 Notes and
de-designate, for accounting purposes, the cross-currency swap on the principal
balance of the 2009 Notes in the amount of U.S.$270,000,000. On that day, the
Company terminated U.S.$220,000,000 of the U.S.$270,000,000 hedging agreements,
generating net proceeds of $28,914,000 and a deferred gain of $17,778,000. A
deferred gain of $3,298,000 was also generated on the remaining cross-currency
swap (U.S.$50,000,000). These deferred gains are being amortized over the
remaining life of the 2009 Notes.

In November 2002, the Company terminated U.S.$20,000,000 of the remaining
U.S.$50,000,000 cross-currency hedging agreements and its two interest rate
swaps on Tranches C and D of the senior secured loans. These terminations
generated net proceeds of $1,957,000, a deferred loss on the interest rate
swaps of $2,398,000, which is being amortized over the remaining life of the
senior secured loans covered by the hedging agreements and a gain on financial
instruments of $2,267,000 on the cross-currency swap representing the
appreciation in the fair market value of this swap since the date of its
de-designation. In December 2002, all the remaining hedging agreements of the
Company (U.S.$30,000,000 cross-currency swap and its two interest rate swaps on
Tranches A and B of the senior secured loans) were terminated and generated a
net payable to the counterparties of $9,370,000, a deferred loss on the
interest rate swaps of $15,600,000 which is being amortized over the remaining
life of the senior secured loans covered by the hedging agreements and a gain
on financial instruments of $3,193,000 on the cross-currency swap representing
the appreciation in the fair market value of this swap since the date of its
de-designation.

The net gain on financial instruments of $6,570,000 includes the gains
mentioned above as well as the amortization of the deferred gains generated by
the appreciation in the fair market value of the cross-currency swap before its
de-designation as a hedging instrument ($1,404,000) and to the amortization of
the deferred losses generated by the termination of the interest rate swaps
($294,000).

101



---



##### Table of Contents





|9. |  | DEFERRED CHARGES AND OTHER ASSETS (CONTD)
|-- |  | ------------------------------------------

The Company wrote down $18,915,000 of deferred financing costs, $17,704,000 of
deferred loss on financial instruments and $19,672,000 of deferred gain on
financial instruments for a net total of $16,947,000 all of which related to
the long-term debt in default (see note 1).

In addition, the Company wrote down $3,938,000 of deferred charges with respect
to certain development projects.



|10. |  | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES  OTHER
|--- |  | ------------------------------------------------

|                                  |  |      |         |      |  |  |         | 
|--------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                  |  | 2002 |         | 2001
|                                  |  |      |         |     
|                                  |  | $    |         | $   
|                                  |  |      |         |     
|Accrued interest                  |  |      | 64,055  |      |  |  | 8,283   | 
|Accounts payable  trade          |  |      | 33,135  |      |  |  | 29,993  | 
|Accounts payable  capital assets |  |      | 5,858   |      |  |  | 11,264  | 
|Wages and benefits                |  |      | 11,355  |      |  |  | 26,919  | 
|Provisions and others             |  |      | 17,903  |      |  |  | 29,875  | 
|                                  |  |      |         |      |  |  |         | 
|                                  |  |      | 132,306 |      |  |  | 106,334 | 
|                                  |  |      |         |      |  |  |         | 



|3. |  | LONG-TERM DEBT
|-- |  | --------------

|                                                                                                       |  |      |           |      |  |  |           |  
|------------------------------------------------------------------------------------------------------ |  | ---- | --------- | ---- |  |  | --------- | -
|                                                                                                       |  | 2002 |           | 2001
|                                                                                                       |  | $    |           | $   
|                                                                                                       |  |      |           |     
|Senior Secured Term Loans                                                                              |  |      | 590,048   |      |  |  | 504,403   |  
|Series B Senior Discount Notes due 2006, interest payable
semi-annually beginning June 1, 2002         |  |      | 659,394   |      |  |  | 665,747   |  
|Series A and B Senior Discount Notes due 2007, interest
payable semi-annually beginning April 15, 2003 |  |      | 429,443   |      |  |  | 385,383   |  
|Series B Senior Discount Notes due 2009, interest payable
semi-annually beginning December 1, 2004     |  |      | 357,638   |      |  |  | 321,364   |  
|Other                                                                                                  |  |      | 3,655     |      |  |  | 26,674    |  
|                                                                                                       |  |      |           |      |  |  |           |  
|                                                                                                       |  |      | 2,040,178 |      |  |  | 1,903,571 |  
|Less current portion of principal                                                                      |  |      | (7,500    | )    |  |  | (16,523   | )
|                                                                                                       |  |      |           |      |  |  |           |  
|                                                                                                       |  |      | 2,032,678 |      |  |  | 1,887,048 |  
|                                                                                                       |  |      |           |      |  |  |           |  

The details on the Companys long-term debt and contractual repayments as at
December 31, 2002 and 2001 are disclosed without taking into consideration the
Plan as discussed in note 1, except that the current portion of long-term debt
is equivalent to the current portion of the new debt contracted on the
implementation date of the plan.

The minimum contractual payments of long-term debt for the next five years are
as follows: $59,882,000 in 2003; $68,575,000 in 2004; $81,325,000 in 2005;
$948,396,000 in 2006; and $520,707,000 in 2007.

Senior Secured Loans

The Senior Secured Loans are divided into Senior Secured Revolving Credit Loans
and Senior Secured Term Loans as follows:

Senior Secured Revolving Credit Loans

In conjunction with the senior secured lenders approval of the Plan (see note
1), the senior secured lenders and the Company mutually agreed, in December
2002, to terminate the senior secured revolving credit facility.

102



---



##### Table of Contents





|11. |  | LONG-TERM DEBT (CONTD)
|--- |  | -----------------------

Senior Secured Term Loans

Tranche A
Term Loan of $151,200,000, bearing interest at the prime rate plus 1% (1.5% in
2001) or Bankers Acceptance rate plus 2% (2.5% in 2001), payable in quarterly
installments starting in June 2002 and maturing in December 2005. The floating
interest rate was swapped to a fixed rate of 5.65% on $75,600,000 of the
principal outstanding until December 2005. On the remaining balance of
$75,600,000, the Company has swapped the floating interest to a fixed range of
rates (4.83% to 5.93%). As at December 31, 2002, these hedging agreements are
terminated (see note 9).

Tranche B
Term Loan of U.S.$50,923,411, bearing interest at the U.S. base rate plus 2%
or the U.S. LIBOR rate plus 3%, payable in quarterly installments starting in
June 2002 and maturing in March 2006. The floating interest rate was swapped
on the full amount to a fixed rate of 5.87% to March 1, 2006. As at December
31, 2002, this hedging agreement is terminated (see note 9).

Tranche C
Term Loan of $18,800,000 bearing interest at the prime rate plus 1% (1.5% in
2001) or Eurocanadian plus 2% (2.5% in 2001), payable in quarterly installments
starting in June 2002 and maturing in December 2005. The floating interest
rate was swapped on the full amount to a fixed rate of 5.6% to December 30,
2005. As at December 31, 2002, this hedging agreement is terminated (see note
9).

Tranche D
Term Loan of $34,200,000, bearing interest at the prime rate plus 1% (1.5% in
2001) or Eurocanadian plus 2% (2.5% in 2001), payable in quarterly installments
starting in September 2002 and maturing in December 2005. The floating
interest rate was swapped on the full amount to a fixed rate of 5.63% to
December 30, 2005. As at December 31, 2002, this hedging agreement is
terminated (see note 9).

Tranche E
Term Loan of U.S.$137,551,000, bearing interest at the U.S. base rate plus
2.25% or the U.S. LIBOR rate plus 3.25%, payable in quarterly installments
starting in June 2002 and maturing in March 2006.

Tranche F
Term Loan of U.S.$62,920,783, bearing interest at the U.S. base rate plus 2.5%
or the U.S. LIBOR rate plus 3.5%, payable in quarterly installments starting in
March 2003 and maturing in February 2007.

As of December 31, 2002 and 2001, the full amounts were drawn on all Tranches
of the Senior Secured Term Loans. Contractual repayments of Tranches A, B, C,
D, E and F up to 2007 are as follows:

Tranches

|     |  |                |      |               |  |                |     |                |   |               |      |               |   |  |      |             |  |  |       |  |  |             |       | 
|---- |  | -------------- | ---- | ------------- |  | -------------- | --- | -------------- | - | ------------- | ---- | ------------- | - |  | ---- | ----------- |  |  | ----- |  |  | ----------- | ----- | 
|     |  | A              |      | B             |  | C              |     | D              |   | E             |      | F            
|     |  | % of principal |      | Equivalent to |  | % of principal |     | % of principal |   | Equivalent to |      | Equivalent to
|     |  | amount         |      | C$            |  | amount         |     | amount         |   | C$            |      | C$           
|     |  |                |      |               |  |                |     |                |   |               |      |              
|2003 |  |                | 25.0 | %             |  |                | 750 |                |   |               | 25.0 | %             |   |  | 20.0 | %           |  |  | 2,000 |  |  |             | 2,000 | 
|2004 |  |                | 30.0 | %             |  |                | 750 |                |   |               | 30.0 | %             |   |  | 37.5 | %           |  |  | 2,000 |  |  |             | 2,000 | 
|2005 |  |                | 37.5 | %             |  |                | 750 |                |   |               | 37.5 | %             |   |  | 37.5 | %           |  |  | 2,000 |  |  |             | 2,000 | 
|     |  |                |      |               |  | Balance        |     |                |   |               |      |               |   |  |      | Balance     |  |  |       | 
|2006 |  |                |     |               |  | outstanding    |     |                |  |               |      |               |  |  |      | outstanding |  |  | 2,000 | 
|     |  |                |      |               |  |                |     |                |   |               |      |               |   |  |      |             |  |  |       |  |  | Balance    
|2007 |  |                |     |               |  |                |    |                |   |               |     |               |   |  |     |             |  |  |      |  |  | outstanding

The Senior Secured Loans are collateralized by debentures of $1,100,000,000,
issued by Microcell Telecommunications Inc., Microcell Solutions Inc., and
Microcell Connexions Inc. under trust deeds. The debentures are collateralized
by a first ranking security interest in all property and assets of these
companies.

