Executive Summary / Key Takeaways

• BCE has built Canada's largest fiber footprint (7.8 million locations) but regulatory hostility is forcing a strategic pivot—slowing domestic builds while deploying $5.2 billion in MLSE proceeds to acquire Ziply Fiber and establish a U.S. growth platform with superior economics and no mandated wholesale access.
• The company is incubating a $1.5 billion AI-powered solutions business by 2030, with Ateko and Bell AI Fabric delivering 34% year-over-year growth and targeting $700 million in 2025 revenue, creating a higher-margin diversification away from traditional telecom commoditization.
• A decisive dividend cut to $1.75 per share and $7 billion in planned non-core asset sales signal aggressive balance sheet repair, targeting leverage reduction from 3.8x to 3.5x by 2027 and 3.0x by 2030 while freeing capital for growth investments.
• Wireless fundamentals are inflecting—postpaid churn improved for two straight quarters, ARPU decline is moderating, and management expects positive ARPU movement within 3-5 quarters if pricing discipline holds, suggesting the bottom of a three-year competitive cycle.
• The core risk is regulatory overhang: the CRTC's wholesale fiber access decision directly caused BCE to abandon its 9 million home build target, creating a chilling effect on Canadian infrastructure investment that could persist until policy reverses or the U.S. business scales.

Setting the Scene: The Oligopoly Under Siege

BCE Inc., founded in 1880 and headquartered in Verdun, Canada, has spent 145 years building the physical and digital infrastructure that connects Canadians. For most of that history, the investment case was straightforward: collect regulated returns on wireline assets, harvest wireless oligopoly profits, and distribute generous dividends. That model is breaking down. The Canadian telecom market—where BCE, Rogers (RCI.B), TELUS , and Quebecor (QBR.B) control 85.6% of service revenues—faces simultaneous assault from regulatory intervention, technological disruption, and shifting consumer behavior.

The company makes money through three integrated pillars: Bell CTS Canada (wireless, internet, and enterprise solutions), Bell CTS U.S. (the newly acquired Ziply Fiber), and Bell Media (digital content and advertising). Wireless and internet connectivity remain the cash engines, generating recurring subscription revenue from 10.6 million wireless subscribers and 3.6 million retail internet customers.

But the growth narrative has shifted. Since 2020, BCE has invested billions to expand its fiber footprint by over 50% to 7.8 million locations, more than doubling its fiber internet base to 3 million customers. This wasn't defensive maintenance—it was a strategic land grab to future-proof the business against cable competition and position for higher-value services.

Why does this matter? Because fiber is the irreversible foundation of all future revenue. It enables gigabit speeds that cable can't match, supports multiproduct bundling that reduces churn, and provides the low-latency infrastructure required for AI workloads. The implication is clear: BCE's 145-year history of infrastructure ownership has created a moat that is simultaneously its greatest asset and its biggest vulnerability in an era of regulatory hostility.

Technology, Products, and Strategic Differentiation: The Fiber Moat and AI Bridge

BCE's fiber network represents more than incremental bandwidth—it is a structural competitive advantage. With 7.8 million homes passed, BCE has more than double the fiber footprint of its next-largest Canadian competitor. In mature markets, penetration rates exceed 50%, and households taking mobility-internet bundles have grown 12% where fiber is available. Fiber customers exhibit 30% lower churn and generate 40% higher lifetime value than legacy copper customers. The technology's superiority isn't theoretical; it's reflected in BCE's ability to capture the majority of new broadband additions in its footprint despite aggressive cable promotions.

The strategic pivot to AI-powered solutions transforms this physical infrastructure into a digital platform. Bell AI Fabric, launched in June 2025 with its first facility in Kamloops, represents a sovereign AI data center play engineered for Canada's data residency requirements. With 73 megawatts of power capacity, it targets $100-150 million in annual EBITDA by monetizing compute infrastructure for enterprises and government agencies that cannot risk data sovereignty. The significance lies in 91% of large Canadian businesses prioritizing data sovereignty, creating a protected market where BCE's trusted incumbent status becomes a pricing advantage.

Ateko, the consolidated technology solutions provider uniting FX Innovation, CloudKettle, and HGC Technologies, focuses exclusively on hyperscale platforms (AWS, Azure, Google Cloud, Salesforce (CRM), ServiceNow (NOW)) and four verticals: financial institutions, utilities, public sector, and TMT. This hyper-focus avoids the scattershot approach of traditional systems integrators. Ateko's dual identity as both operator and integrator—implementing the same solutions internally that it sells externally—creates a feedback loop that generic competitors cannot replicate. The 34% year-over-year growth in AI-powered solutions, driven primarily by organic expansion, validates this strategy.