103



---



##### Table of Contents





|11. |  | LONG-TERM DEBT (CONTD)
|--- |  | -----------------------

As of December 31, 2002 and 2001, the interest and foreign exchange rates were
as follows:

|                                                 |  |      |        |      |  |  |        | 
|------------------------------------------------ |  | ---- | ------ | ---- |  |  | ------ | 
|                                                 |  | 2002 |        | 2001
|                                                 |  | %    |        | %   
|                                                 |  |      |        |     
|Prime rate                                       |  |      | 4.50   |      |  |  | 4.00   | 
|Bankers Acceptance rate                         |  |      | 2.84   |      |  |  | 2.07   | 
|U.S. base rate                                   |  |      | 4.25   |      |  |  | 4.75   | 
|U.S. LIBOR rate                                  |  |      | 1.38   |      |  |  | 1.88   | 
|Eurocanadian rate                                |  |      | 2.83   |      |  |  | 2.10   | 
|Closing exchange rate in U.S. dollars per C$1.00 |  |      | 0.6339 |      |  |  | 0.6278 | 

Senior Discount Notes

Series B Senior Discount Notes due 2006

The unsecured Senior Discount Notes due 2006 consist of 417,973 Units, each
Unit consisting of U.S.$1,000 at maturity, 14% Series B Senior Discount Notes
due on June 1, 2006 and four initial warrants each to purchase 2.1899 Class B
Non-Voting Shares for gross proceeds of $273,321,000 (U.S.$200,000,081).

Series A and Series B Senior Discount Notes due 2007

The unsecured Senior Discount Notes due 2007 consist of $429,443,000, 11 1/8%
Series A and B Senior Discount Notes due on October 15, 2007, for gross
proceeds of $250,000,000.

Series B Senior Discount Notes due 2009

The unsecured Senior Discount Notes due 2009 consist of U.S.$270,000,000, 12%
Series B Senior Discount Notes due on June 1, 2009, for gross proceeds of
$221,196,000 (U.S.$150,473,700). The Company entered into a cross-currency
swap agreement to manage its exposure to foreign exchange rate fluctuations on
the principal at a rate of 1.47. The duration of the cross-currency swap
corresponded to that of the Senior Discount Notes due 2009. The cross-currency
swap agreement was secured by the debentures issued to secure the Senior
Secured Loans. As at December 31, 2002, this hedging agreement is terminated
(see note 9).

Interest and redemption rights

The Senior Discount Notes were sold at a substantial discount from their
principal amount, and cash interest started to accrue on December 1, 2001 for
the Senior Discount Notes due in 2006, on October 15, 2002 for the Senior
Discount Notes due in 2007 and will begin to accrue on June 1, 2004 for the
Senior Discount Notes due in 2009.

On or after specific dates, the Company may redeem the Senior Discount Notes,
in whole or in part, at any time, at the following redemption prices (expressed
as percentages of principal amounts at maturity) plus accrued and unpaid cash
interest, if any, to the redemption date, if redeemed during the twelve-month
period beginning on the redemption starting date of each year set forth in the
following table:

|                          |  |            |         |            |  |        |         |  |  |  |         | 
|------------------------- |  | ---------- | ------- | ---------- |  | ------ | ------- |  |  |  | ------- | 
|Senior Discount Notes Due |  | 2006       |         | 2007       |  | 2009  
|Redemption Date           |  | December 1 |         | October 15 |  | June 1
|                          |  | %          |         | %          |  | %     
|                          |  |            |         |            |  |       
|2003                      |  |            | 102.333 |            |  |        | 102.781 |  |  |  |        | 
|2004                      |  |            | 100.000 |            |  |        | 100.000 |  |  |  | 108.000 | 
|2005                      |  |            | 100.000 |            |  |        | 100.000 |  |  |  | 107.000 | 
|2006                      |  |            | 100.000 |            |  |        | 100.000 |  |  |  | 106.000 | 
|2007                      |  |            |        |            |  |        | 100.000 |  |  |  | 105.000 | 
|2008 and 2009             |  |            |        |            |  |        |        |  |  |  | 100.    | 

Covenants

Under the long-term debt agreements discussed above, the Company is committed
to respect certain negative covenants, including restrictions on the ability to
incur certain indebtedness, incur additional capital expenditures, pay
dividends, make certain other payments, create liens, sell assets and engage in
mergers. The Company must also maintain certain financial covenants and
ratios, including debt and capital ratios, EBITDA levels, as defined, and
subscriber and revenue levels.

104



---



##### Table of Contents





|11. |  | LONG-TERM DEBT (CONTD)
|--- |  | -----------------------

As of December 31, 2002 the Company was not in compliance with certain of these
covenants and as such all the long-term debt is in default (see note 1).



|4. |  | SHARE CAPITAL
|-- |  | -------------

Authorized

Unlimited number of Common Shares, each of which may, at any time, at the
holders option, be converted into one Class B Non-Voting Share or into one
Class A Non-Voting Share, if necessary, to comply with the restrictions on
non-Canadian ownership and control.

Unlimited number of participating Class A Non-Voting Shares, each of which may,
at any time, at the holders option, be converted into one Class B Non-Voting
Share or into one Common Share, to the extent that the Company does not cease
to comply with the restrictions on non-Canadian ownership and control as a
result.

Unlimited number of participating Class B Non-Voting Shares.

Unlimited number of Non-Voting First Preferred Shares issuable in one or more
series.

Issued and paid

|                                |  |        |            |                   |  |                   |         |       |  |        |           |   |  |   |         |   |  |  |             |  |  |  |         |  |  |  |           | 
|------------------------------- |  | ------ | ---------- | ----------------- |  | ----------------- | ------- | ----- |  | ------ | --------- | - |  | - | ------- | - |  |  | ----------- |  |  |  | ------- |  |  |  | --------- | 
|                                |  | Common |            | Class A           |  | Class B           |         |       |  |       
|                                |  | Shares |            | Non-Voting Shares |  | Non-Voting Shares |         | Total
|                                |  |        |            |                   |  |                   |         |      
|                                |  | Number |            | $                 |  | Number            |         | $     |  | Number |           | $ |  | $
|                                |  |        |            |                   |  |                   |         |       |  |        |           |   |  |  
|Balance as of December 31, 1999 |  |        | 32,780,071 |                   |  |                   | 87,698  |       |  |        |          |   |  |   |        |   |  |  | 22,141,195  |  |  |  | 239,901 |  |  |  | 327,599   | 
|Issued                          |  |        |           |                   |  |                   |        |       |  |        | 9,755,001 |   |  |   | 395,066 |   |  |  | 242,043     |  |  |  | 1,837   |  |  |  | 396,903   | 
|Converted                       |  |        | (1,114,796 | )                 |  |                   | (3,023  | )     |  |        | (165,001  | ) |  |   | (589    | ) |  |  | 1,279,797   |  |  |  | 3,612   |  |  |  |          | 
|Exercise of warrants            |  |        |           |                   |  |                   |        |       |  |        |          |   |  |   |        |   |  |  | 497,607     |  |  |  | 3,548   |  |  |  | 3,548     | 
|                                |  |        |            |                   |  |                   |         |       |  |        |           |   |  |   |         |   |  |  |             |  |  |  |         |  |  |  |           | 
|Balance as of December 31, 2000 |  |        | 31,665,275 |                   |  |                   | 84,675  |       |  |        | 9,590,000 |   |  |   | 394,477 |   |  |  | 24,160,642  |  |  |  | 248,898 |  |  |  | 728,050   | 
|Issued                          |  |        |           |                   |  |                   |        |       |  |        | 60,496    |   |  |   | 191     |   |  |  | 174,696,663 |  |  |  | 439,130 |  |  |  | 439,321   | 
|Converted                       |  |        | (4,033,738 | )                 |  |                   | (10,787 | )     |  |        | (60,496   | ) |  |   | (191    | ) |  |  | 4,094,234   |  |  |  | 10,978  |  |  |  |          | 
|Exercise of warrants            |  |        |           |                   |  |                   |        |       |  |        |          |   |  |   |        |   |  |  |            |  |  |  |        |  |  |  |          | 
|                                |  |        |            |                   |  |                   |         |       |  |        |           |   |  |   |         |   |  |  |             |  |  |  |         |  |  |  |           | 
|Balance as of December 31, 2001 |  |        | 27,631,537 |                   |  |                   | 73,888  |       |  |        | 9,590,000 |   |  |   | 394,477 |   |  |  | 202,951,539 |  |  |  | 699,006 |  |  |  | 1,167,371 | 
|Issued                          |  |        |           |                   |  |                   |        |       |  |        |          |   |  |   |        |   |  |  |            |  |  |  |        |  |  |  |          | 
|Converted                       |  |        |           |                   |  |                   |        |       |  |        |          |   |  |   |        |   |  |  |            |  |  |  |        |  |  |  |          | 
|Exercise of warrants            |  |        |           |                   |  |                   |        |       |  |        |          |   |  |   |        |   |  |  | 43,372      |  |  |  | 307     |  |  |  | 307       | 
|                                |  |        |            |                   |  |                   |         |       |  |        |           |   |  |   |         |   |  |  |             |  |  |  |         |  |  |  |           | 
|Balance as of December 31, 2002 |  |        | 27,631,537 |                   |  |                   | 73,888  |       |  |        | 9,590,000 |   |  |   | 394,477 |   |  |  | 202,994,911 |  |  |  | 699,313 |  |  |  | 1,167,678 | 
|                                |  |        |            |                   |  |                   |         |       |  |        |           |   |  |   |         |   |  |  |             |  |  |  |         |  |  |  |           | 

In January 2001, Microcell completed a public offering of 2,032,659 Class B
Non-Voting Shares, and its two major shareholders concurrently purchased a
further 1,671,045 Class B Non-Voting Shares, at the offering price. This
offering generated net proceeds of $97,100,000.

In November 2001, Microcell issued rights, to all existing Common shareholders,
Class A Non Voting shareholders, Class B Non-Voting shareholders and warrants
holders, to subscribe for an aggregate of 122,955,459 Class B Non-Voting Shares
at the offering price of $2.05 per share. Concurrently with this offering, two
major financial institutions acquired, by way of a private placement,
30,000,602 Class B Non-Voting Shares, at the offering price, and Microcells
major shareholders purchased a further 18,032,012 Class B Non-Voting Shares,
also at the offering price. The offering generated net proceeds of
approximately $244,000,000. In addition, the options to acquire 30,000,602 and
18,032,012 Class B Non-Voting Shares were exercised, generating additional net
proceeds of approximately $98,000,000. These options have a fair value of
$33,528,878 and were accounted for at issuance as issue fees and were presented
as a reduction of share capital and an increase in paid-in capital. On
exercise of the options, the additional paid-in capital was transferred to
share capital.

105



---



##### Table of Contents





|12. |  | SHARE CAPITAL (CONTD)
|--- |  | ----------------------

Employee stock purchase plan

The Company has a stock purchase plan for its employees under which
participants can contribute up to 10% of their salary. Microcell makes a
contribution in shares for the benefit of the participant equal to one-third
the number of shares purchased with the participants contribution during the
year (up to 5% of the participants salary). Microcells contribution is
executed only if, on the measurement date (which, for each year, is June 30 of
the following year), the participant is still an employee of the Company and
still holds the shares purchased with their contributions during the year.
Microcell may choose to make its contribution in treasury shares (250,000 Class
B Non-Voting Shares have been reserved for issuance) or to deposit with the
Administrative Agent a sufficient amount of money to enable the Administrative
Agent to purchase the appropriate number of shares in the market. As of
December 31, 2002, 4,886 of the reserved shares (4,886 in 2001) were issued
under this stock purchase plan. Under the Plan described in note 1, this plan
will be cancelled.

Stock option plans

On October 6, 1997, the Board of Directors of Microcell established a stock
option plan for employees, officers and directors of the Company, as designated
by the Board of Directors. As at December 31, 2002, the stock option plan
authorizes the issuance of up to 19,000,000 class B non-voting shares of
Microcell pursuant to options granted under the stock option plan (5,900,000 as
of December 31, 2001). The Board may amend, supersede or terminate the stock
option plan.

The stock option plan is administered by the Board, which has sole discretion
to designate the recipients of options and to determine the number of class B
non-voting shares of Microcell covered by each of such options, the date of
grants and the subscription price of each option. Any options granted under
stock option plan before July 1, 2001 shall become exercisable in whole or in
part as to 25% of the option on each of the second, third, fourth and fifth
anniversary of the date of the grant. Any options granted under the stock
option plan after July 1, 2001 shall become exercisable in whole or in part as
to 25% of the option on each of the first, second, third and fourth anniversary
of the date of the grant. An option granted under the stock option plan
expires on the seventh anniversary of the date of the grant and is
non-transferable. Each participant in the stock option plan may receive no
more than one grant of class B non-voting shares of Microcell per year not
exceeding a defined number determined by the Board.

The stock option plan replaces the stock option plan for senior executives and
key employees adopted on June 23, 1994 (the Predecessor Plan), but does not
revoke options to purchase Class A Non-Voting Shares of Microcell granted
thereunder. The Predecessor Plan is subject to an undertaking of the
recipients not to convert the Class A Non-Voting Shares acquired pursuant
thereto into Common Shares until Microcells Common Shares are listed on a
stock exchange, or until there is an offer to purchase more than 50% of the
Common Shares and the holders of the Common Shares have signified their
intention to accept such a takeover bid. All options were granted at an
exercise price equivalent to the estimated fair value of the underlying shares
at the date of the grant. During 2001, certain options were granted with the
guarantee that they would reach a certain value. Such options were cancelled
in 2002. Consequently, the Company no longer has a contingent liability under
such options.

Pro forma information regarding net income is required and has been determined
as if the Company had accounted for its employee stock options under the fair
value method. The fair value for these options was estimated at the date of
granting using a Black-Scholes option pricing model with the following
assumptions for 2002: weighted-average risk-free interest rates of 3.0% (3.0%
in 2001); dividend yields of 0% (0% in 2001); weighted-average volatility
factors of the expected market price of the Companys Class B Non-Voting Shares
of 107.9% (89.8% in 2001); and a weighted-average expected life of the options
of 5.5 years (5.5 years in 2001). For purposes of pro forma disclosures, the
estimated fair value of the options at the grant date is amortized to expense
over the options vesting periods.

Considering all options issued since the beginning of the Companys stock
option plans, the Companys pro forma net loss would be increased by
$2,228,000, $6,155,000 and $2,477,000 for the years ended December 31, 2002,
2001 and 2000 respectively. Basic and diluted loss-per-share figures would be
increased by $0.01, $0.06 and $0.03 respectively.

Under the Plan described in note 1, this plan will be cancelled.

106



---



##### Table of Contents



12. SHARE CAPITAL (CONTD)

A summary of the status of the Companys stock option plans as of December 31,
2002 and 2001, and changes during these years are presented below:

|                                |  |                           |         |                           |  |         |       |                  |  |  |            |   |  |  |       | 
|------------------------------- |  | ------------------------- | ------- | ------------------------- |  | ------- | ----- | ---------------- |  |  | ---------- | - |  |  | ----- | 
|                                |  | Options to purchase       |         | Options to purchase      
|                                |  | Class A Non-Voting Shares |         | Class B Non-Voting Shares
|                                |  |                           |         |                          
|                                |  | Number                    |         | Weighted-average          |  | Number  |       | Weighted-average
|                                |  | of                        |         | exercise price            |  | of      |       | exercise price  
|                                |  | options                   |         |                           |  | options |       |                 
|                                |  |                           |         |                           |  |         |       |                 
|                                |  |                           |         | (in dollars)              |  |         |       | (in dollars)    
|                                |  |                           |         |                           |  |         |       |                  |  |  |           
|Balance as of December 31, 2000 |  |                           | 150,507 |                           |  |         | 7.49  |                  |  |  | 1,844,800  |   |  |  | 23.01 | 
|                                |  |                           |         |                           |  |         |       |                  |  |  |            |   |  |  |      
|Granted                         |  |                           |        |                           |  |         |      |                  |  |  | 5,872,296  |   |  |  | 5.93  | 
|Exercised                       |  |                           | (60,496 | )                         |  |         | 3.19  |                  |  |  |           |   |  |  |      | 
|Forfeited                       |  |                           | (1,029  | )                         |  |         | 10.40 |                  |  |  | (164,764   | ) |  |  | 25.34 | 
|                                |  |                           |         |                           |  |         |       |                  |  |  |            |   |  |  |      
|Balance as of December 31, 2001 |  |                           | 88,982  |                           |  |         | 10.40 |                  |  |  | 7,552,332  |   |  |  | 9.68  | 
|                                |  |                           |         |                           |  |         |       |                  |  |  |            |   |  |  |      
|Granted                         |  |                           |        |                           |  |         |      |                  |  |  | 386,663    |   |  |  | 0.88  | 
|Exercised                       |  |                           |        |                           |  |         |      |                  |  |  |           |   |  |  |      | 
|Cancelled                       |  |                           |        |                           |  |         |      |                  |  |  | (1,024,109 | ) |  |  | 2.80  | 
|Forfeited                       |  |                           | (23,281 | )                         |  |         | 10.40 |                  |  |  | (2,178,233 | ) |  |  | 11.09 | 
|                                |  |                           |         |                           |  |         |       |                  |  |  |            |   |  |  |      
|Balance as of December 31, 2002 |  |                           | 65,701  |                           |  |         | 10.40 |                  |  |  | 4,736,653  |   |  |  | 9.80  | 
|                                |  |                           |         |                           |  |         |       |                  |  |  |            |   |  |  |      

The following table summarizes
information about stock options outstanding as of December 31,
2002:

|                                      |  |                     |           |                     |  |           |           |                   |  |           |       |  |  |  |           |  |  |  |       | 
|------------------------------------- |  | ------------------- | --------- | ------------------- |  | --------- | --------- | ----------------- |  | --------- | ----- |  |  |  | --------- |  |  |  | ----- | 
|                                      |  |                     |           |                    
|                                      |  | Options Outstanding |           | Options Exercisable
|                                      |  |                     |           |                    
|                                      |  | Number              |           | Weighted-           |  | Weighted- |           |                   |  | Weighted-
|                                      |  | outstanding as of   |           | average             |  | average   |           | Number            |  | average  
|Range of                              |  | December 31,        |           | remaining           |  | exercise  |           | exercisable as of |  | exercise 
|exercise prices                       |  | 2002                |           | life                |  | price     |           | December 31, 2002 |  | price    
|                                      |  |                     |           |                     |  |           |           |                   |  |          
|Class A Non-Voting Shares             |  |                     |           |                     |  |           |           |                   |  |           |       |  |  |  |           |  |  |  |       | 
|$10.00 to 11.00                       |  |                     | 65,701    |                     |  |           | 0.7 year  |                   |  |           | 10.40 |  |  |  | 65,701    |  |  |  | 10.40 | 
|                                      |  |                     |           |                     |  |           |           |                   |  |           |       |  |  |  |           |  |  |  |       | 
|Class B Non-Voting Shares(in dollars) |  |                     |           |                     |  |           |           |                   |  |           |       |  |  |  |           |  |  |  |       | 
|$0.55 to $1.99                        |  |                     | 305,685   |                     |  |           | 6.4 years |                   |  |           | 0.55  |  |  |  |          |  |  |  |      | 
|$2.00 to 4.00                         |  |                     | 2,258,124 |                     |  |           | 6.0 years |                   |  |           | 3.07  |  |  |  | 985,696   |  |  |  | 3.09  | 
|$11.00 to 13.00                       |  |                     | 1,014,546 |                     |  |           | 5.3 years |                   |  |           | 11.52 |  |  |  | 300,048   |  |  |  | 11.49 | 
|$13.01 to 16.00                       |  |                     | 680,164   |                     |  |           | 2.5 years |                   |  |           | 13.72 |  |  |  | 531,232   |  |  |  | 13.72 | 
|$28.00 to 39.00                       |  |                     | 235,744   |                     |  |           | 5.0 years |                   |  |           | 33.56 |  |  |  | 44,244    |  |  |  | 30.84 | 
|$40.00 to 49.00                       |  |                     | 242,390   |                     |  |           | 4.7 years |                   |  |           | 42.89 |  |  |  | 67,058    |  |  |  | 43.08 | 
|                                      |  |                     |           |                     |  |           |           |                   |  |           |       |  |  |  |           |  |  |  |       | 
|$0.55 to $49.00                       |  |                     | 4,736,653 |                     |  |           | 5.3 years |                   |  |           | 9.80  |  |  |  | 1,928,278 |  |  |  | 9.35  | 
|                                      |  |                     |           |                     |  |           |           |                   |  |           |       |  |  |  |           |  |  |  |       | 

Warrants

|                                           |  |      |       |      |  |  |       |  
|------------------------------------------ |  | ---- | ----- | ---- |  |  | ----- | -
|                                           |  | 2002 |       | 2001
|                                           |  |      |       |     
|                                           |  | $    |       | $   
|115,700 initial warrants (135,700 in 2001) |  |      | 1,844 |      |  |  | 2,163 |  
|Issue costs                                |  |      | (74   | )    |  |  | (86   | )
|                                           |  |      |       |      |  |  |       |  
|                                           |  |      | 1,770 |      |  |  | 2,077 |  
|                                           |  |      |       |      |  |  |       |  

The warrants issued as part of the Units described in note 11expire in June
2006. The initial warrants are each exercisable for 2.1899 Class B Non-Voting
Shares at an exercise price of U.S.$0.01 per share. During the year, 20,000
warrants were exercised and resulted in the net issuance of 43,372 Class B
Non-Voting Shares (nil in 2001).

107



---



##### Table of Contents





|13. |  | LOSS PER SHARE
|--- |  | --------------

The rights issue completed in 2001 contained a bonus element and was offered to
all existing shareholders. As a result, basic and diluted loss per share were
adjusted retroactively for all periods presented in order to reflect the bonus
element. Consequently, the number of shares used in computing basic and diluted
loss per share for all periods presented prior to the rights issue is the
weighted-average number of shares outstanding for those periods, multiplied by
a factor of 1.5035.

The reconciliation of the numerator and denominator for the calculation of loss
per share is as follows:

|                                                                 |  |      |         |      |  |      |         |  |  |  |         | 
|---------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                                                 |  | 2002 |         | 2001 |  | 2000
|                                                                 |  | $    |         | $    |  | $   
|                                                                 |  |      |         |      |  |     
|Net loss                                                         |  |      | 570,501 |      |  |      | 498,485 |  |  |  | 268,427 | 
|                                                                 |  |      |         |      |  |      |         |  |  |  |         | 
|Weighted-average number of shares outstanding                    |  |      | 240,204 |      |  |      | 108,915 |  |  |  | 63,724  | 
|Shares issuable pursuant to exercise of initial warrants         |  |      | 253     |      |  |      | 297     |  |  |  | 291     | 
|                                                                 |  |      |         |      |  |      |         |  |  |  |         | 
|Number of shares for basic loss per share calculation            |  |      | 240,457 |      |  |      | 109,212 |  |  |  | 64,015  | 
|Adjustment factor                                                |  |      |        |      |  |      |        |  |  |  | 1.5035  | 
|                                                                 |  |      |         |      |  |      |         |  |  |  |         | 
|Adjusted number of shares for basic loss per share calculation   |  |      | 240,457 |      |  |      | 109,212 |  |  |  | 96,247  | 
|Additional shares for diluted loss per share calculation         |  |      |        |      |  |      | 3,312   |  |  |  | 997     | 
|                                                                 |  |      |         |      |  |      |         |  |  |  |         | 
|Adjusted number of shares for diluted loss per share calculation |  |      | 240,457 |      |  |      | 112,524 |  |  |  | 97,244  | 
|                                                                 |  |      |         |      |  |      |         |  |  |  |         | 
|Basic and diluted loss per share(dollars)                        |  |      | 2.37    |      |  |      | 4.56    |  |  |  | 2.79    | 
|                                                                 |  |      |         |      |  |      |         |  |  |  |         | 

Basic and diluted losses per share are identical, as the effect of the dilutive
securities are antidilutive.



|14. |  | RELATED PARTY TRANSACTIONS
|--- |  | --------------------------

In addition to the related party transactions disclosed elsewhere in these
financial statements, the Company has entered into transactions with
shareholders, companies under common control, joint ventures and
equity-accounted companies. These transactions are undertaken in the normal
course of operations and are measured at the exchange amount, which is the
amount of consideration established and agreed to by the related parties.
These transactions consist primarily of the purchase or sale by the Company of
engineering, telecommunications, development and management services or
equipment. The effect on the consolidated financial statements is as follows:

|                                                         |  |      |       |      |  |      |       |  |  |  |       | 
|-------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                         |  | 2002 |       | 2001 |  | 2000
|                                                         |  | $    |       | $    |  | $   
|                                                         |  |      |       |      |  |     
|Costs capitalized to capital assets and deferred charges |  |      |      |      |  |      | 5,165 |  |  |  | 5,122 | 
|Cost of products and services                            |  |      | 3,007 |      |  |      | 6,965 |  |  |  | 4,117 | 
|General and administrative services                      |  |      | 304   |      |  |      | 562   |  |  |  | 507   | 
|Selling and marketing                                    |  |      |      |      |  |      | 225   |  |  |  |      | 
|Equipment sales and service revenues                     |  |      | 4,698 |      |  |      | 5,470 |  |  |  | 1,940 | 
|Equipment purchase                                       |  |      | 224   |      |  |      | 192   |  |  |  |      | 
|Net gain on asset disposal                               |  |      |      |      |  |      |      |  |  |  | 860   | 
|Interest revenue                                         |  |      |      |      |  |      |      |  |  |  | 89    | 
|                                                         |  |      |       |      |  |      |       |  |  |  |       | 



|15. |  | RESTRUCTURING CHARGES
|--- |  | ---------------------

In 2002, the Company laid off approximately 350 employees (approximately 200 in
2001) to adjust its work force to the requirements of its operating plan. The
restructuring charges of $7,494,000 recorded in 2002 ($5,226,000 in 2001)
relate primarily to severance payments to the employees laid off. These
measures were the result of increased productivity from the consolidation of
certain administrative and operating support services, and the suspension of
certain projects due to difficult financial market conditions.

As at December 31, 2002, the remaining balance of the restructuring provision
was $1,036,000 ($2,314,000 as at December 31, 2001). This provision is
comprised of unpaid severance payments to employees laid off.

108



---



##### Table of Contents





|16. |  | INCOME TAXES
|--- |  | ------------

Significant components of the income tax benefit consist of the following:

|                                                                                       |  |      |         |      |  |      |         |   |  |  |          |  
|-------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | -------- | -
|                                                                                       |  | 2002 |         | 2001 |  | 2000
|                                                                                       |  | $    |         | $    |  | $   
|                                                                                       |  |      |         |      |  |     
|Current income tax expense before the following:                                       |  |      | 80,484  |      |  |      | 40,101  |   |  |  | 6,676    |  
|Tax benefit of previously unrecognized losses
and temporary differences                |  |      | (78,860 | )    |  |      | (37,857 | ) |  |  | (5,223   | )
|                                                                                       |  |      |         |      |  |      |         |   |  |  |          |  
|Current income tax expense                                                             |  |      | 1,624   |      |  |      | 2,244   |   |  |  | 1,453    |  
|Deferred income tax recovery related to
reversal of temporary differences              |  |      | (73,519 | )    |  |      | (3,966  | ) |  |  |         |  
|Deferred income tax recovery of previously
unrealized losses and temporary differences |  |      |        |      |  |      |        |   |  |  | (116,968 | )
|                                                                                       |  |      |         |      |  |      |         |   |  |  |          |  
|Income tax benefit                                                                     |  |      | (71,895 | )    |  |      | (1,722  | ) |  |  | (115,515 | )
|                                                                                       |  |      |         |      |  |      |         |   |  |  |          |  

The reconciliation of income tax computed at the statutory tax rates to the
income tax benefit is as follows:

|                                                                                                          |  |      |          |      |  |      |          |   |  |  |          |  
|--------------------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                                                                          |  | 2002 |          | 2001 |  | 2000
|                                                                                                          |  | $    |          | $    |  | $   
|                                                                                                          |  |      |          |      |  |     
|Income tax benefit based on the
combined statutory income tax rate
of 32% (33% in 2001 and 37.5% in
2000) |  |      | (205,567 | )    |  |      | (165,068 | ) |  |  | (143,978 | )
|Tax effect of acquired assets                                                                             |  |      |         |      |  |      |         |   |  |  | (71,384  | )
|Non-taxable portion of capital items                                                                      |  |      | 3,665    |      |  |      | 14,596   |   |  |  | (28,926  | )
|Unrecognized tax benefits of losses
and temporary differences                                             |  |      | 210,063  |      |  |      | 187,376  |   |  |  | 130,744  |  
|Tax benefit of previously
unrecognized losses and temporary
differences                                   |  |      | (78,860  | )    |  |      | (37,857  | ) |  |  | (5,223   | )
|Large corporations tax                                                                                    |  |      | 1,624    |      |  |      | 2,244    |   |  |  | 1,453    |  
|Other                                                                                                     |  |      | (2,820   | )    |  |      | (3,013   | ) |  |  | 1,799    |  
|                                                                                                          |  |      |          |      |  |      |          |   |  |  |          |  
|Income tax benefit                                                                                        |  |      | (71,895  | )    |  |      | (1,722   | ) |  |  | (115,515 | )
|                                                                                                          |  |      |          |      |  |      |          |   |  |  |          |  

As of December 31, 2002, the Company had net operating losses carried forward
for income tax purposes that expire as follows: 2003, $98,000,000; 2004,
$211,500,000; 2005, $217,800,000; 2006, $57,900,000; 2007, $266,000,000; 2008,
$288,000,000; 2009, $364,000,000. In addition, the Company had approximately
$760,000,000 of deductible temporary differences.

Significant components of the Companys deferred tax assets and liabilities as
of December 31, 2002 are as follows:

|                                                                                   |  |      |          |      |  |      |          |   |  |  |          |  
|---------------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                                                   |  | 2002 |          | 2001 |  | 2000
|                                                                                   |  |      |          |      |  |     
|                                                                                   |  | $    |          | $    |  | $   
|                                                                                   |  |      |          |      |  |     
|Deferred income tax liabilities:                                                   |  |      |          |      |  |      |          |   |  |  |          |  
|Accounting values of capital assets in excess of tax values                        |  |      |         |      |  |      | 84,347   |   |  |  | 9,530    |  
|Accounting values of marketable securities and investments
in excess of tax values |  |      |         |      |  |      |         |   |  |  | 20,599   |  
|Deferred charges and other                                                         |  |      | 873      |      |  |      | 4,646    |   |  |  | 3,223    |  
|                                                                                   |  |      |          |      |  |      |          |   |  |  |          |  
|Total deferred income tax liabilities                                              |  |      | 873      |      |  |      | 88,993   |   |  |  | 33,352   |  
|                                                                                   |  |      |          |      |  |      |          |   |  |  |          |  
|Deferred income tax assets:                                                        |  |      |          |      |  |      |          |   |  |  |          |  
|Tax values of marketable securities and investments in
excess of accounting values |  |      | 4,568    |      |  |      | 952      |   |  |  |         |  
|Operating losses carried forward                                                   |  |      | 481,105  |      |  |      | 416,288  |   |  |  | 411,300  |  
|Tax values of capital assets in excess of accounting values                        |  |      | 162,806  |      |  |      | 147,507  |   |  |  | 112,711  |  
|Provisions and other temporary differences                                         |  |      | 83,576   |      |  |      | 71,975   |   |  |  | 52,443   |  
|                                                                                   |  |      |          |      |  |      |          |   |  |  |          |  
|Total deferred income tax assets                                                   |  |      | 732,055  |      |  |      | 636,722  |   |  |  | 576,454  |  
|Valuation allowance                                                                |  |      | (731,182 | )    |  |      | (621,248 | ) |  |  | (547,691 | )
|                                                                                   |  |      |          |      |  |      |          |   |  |  |          |  
|Net deferred income tax assets                                                     |  |      | 873      |      |  |      | 15,474   |   |  |  | 28,763   |  
|                                                                                   |  |      |          |      |  |      |          |   |  |  |          |  
|Net deferred income tax liabilities                                                |  |      |         |      |  |      | 73,519   |   |  |  | 4,589    |  
|                                                                                   |  |      |          |      |  |      |          |   |  |  |          |  

109



---



##### Table of Contents





|17. |  | COMMITMENTS
|--- |  | -----------

In addition to the commitments disclosed elsewhere in these financial
statements, the aggregate minimum annual payments under operating leases
related to sites, switch rooms, offices and stores are as follows:

|                   |  |   |         | 
|------------------ |  | - | ------- | 
|                   |  | $
|                   |  |  
|2003               |  |   | 30,472  | 
|2004               |  |   | 28,058  | 
|2005               |  |   | 24,313  | 
|2006               |  |   | 17,467  | 
|2007               |  |   | 14,238  | 
|Subsequent to 2007 |  |   | 40,563  | 
|                   |  |   |         | 
|                   |  |   | 155,111 | 
|                   |  |   |         | 

Rental expenses for the twelve months ended December 31, 2002 amounted to
$29,682,000 ($29,540,000 for 2001 and $23,258,000 for 2000). As of December
31, 2002, the Company had outstanding letters of guarantee for an aggregate
amount of $4,337,000 ($1,175,000 as of December 31, 2001).

By letter dated March 29, 2001, Industry Canada renewed the Companys PCS
License for a term of five years expiring on March 31, 2006. The conditions
attached to the renewed term of the PCS License remained unchanged from those
of the initial term. However, Industry Canada also indicated as part of the
PCS License renewal its intention to initiate a review of the cellular and PCS
license terms, fees and conditions. Industry Canada has the power to make
amendments to the existing terms and conditions of license and fee structure.

The existing PCS License conditions require Connexions to: (i) substantially
meet the deployment plan contained in its initial license application and offer
a reasonable level of service in all regions of Canada; (ii) substantially
honor the research and development commitments made in its initial license
application, and at a minimum invest an average of 2% of adjusted gross revenue
from its PCS activities on PCS-related research and development, as defined by
Revenue Canada, averaged over the course of the PCS License term; (iii)
substantially honor all other commitments made in its detailed application;
(iv) comply with the Canadian Ownership and Control Provisions and notify the
Minister of any change that would materially affect its ownership or control in
fact, such notice to be given in advance for transactions known to the Company;
(v) submit annual reports indicating, among other things, continued compliance
with the PCS License conditions; (vi) from the inception of service, provide
for and maintain lawful interception capabilities as authorized by law, unless
forborne from so doing; (vii) comply with the transition policy and relocation
procedure for the relocation of incumbent microwave stations; (viii) offer PCS
resale throughout its service area to PCS licensees on a non-discriminatory
basis; (ix) comply with the provisions set out in the Interim Sharing Agreement
between Industry Canada and the Federal Communications Commission of the United
States concerning the use of the 2 GHz frequency range; and (x) obtain site
specific authority prior to installing or operating any 2 GHz PCS base station.
As at December 31, 2002, the Company is in compliance with the PCS License
conditions.



|18. |  | FINANCIAL INSTRUMENTS
|--- |  | ---------------------

Credit risk

The concentration of credit risk related to cash, cash equivalents, short-term
investments and marketable securities is limited because the securities held in
the portfolio relate to a large number of issuers. The Company has a limited
amount of credit risk due to the composition of its customer base, which
includes a large number of individuals and businesses. As disclosed elsewhere
in these financial statements, the Company was exposed to credit risk in the
event of non-performance by counterparties to its derivative financial
instruments, but limited the concentration of credit risk by dealing with
several highly rated financial institutions. As of December 31, 2002, the
Company does not own any derivative financial instruments.

Fair value

Fair value estimates are made as of a specific point in time, using available
information about the financial instruments. These estimates are subjective in
nature and often cannot be determined with precision.

The fair value of cash and cash equivalents, trade receivables, interest
receivable, taxes receivable, accounts payable and accrued liabilities
approximate their carrying value due to the short-term maturity of these
instruments.

110



---



##### Table of Contents



18.    FINANCIAL INSTRUMENTS (CONTD)

The fair value of the short-term investments and marketable securities is
determined based on an amount quoted at the balance sheet date.

The fair value of the Senior Secured Term Loans differs from their carrying
value, but it has been omitted because it is not possible to determine it with
sufficient reliability.

The fair value of the Senior Discount Notes due in 2006, 2007 and 2009 is
determined based on an amount quoted on the over-the-counter market as at
December 31, 2002 and 2001.

The fair value of the swaps and the options is determined based on market rates
prevailing at the balance sheet date obtained from the Companys financial
institutions for similar derivative instruments.

Fair values of the Companys financial instruments, where the fair value
differs from the carrying amounts on the financial statements, are as follows:

|                       |  |                |           |                      |  |                |       |                      |  |  |           |  |  |  |           | 
|---------------------- |  | -------------- | --------- | -------------------- |  | -------------- | ----- | -------------------- |  |  | --------- |  |  |  | --------- | 
|                       |  | 2002           |           | 2001                
|                       |  |                |           |                     
|                       |  | Carrying value |           | Estimated fair value |  | Carrying value |       | Estimated fair value
|                       |  |                |           |                      |  |                |       |                     
|                       |  | $              |           | $                    |  | $              |       | $                   
|                       |  |                |           |                      |  |                |       |                     
|Senior Discount Notes  |  |                | 1,450,130 |                      |  |                | 9,297 |                      |  |  | 1,372,494 |  |  |  | 1,022,034 | 
|Derivative instruments |  |                |          |                      |  |                |      |                      |  |  | 26,986    |  |  |  | 27,792    | 

19.    SEGMENTED INFORMATION

The Company carries out its operations entirely in Canada through three
strategic business segments: PCS, Wireless Internet, and Investments. PCS
consists of wireless telecommunications services that use advanced and secure
digital technology. The Company provides retail PCS in Canada to end-users and
offers access to the Companys PCS network to third-party telecommunications
providers (on a wholesale basis). The Company also offers PCS data services
based on the new General Packet Radio Service (GPRS) technology. Through its
Wireless Internet business segment, the Company provides mobile Internet
services to its PCS subscribers and had planned to build a high-speed Internet
Protocol-based data network using MCS technology in the 2500 MHz range. The
Company had planned to build the MCS network through Inukshuk.
However, the current challenging capital market conditions, which have made
raising financing difficult, Inukshuk has suspended building the MCS network on
its own for the time being. Through its Investments business segment, the
Company invests in various wireless or high technology companies and, as a
result, is exposed to normal market risk fluctuation, which may be significant.
As the Wireless Internet and Investments operations are not significant
starting 2003, the Company has determined that it operates in one segment since
January 1, 2003.

The accounting policies for segment and intersegment transactions are the same
as described in the summary of significant accounting policies (see note 2).
Management evaluates performance based on segment operating income (loss). The
segment operating income (loss) is defined as operating income (loss) excluding
restructuring charges, depreciation and amortization for all segments and
including gain (loss) in value of investments and marketable securities, gain
(loss) on disposal of investments and share of net loss (net income) in
investees for the Investments segment. All intersegment transactions are
eliminated upon consolidation.

111



---



##### Table of Contents



19.    SEGMENTED INFORMATION (CONTD)

The following tables present information about reported segment results and assets:

|                                                                     |  |                              |          |                   |  |             |          |              |  |       |         |   |  |              |        |   |  |  |          |  
|-------------------------------------------------------------------- |  | ---------------------------- | -------- | ----------------- |  | ----------- | -------- | ------------ |  | ----- | ------- | - |  | ------------ | ------ | - |  |  | -------- | -
|                                                                     |  | Year ended December 31, 2002
|                                                                     |  |                             
|                                                                     |  |                              |          |                   |  |             |          |              |  |       |         |   |  | Intersegment |        |   |  | 
|                                                                     |  | PCS                          |          | Wireless Internet |  | Investments |          | eliminations |  | Total
|                                                                     |  | $                            |          | $                 |  | $           |          | $            |  | $    
|                                                                     |  |                              |          |                   |  |             |          |              |  |      
|Revenues                                                             |  |                              | 590,959  |                   |  |             | 103      |              |  |       |        |   |  |              |       |   |  |  | 591,062  |  
|Revenues  intersegment                                              |  |                              | 97       |                   |  |             | 1,770    |              |  |       |        |   |  |              | (1,867 | ) |  |  |         |  
|                                                                     |  |                              |          |                   |  |             |          |              |  |       |         |   |  |              |        |   |  |  |          |  
|Revenues  total                                                     |  |                              | 591,056  |                   |  |             | 1,873    |              |  |       |        |   |  |              | (1,867 | ) |  |  | 591,062  |  
|Operating expenses                                                   |  |                              | (493,271 | )                 |  |             | (6,823   | )            |  |       | 44      |   |  |              |       |   |  |  | (500,050 | )
|Operating expenses-intersegment                                      |  |                              | (1,876   | )                 |  |             | (6,680   | )            |  |       |        |   |  |              | 8,556  |   |  |  |         |  
|                                                                     |  |                              |          |                   |  |             |          |              |  |       |         |   |  |              |        |   |  |  |          |  
|Segment operating income (loss)
before the following:                |  |                              | 95,909   |                   |  |             | (11,630  | )            |  |       | 44      |   |  |              | 6,689  |   |  |  | 91,012   |  
|Impairment of intangible assets                                      |  |                              |         |                   |  |             | (223,399 | )            |  |       |        |   |  |              |       |   |  |  | (223,399 | )
|Loss in value of investments,
marketable securities and other
assets |  |                              |         |                   |  |             |         |              |  |       | (16,086 | ) |  |              |       |   |  |  | (16,086  | )
|Share of net loss in investees                                       |  |                              |         |                   |  |             |         |              |  |       | (13,212 | ) |  |              |       |   |  |  | (13,212  | )
|                                                                     |  |                              |          |                   |  |             |          |              |  |       |         |   |  |              |        |   |  |  |          |  
|Segment operating income (loss)                                      |  |                              | 95,909   |                   |  |             | (235,029 | )            |  |       | (29,254 | ) |  |              | 6,689  |   |  |  | (161,685 | )
|                                                                     |  |                              |          |                   |  |             |          |              |  |       |         |   |  |              |        |   |  |  |          |  
|Additions to capital assets                                          |  |                              | 124,738  |                   |  |             | (64      | )            |  |       | 1       |   |  |              | 8      |   |  |  | 124,683  |  
|Additions to intangible assets                                       |  |                              |         |                   |  |             |         |              |  |       |        |   |  |              |       |   |  |  |         |  
|Total assets as at December 31, 2002                                 |  |                              | 902,169  |                   |  |             | 1,424    |              |  |       | 14,608  |   |  |              | (5,347 | ) |  |  | 912,854  |  
|                                                                     |  |                              |          |                   |  |             |          |              |  |       |         |   |  |              |        |   |  |  |          |  

|                                                                     |  |                              |           |                   |  |             |         |                     |  |       |         |   |  |              |         |   |  |  |           |  
|-------------------------------------------------------------------- |  | ---------------------------- | --------- | ----------------- |  | ----------- | ------- | ------------------- |  | ----- | ------- | - |  | ------------ | ------- | - |  |  | --------- | -
|                                                                     |  | Year ended December 31, 2001
|                                                                     |  |                             
|                                                                     |  |                              |           |                   |  |             |         |                     |  |       |         |   |  | Intersegment |         |   |  | 
|                                                                     |  | PCS                          |           | Wireless Internet |  | Investments |         | eliminations        |  | Total
|                                                                     |  | $                            |           | $                 |  | $           |         | $                   |  | $    
|                                                                     |  |                              |           |                   |  |             |         |                     |  |      
|                                                                     |  |                              |           |                   |  |             |         | (Restated  note 3) |  |       |         |   |  |             
|Revenues                                                             |  |                              | 541,416   |                   |  |             |        |                     |  |       | 74      |   |  |              |        |   |  |  | 541,490   |  
|Revenues  intersegment                                              |  |                              | 1,094     |                   |  |             | 7,648   |                     |  |       | 158     |   |  |              | (8,900  | ) |  |  |          |  
|                                                                     |  |                              |           |                   |  |             |         |                     |  |       |         |   |  |              |         |   |  |  |           |  
|Revenues  total                                                     |  |                              | 542,510   |                   |  |             | 7,648   |                     |  |       | 232     |   |  |              | (8,900  | ) |  |  | 541,490   |  
|Operating expenses                                                   |  |                              | (533,126  | )                 |  |             | (16,213 | )                   |  |       | (1,954  | ) |  |              |        |   |  |  | (551,293  | )
|Operating expenses-intersegment                                      |  |                              | (1,217    | )                 |  |             | (4,107  | )                   |  |       | (823    | ) |  |              | 6,147   |   |  |  |          |  
|                                                                     |  |                              |           |                   |  |             |         |                     |  |       |         |   |  |              |         |   |  |  |           |  
|Segment operating income (loss) before
the following:                |  |                              | 8,167     |                   |  |             | (12,672 | )                   |  |       | (2,545  | ) |  |              | (2,753  | ) |  |  | (9,803    | )
|Loss in value of investments,
marketable securities and other
assets |  |                              | (565      | )                 |  |             |        |                     |  |       | (32,528 | ) |  |              |        |   |  |  | (33,093   | )
|Share of net loss in investees                                       |  |                              |          |                   |  |             |        |                     |  |       | (5,282  | ) |  |              |        |   |  |  | (5,282    | )
|                                                                     |  |                              |           |                   |  |             |         |                     |  |       |         |   |  |              |         |   |  |  |           |  
|Segment operating income (loss)                                      |  |                              | 7,602     |                   |  |             | (12,672 | )                   |  |       | (40,355 | ) |  |              | (2,753  | ) |  |  | (48,178   | )
|                                                                     |  |                              |           |                   |  |             |         |                     |  |       |         |   |  |              |         |   |  |  |           |  
|Additions to capital assets                                          |  |                              | 283,610   |                   |  |             | 1,301   |                     |  |       | (8      | ) |  |              | (7,508  | ) |  |  | 277,395   |  
|Additions to intangible assets                                       |  |                              |          |                   |  |             | 130,000 |                     |  |       |        |   |  |              |        |   |  |  | 130,000   |  
|Total assets as at December 31, 2001                                 |  |                              | 1,099,359 |                   |  |             | 262,636 |                     |  |       | 44,710  |   |  |              | (11,446 | ) |  |  | 1,395,259 |  
|                                                                     |  |                              |           |                   |  |             |         |                     |  |       |         |   |  |              |         |   |  |  |           |  

|                                                                     |  |                              |          |                   |  |             |        |                     |  |       |          |   |  |              |         |   |  |  |          |  
|-------------------------------------------------------------------- |  | ---------------------------- | -------- | ----------------- |  | ----------- | ------ | ------------------- |  | ----- | -------- | - |  | ------------ | ------- | - |  |  | -------- | -
|                                                                     |  | Year ended December 31, 2000
|                                                                     |  |                             
|                                                                     |  |                              |          |                   |  |             |        |                     |  |       |          |   |  | Intersegment |         |   |  | 
|                                                                     |  | PCS                          |          | Wireless Internet |  | Investments |        | eliminations        |  | Total
|                                                                     |  | $                            |          | $                 |  | $           |        | $                   |  | $    
|                                                                     |  |                              |          |                   |  |             |        |                     |  |      
|                                                                     |  |                              |          |                   |  |             |        | (Restated  note 3) |  |       |          |   |  |             
|Revenues                                                             |  |                              | 405,813  |                   |  |             |       |                     |  |       | 173      |   |  |              |        |   |  |  | 405,986  |  
|Revenues  intersegment                                              |  |                              | 1,887    |                   |  |             | 9,348  |                     |  |       |         |   |  |              | (11,235 | ) |  |  |         |  
|                                                                     |  |                              |          |                   |  |             |        |                     |  |       |          |   |  |              |         |   |  |  |          |  
|Revenues  total                                                     |  |                              | 407,700  |                   |  |             | 9,348  |                     |  |       | 173      |   |  |              | (11,235 | ) |  |  | 405,986  |  
|Operating expenses                                                   |  |                              | (513,435 | )                 |  |             | (2,991 | )                   |  |       | (1,892   | ) |  |              |        |   |  |  | (518,318 | )
|Operating expenses-intersegment                                      |  |                              |         |                   |  |             | (3,885 | )                   |  |       | (1,686   | ) |  |              | 5,571   |   |  |  |         |  
|                                                                     |  |                              |          |                   |  |             |        |                     |  |       |          |   |  |              |         |   |  |  |          |  
|Segment operating income (loss) before
the following:                |  |                              | (105,735 | )                 |  |             | 2,472  |                     |  |       | (3,405   | ) |  |              | (5,664  | ) |  |  | (112,332 | )
|Net gain on disposal of investments                                  |  |                              |         |                   |  |             |       |                     |  |       | 285,967  |   |  |              |        |   |  |  | 285,967  |  
|Loss in value of investments, marketable securities and other
assets |  |                              |         |                   |  |             |       |                     |  |       | (248,336 | ) |  |              |        |   |  |  | (248,336 | )
|Share of net income (loss) in investees                              |  |                              |         |                   |  |             |       |                     |  |       | 20,573   |   |  |              |        |   |  |  | 20,573   |  
|                                                                     |  |                              |          |                   |  |             |        |                     |  |       |          |   |  |              |         |   |  |  |          |  
|Segment operating income (loss)                                      |  |                              | (105,735 | )                 |  |             | 2,472  |                     |  |       | 54,799   |   |  |              | (5,664  | ) |  |  | (54,128  | )
|                                                                     |  |                              |          |                   |  |             |        |                     |  |       |          |   |  |              |         |   |  |  |          |  
|Additions to capital assets                                          |  |                              | 243,170  |                   |  |             | 17,847 |                     |  |       | 1,765    |   |  |              | (5,591  | ) |  |  | 257,191  |  
|Additions to intangible assets                                       |  |                              |         |                   |  |             | 20,000 |                     |  |       |         |   |  |              |        |   |  |  | 20,000   |  
|                                                                     |  |                              |          |                   |  |             |        |                     |  |       |          |   |  |              |         |   |  |  |          |  

112



---



##### Table of Contents



19.    SEGMENTED INFORMATION (CONTD)

Reconciliation of the segmented operating income (loss) to the consolidated net loss

|                                                                                           |  |      |          |      |  |      |          |   |  |  |          |  
|------------------------------------------------------------------------------------------ |  | ---- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                                                           |  | 2002 |          | 2001 |  | 2000
|                                                                                           |  | $    |          | $    |  | $   
|                                                                                           |  |      |          |      |  |     
|Segmented operating loss                                                                   |  |      | (161,685 | )    |  |      | (48,178  | ) |  |  | (54,128  | )
|Depreciation and amortization                                                              |  |      | (242,416 | )    |  |      | (177,990 | ) |  |  | (131,304 | )
|Restructuring charges                                                                      |  |      | (7,494   | )    |  |      | (5,226   | ) |  |  |         |  
|Interest income                                                                            |  |      | 5,479    |      |  |      | 6,553    |   |  |  | 20,341   |  
|Interest expense                                                                           |  |      | (216,256 | )    |  |      | (215,888 | ) |  |  | (185,471 | )
|Financing charges                                                                          |  |      | (10,573  | )    |  |      | (8,349   | ) |  |  | (8,742   | )
|Foreign exchange gain (loss)                                                               |  |      | 926      |      |  |      | (51,129  | ) |  |  | (24,638  | )
|Write down of deferred financing
costs and deferred gain and loss
on financial instruments |  |      | (16,947  | )    |  |      |         |   |  |  |         |  
|Gain on financial instruments                                                              |  |      | 6,570    |      |  |      |         |   |  |  |         |  
|Income tax benefit                                                                         |  |      | 71,895   |      |  |      | 1,722    |   |  |  | 115,515  |  
|                                                                                           |  |      |          |      |  |      |          |   |  |  |          |  
|Net loss                                                                                   |  |      | (570,501 | )    |  |      | (498,485 | ) |  |  | (268,427 | )
|                                                                                           |  |      |          |      |  |      |          |   |  |  |          |  

20.    ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (U.S. GAAP)

These financial statements were prepared in accordance with accounting
principles generally accepted in Canada (Canadian GAAP) which differ in
certain material respects from U.S. GAAP. The following summary sets out the
material adjustments to the Companys reported net loss, which would be made in
order to conform with U.S. GAAP and the accounting principles and practices
required by the SEC.

Reconciliation of consolidated statements of loss and comprehensive loss

|                             |   |  |                                                                                                                                                            |   |      |          |          |   |      |          |          |   |  |          |  
|---------------------------- | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---- | -------- | -------- | - | ---- | -------- | -------- | - |  | -------- | -
|                             |   |  |                                                                                                                                                            |   | 2002 |          | 2001     |   | 2000
|                             |   |  |                                                                                                                                                            |   | $    |          | $        |   | $   
|                             |   |  |                                                                                                                                                            |   |      |          |          |   |     
|Net loss under Canadian GAAP |   |  | (570,501                                                                                                                                                   | ) |      |          | (498,485 | ) |      |          | (268,427 | )
|(a                           | ) |  | Reversal of amortization of PCS License                                                                                                                    |   |      |         |          |   |      | 139      |          |   |  | 136      |  
|(b                           | ) |  | Share of net income (net loss) in investees                                                                                                                |   |      | 4,772    |          |   |      | (22,079  | )        |   |  | 21,248   |  
|(c                           | ) |  | Unrealized net loss in value of investments and marketable
securities                                                                                      |   |      |         |          |   |      |         |          |   |  | 158,497  |  
|(c                           | ) |  | Recognized loss in value of marketable securities                                                                                                          |   |      |         |          |   |      |         |          |   |  | (158,964 | )
|(d                           | ) |  | Development costs                                                                                                                                          |   |      | 6,108    |          |   |      | (3,502   | )        |   |  | (2,606   | )
|(e                           | ) |  | Stock compensation                                                                                                                                         |   |      | 478      |          |   |      | (478     | )        |   |  |         |  
|(f                           | ) |  | Amortization of net deferred gain on financial instruments                                                                                                 |   |      | (1,110   | )        |   |      |         |          |   |  |         |  
|(f                           | ) |  | Amortization of other comprehensive income related to
financial instruments                                                                                |   |      | 1,110    |          |   |      |         |          |   |  |         |  
|(f                           | ) |  | Changes in fair market value of a fair value hedge                                                                                                         |   |      |         |          |   |      | 1,367    |          |   |  |         |  
|(f                           | ) |  | Cumulative effect as of January 1, 2001 resulting from the
adoption of Statement of Financial Accounting Standards
No. 133                                 |   |      |         |          |   |      | (900     | )        |   |  |         |  
|(h                           | ) |  | Effect of legislated tax rate changes on deferred tax liabilities                                                                                          |   |      |         |          |   |      | 25,771   |          |   |  |         |  
|(a                           | ) |  | Impairment of intangible assets                                                                                                                            |   |      | (25,771  | )        |   |      |         |          |   |  |         |  
|                             |   |  |                                                                                                                                                            |   |      |          |          |   |      |          |          |   |  |          |  
|                             |   |  | Net loss under U.S. GAAP                                                                                                                                   |   |      | (584,914 | )        |   |      | (498,167 | )        |   |  | (250,116 | )
|(c                           | ) |  | Unrealized gain (loss) in value of marketable securities net of
income taxes in the amount of $45,000 for 2002
($74,000 for 2001 and $68,828,000 for 2000) |   |      | (177     | )        |   |      | 322      |          |   |  | (159,864 | )
|(f                           | ) |  | Changes in fair market value of cash flow hedges net of income
taxes in the amount of $31,000 for 2002 ($818,000 for 2001)                                 |   |      | 367      |          |   |      | (1,364   | )        |   |  |         |  

113



---



##### Table of Contents



20.    ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (U.S. GAAP) (CONTD)

|   |   |  |                                                                                                                             |  |  |          |   |  |  |          |   |  |  |          |  
|-- | - |  | --------------------------------------------------------------------------------------------------------------------------- |  |  | -------- | - |  |  | -------- | - |  |  | -------- | -
|(f | ) |  | Reversal of cumulative income taxes related to changes in fair
market value of cash flow hedges                             |  |  | 1,036    |   |  |  |         |   |  |  |         |  
|(f | ) |  | Amortization of other comprehensive income related to
financial instruments                                                 |  |  | (1,110   | ) |  |  |         |   |  |  |         |  
|(f | ) |  | Write off of other comprehensive income related to financial
instruments                                                    |  |  | (1,968   | ) |  |  |         |   |  |  |         |  
|(f | ) |  | Cumulative effect as of January 1, 2001, resulting from the
adoption of Statement of Financial Accounting Standards
No. 133 |  |  |         |   |  |  | 3,939    |   |  |  |         |  
|(c | ) |  | Reclassification adjustments                                                                                                |  |  |         |   |  |  |         |   |  |  | 158,964  |  
|   |   |  |                                                                                                                             |  |  |          |   |  |  |          |   |  |  |          |  
|   |   |  | Comprehensive loss under U.S. GAAP                                                                                          |  |  | (586,766 | ) |  |  | (495,270 | ) |  |  | (251,016 | )
|   |   |  |                                                                                                                             |  |  |          |   |  |  |          |   |  |  |          |  
|   |   |  | Basic and diluted loss per share under U.S. GAAP(dollars)                                                                   |  |  | (2.43    | ) |  |  | (4.56    | ) |  |  | (2.60    | )
|   |   |  |                                                                                                                             |  |  |          |   |  |  |          |   |  |  |          |  

Differences in reported amounts on consolidated balance sheets

| |    |   |  |                                                  |  |               |            |             |  |      |         |      |  |      |            |      |  |  |            |  
| | -- | - |  | ------------------------------------------------ |  | ------------- | ---------- | ----------- |  | ---- | ------- | ---- |  | ---- | ---------- | ---- |  |  | ---------- | -
| |    |   |  |                                                  |  | 2002          | 2001      
| |    |   |  |                                                  |  |               |            |            
| |    |   |  |                                                  |  |               |            |             |  |      |         |      |  | U.S. |            | U.S.
| |    |   |  |                                                  |  | Canadian GAAP |            | Adjustments |  | GAAP |         | GAAP
| |    |   |  |                                                  |  | $             |            | $           |  | $    |         | $   
| |    |   |  |                                                  |  |               |            |             |  |      |         |     
| | (c | ) |  | Marketable securities                            |  |               | 164        |             |  |      | 145     |      |  |      | 309        |      |  |  | 1,403      |  
| | (b | ) |  | Long-term investments                            |  |               | 10,671     |             |  |      | 1,276   |      |  |      | 11,947     |      |  |  | 31,487     |  
| | (d | ) |  | Deferred charges and other assets                |  |               | 1,664      |             |  |      |        |      |  |      | 1,664      |      |  |  | 38,502     |  
| | (f | ) |  | Cash flow hedges                                 |  |               |           |             |  |      |        |      |  |      |           |      |  |  | 1,675      |  
| | (a | ) |  | Intangible assets                                |  |               | 2,727      |             |  |      | (2,727  | )    |  |      |           |      |  |  | 249,170    |  
| | (e | ) |  | Accounts payable and accrued liabilities 
other |  |               | (132,306   | )           |  |      |        |      |  |      | (132,306   | )    |  |  | (106,812   | )
| | (g | ) |  | Share capital                                    |  |               | (1,167,678 | )           |  |      | (60,723 | )    |  |      | (1,228,401 | )    |  |  | (1,228,094 | )
| |    |   |  | Deficit                                          |  |               | 2,466,674  |             |  |      | 62,174  |      |  |      | 2,528,848  |      |  |  | 1,943,934  |  
| |    |   |  | Accumulated other comprehensive income           |  |               |           |             |  |      | (145    | )    |  |      | (145       | )    |  |  | (1,997     | )

(a)   Intangible assets

The PCS License, which includes certain development costs and other costs
associated with obtaining the PCS License from the Government of Canada were
deferred under Canadian GAAP. Under U.S. GAAP such development costs are
expensed as incurred. During 2002, the Company wrote down the value of the MCS
Licenses to nil. Prior to this write-down, the carrying values of these
licenses were $249,170,000 and $223,399,000 under U.S. GAAP and Canadian GAAP
respectively, representing a difference of $25,771,000.

(b)   Investment in entity subject to significant influence

Under Canadian GAAP, the investor should continue to record its portion of
investee losses unless the investor would be unlikely to share in losses of the
investee. Under U.S. GAAP, in situations where an investor is not required to
advance additional funds to the investee and where previous losses have reduced
the common and the preferred stock investment account to zero, the Company
should continue to report its share of equity method losses in its statement of
operations to the extent of and as an adjustment to the loans to the investee.

In addition, under Canadian GAAP, the share of net income in an investee that
is a private investment company is calculated based on its realized gains or
losses. Under U.S. GAAP, the share of net income in such investees is
calculated based on both realized and unrealized gains or losses.

(c)   Marketable securities

Under Canadian GAAP, the marketable securities are recorded as explained in
note 2. Under U.S. GAAP, the marketable securities are classified as available
for sale, and any changes to the market value are recorded in other
comprehensive loss. As of December 31, 2000, a decline in value of marketable
securities in the amount of $158,964,000 was considered to be other than
temporary and consequently was reclassified from other comprehensive loss to
net loss.

114



---



##### Table of Contents



20.    ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES (U.S. GAAP) (CONTD)

(d)   Deferred charges and other assets

Under Canadian GAAP, certain development costs are deferred and amortized.
Under U.S. GAAP, such costs would be expensed as incurred (nil as at December
31, 2002, $6,108,000 as at December 31, 2001 and $2,606,000 at December 31,
2000).

Under Canadian GAAP, a deferred gain or loss is recorded upon either the
de-designation of a derivative financial instrument as a hedge or upon the
early termination of a derivative financial instrument qualifying as a hedge.
This deferred gain or loss represents the appreciation or depreciation of the
fair market value of the derivative financial instrument from its inception
until the date of the de-designation or early termination. The deferred gain
or loss is then amortized over the remaining life of the originally hedged
item. Under U.S. GAAP, the appreciation or depreciation of the fair market
value of the derivative financial instrument from its inception until the date
of its de-designation or early termination is accumulated in other
comprehensive income. The accumulated balance is then amortized to net income
(loss) over the remaining life of the originally hedged item.

(e)   Stock compensation

Under Canadian GAAP, certain costs related to bonuses in connection with stock
compensation awards granted at-the-money with a minimum guaranteed performance,
are not accounted for until the bonus is likely to be paid out and the amount
can be quantified. Under U.S. GAAP, such costs are accounted for on a combined
basis with the recognition of compensation cost over the service period equal
to the bonus element. As of December 31, 2002, all such stock compensation
awards granted in the past have been cancelled.

(f)   Derivative instruments

The Financial Accounting Standards Board has issued SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by Statements 137 and
138. The Company adopted SFAS 133 effective January 1, 2001. The Statements
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives are either offset against the change
in fair value of assets, liabilities, or firm commitments through earnings, or
recognized in other comprehensive income (loss) until the hedged item is
recognized in earnings. The ineffective portion of a derivatives change in
fair value will be immediately recognized in earnings.

The adoption of SFAS 133, as amended by Statements 137 and 138, resulted in the
cumulative effect as of January 1, 2001, of an accounting change of $900,000
being recognized as an expense in the statement of net loss and as a credit in
other comprehensive loss. In addition, a credit of $3,039,000, net of income
taxes in the amount of $1,823,000 has been recognized in other comprehensive
loss. For 2001, the adoption of SFAS 133 resulted in $1,367,000 being
recognized as income in the statement of net loss. As of December 31, 2002,
all such derivative instruments have been terminated.

(g)   Option to purchase Class A Non-Voting Shares

Under U.S. GAAP, certain stock options issued to non-employees are recorded as
an expense over the vesting period, when it becomes probable that they will be
exercised. In 1996, an amount of $60,723,000 was expensed with a corresponding
increase in share capital under U.S. GAAP.

(h)   Deferred tax liabilities

Under Canadian GAAP, the impact of changes in income tax rates on the
measurement of deferred tax assets and liabilities are recorded when the
changes in tax rates have been substantively enacted. Under U.S. GAAP, changes
in income tax rates are recorded when the change in tax rates has been
legislated. Under Canadian GAAP, the estimated deferred tax liabilities
related to the MCS Licenses acquired during 2001, in the amount of $72,896,000,
resulting from the difference between the carrying value and the tax basis of
the asset acquired, was capitalized to the MCS Licenses. This amount was
determined using substantially enacted tax rates at the date of acquisition.
Using legislated tax rates at the date of acquisition, the tax liability and
related increase in the carrying value of the asset was $98,667,000 under U.S.
GAAP. During 2001, the change in rates was legislated, which resulted in a
decrease in the deferred tax liability and a credit to income of $25,771,000
under U.S. GAAP.

(i)   Advertising costs

Advertising expenses for the twelve months ended December 31, 2002 amounted to
$37,341,000 ($33,293,000 and $45,729,000 for the twelve months ended December
31, 2001 and 2000 respectively).

115



---



##### Table of Contents



21.    CONTINGENCY

On April 10, 2002, ASP Wireless Net Inc. (ASP), a former service provider of
Connexions, filed a notice of arbitration pursuant to an agreement that ASP had
with Connexions. ASP claims in the notice of arbitration that Connexions has
breached its agreements with ASP and that it therefore suffered damages in the
amount of $18,500,000, which ASP is claiming from Microcell. The Company
considers ASPs claim as frivolous and unfounded in fact and in law and intends
to vigorously contest it.

22.    COMPARATIVE FIGURES

Some of the comparative figures have been reclassified to conform to the
presentation adopted in the current year.




ITEM 19  EXHIBITS

The following documents are filed as exhibits to this annual report:

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|1.1     |  | Certificate of Incorporation, Certificate of Arrangement and Certificate
of Amendment of Microcell Telecommunications Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|1.2     |  | General By-laws of Microcell Telecommunications Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2.1     |  | First Unit Indenture made as of May 30, 2003 among Microcell
Telecommunications Inc. and Computershare Trust Company of Canada as
trustee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2.2     |  | Second Unit Indenture made as of May 30, 2003 among Microcell
Telecommunications Inc. and Computershare Trust Company of Canada as
trustee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2.3     |  | Warrant Indenture for the Warrants 2005 dated as of May 1, 2003 among
Microcell Telecommunications Inc. and Computershare Trust Company of
Canada, as Trustee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2.4     |  | Warrant Indenture for the Warrants 2008 dated as of May 1, 2003 among
Microcell Telecommunications Inc. and Computershare Trust Company of
Canada, as Trustee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2.5     |  | Shareholder Rights Plan Agreement dated as of May 1, 2003 between
Microcell Telecommunications Inc. and Computershare Trust Company of
Canada, as Rights Agent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|4.1     |  | Tranche A Exit Facility Agreement dated as of May 1, 2003 entered into
among Microcell Telecommunications Inc., as parent, Microcell Solutions
Inc., as borrower, the financial institutions from time to time parties
hereto as lenders, and JP Morgan Chase Bank, Toronto Branch, as
administrative agent, Collateral Agent and Issuing Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|4.2     |  | Tranche B Credit Agreement dated as of May 1, 2003 entered into among
Microcell Telecommunications Inc., as parent, Microcell Solutions Inc.,
as borrower, the financial institutions from time to time parties hereto,
as lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative
agent and Collateral Agent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|4.3     |  | Tranche C Credit Agreement dated as of May 1, 2003 entered into among
Microcell Telecommunications Inc., as parent, Microcell Solutions Inc.,
as borrower, the financial institutions from time to time parties hereto
as lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative
agent and Collateral Agent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|4.4     |  | Intercreditor And Collateral Agency Agreement, dated as of May 1, 2003,
made among Microcell Solutions Inc., as borrower, Microcell
Telecommunications Inc., as guarantor, each of the persons listed on the
execution pages thereto under the Tranche A Lenders heading, each of
the persons listed on the execution pages thereto under the Tranche B
Lenders heading, each of the persons listed on the execution pages
thereto under the Tranche C Lenders heading, JP Morgan Chase Bank,
Toronto Branch, as administrative agent under the Tranche A Exit Facility
Agreement, the Tranche B Credit Agreement and the Tranche C Credit
Agreement, JP Morgan Chase Bank, Toronto Branch, as collateral agent for
each of the Tranche A Lenders, the Tranche B Lenders and the Tranche C
Lenders and as fondé de

116



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                            
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                            
|Number  |  | Description                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                            
|        |  | pouvoir pursuant to the terms of the Tranche A
Exit Facility Agreement, the Tranche B Credit Agreement and the Tranche C
Credit Agreement, Computershare Trust Company Of Canada, as Trustee for
the holders of the First Units, and Computershare Trust Company Of
Canada, as Trustee for the holders of the Second Units.
|        |  |                                                                                                                                                                                                                                                                                                                            
|4.5     |  | Stock Option Plan of Microcell Telecommunications Inc. dated May 1, 2003                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                            
|4.6     |  | Stock Purchase Plan of Microcell Telecommunications Inc. dated May 1, 2003                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                            
|4.7     |  | PCS Licence Conditions issued by Industry Canada                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                            
|4.8     |  | Lease dated as of August 1, 1998 between Microcell Telecommunications
Inc. and WPBI Property Management Inc., as amended                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                            
|8.1     |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                            
|11.1    |  | Certification of the President and Chief Executive Officer of Microcell
pursuant to Section 302 of the Sarbanes-Oxley Act                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                            
|11.2    |  | Certification of the Chief Financial Officer and Treasurer of Microcell
pursuant to Section 302 of the Sarbanes-Oxley Act                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                            
|11.3    |  | Certification Form of the President and Chief Executive Officer of
Microcell pursuant to Section 906 of the Sarbanes-Oxley Act                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                            
|11.4    |  | Certification Form of the Chief Financial Officer and Treasurer of
Microcell pursuant to Section 906 of the Sarbanese-Oxley Act                                                                                                                                                                                            

117



---



##### Table of Contents



Table of contents

|           |  |                                                    
|---------- |  | ---------------------------------------------------
|SCHEDULE 1 |  | Condensed Financial Information of Registrant      
|           |  |                                                    
|SCHEDULE 2 |  | Valuation and Qualifying accounts                  
|           |  |                                                    
|           |  | Microcell Telecommunications Inc.
December 31, 2002

118



---



##### Table of Contents



AUDITORS REPORT

To the Directors ofMicrocell Telecommunications Inc.

We have audited the consolidated financial statements of Microcell
Telecommunications Inc.as of December 31, 2002 and 2001 and for each of the
years in the three-year period ended December 31, 2002, and have issued our
report thereon dated January 31, 2003 [expect for note 1 which is as at May 1,
2003]. Our audits also included Schedule II of item 19 of the Companys Form
20-F to be filed with the Securities and Exchange Commission for the year ended
December 31, 2002. This schedule is the responsibility of the Companys
management. Our responsibility is to express an opinion based on our audits.

In our opinion, this schedule referred to above, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.

Montréal, Canada
January 31, 2003



| | (SIGNATURE OF ERNST YOUNG LLP)Chartered Accountants
| | ---------------------------------------------------

119



---



##### Table of Contents



SCHEDULE I

Condensed Financial Information of Registrant

Not applicable

SCHEDULE II

Valuation and Qualifying Accounts

|                                              |  |                         |         |      |  |      |         |   |  |  |         |  
|--------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                              |  | Years ended December 31
|                                              |  |                        
|                                              |  | 2002                    |         | 2001 |  | 2000
|                                              |  |                         |         |      |  |     
|Allowance for doubtful accounts:              |  |                         |         |      |  |      |         |   |  |  |         |  
|Balance, beginning of year                    |  |                         | 10,717  |      |  |      | 4,116   |   |  |  | 3,884   |  
|Addition: bad debt expenses provision         |  |                         | 34,771  |      |  |      | 20,637  |   |  |  | 14,339  |  
|Deduction: uncollectible accounts written off |  |                         | (30,603 | )    |  |      | (14,036 | ) |  |  | (14,107 | )
|                                              |  |                         |         |      |  |      |         |   |  |  |         |  
|Balance, end of year                          |  |                         | 14,885  |      |  |      | 10,717  |   |  |  | 4,116   |  
|                                              |  |                         |         |      |  |      |         |   |  |  |         |  

120



---



##### Table of Contents






SIGNATURE

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

MICROCELL TELECOMMUNICATIONS INC.
(Registrant)

|    |                                                      | 
|--- | ---------------------------------------------------- | 
|By: | (s) Jacques Leduc                                   
|    |                                                      | 
|    | Jacques Leduc, Chief Financial Officer and Treasurer

DATE: June 25, 2003

121