The Ziply Fiber acquisition completes the technology bridge. For $4.2 billion funded by MLSE proceeds, BCE acquired 1.4 million U.S. fiber passings with 85% fiber penetration and 40% penetration in mature markets. The PSP Investments partnership, where BCE retains 49% equity while PSP funds 51% of new builds, de-risks $1 billion in capital requirements through 2028. This allows BCE to become North America's third-largest fiber provider without increasing consolidated leverage, targeting 8 million U.S. locations in a market with only 50% fiber penetration versus 75% in Canada.

Financial Performance & Segment Dynamics: Evidence of Inflection

Wireless: The Bottoming Process
Bell's wireless segment has endured three years of ARPU decline, but the trajectory is inflecting. Mobile phone ARPU fell just 0.7% in Q3 2025, the third straight quarter of improvement, while postpaid churn improved 15 basis points to mark two consecutive quarters of year-over-year gains. Why does this matter? Because it suggests the industry has reached the limits of promotional pricing. Management's commentary reveals that new customer rates now exceed embedded base rates, meaning incremental loads are accretive to blended ARPU for the first time in years. The implication is a potential return to wireless service revenue growth within 4-6 quarters if competitive discipline holds.

The focus on premium Bell brand loadings—while sacrificing lower-value flanker brand additions—has compressed gross additions but improved quality. In Q3 2025, Bell branded postpaid net adds grew over 100% year-over-year while consolidated net adds were just 12,000, showing a deliberate trade-off of quantity for profitability. This demonstrates management's willingness to sacrifice market share optics for economic reality, a discipline that will ultimately drive margin expansion.

Internet: Fiber Monetization in Action
Internet revenue growth of 2% in Q3 2025 appears modest, but the underlying dynamics are strengthening. FTTH customers now represent 68% of the retail base, up 10% in 2024, with fiber penetration at 44% across the footprint. In mature markets, penetration exceeds 50%, leaving significant runway in newer builds. Each fiber customer increases product intensity—households with mobility-internet bundles grew 7% year-over-year, and management targets a 25% increase over three years. Higher product intensity directly correlates with 30% lower churn and 20% higher ARPU.

The disciplined pricing strategy, described by CFO Curtis Millen as "striking a healthy balance between sub growth and disciplined pricing," implies BCE is no longer chasing market share at the expense of margin. With fiber representing 87% of Ziply's base and generating 15% revenue growth, the U.S. business provides a blueprint for monetization that can be replicated in Canada as penetration matures.

Business Markets: The AI Growth Vector
Bell Business Markets delivered a record quarter in Q2 2025, with AI-powered solutions revenue growing 34% year-over-year to put BCE on track for $700 million in 2025. The core connectivity business stabilized with modest growth, while Ateko and Bell Cyber grew "rapidly." This segment transforms BCE from a connectivity utility into a technology solutions provider with software-like margins. Management's $1.5 billion revenue target by 2030 implies a 16.5% CAGR, which would make it the company's primary growth engine.

The Bell AI Fabric's $100-150 million EBITDA target from 73 megawatts of power represents a 60-70% EBITDA margin profile, far exceeding traditional telecom returns. This demonstrates how physical infrastructure can be repurposed for digital services with fundamentally different economics. The partnership with Cohere to provide full-stack sovereign AI solutions further embeds BCE in Canada's AI ecosystem, creating switching costs that extend beyond simple connectivity.

Bell Media: Digital Transformation Gains Traction
Bell Media's pivot to digital is accelerating, with digital revenue reaching 42% of total revenue in 2024, up from 16% in 2020. Crave subscribers grew 22% to 3.8 million in Q1 2025, with direct-to-consumer streaming now comprising the majority. This transforms a declining broadcast asset into a growth platform targeting 6 million subscribers and $1 billion in revenue by 2028. The 27.9% EBITDA margin in Q2 2025, up 1.1 points, shows this transition is becoming profitable.

However, Q3 2025 results revealed fragility—total revenue fell 6.4% (or 1% excluding a prior-year retroactive adjustment) and advertising revenue dropped 11.5%. This demonstrates that digital growth hasn't fully offset traditional broadcast decline, creating a drag on consolidated results that will persist until digital exceeds 60% of revenue by 2028.

Balance Sheet: The Deleveraging Imperative
BCE's net debt stands at $40 billion with a 3.8x leverage ratio post-Ziply acquisition, down from $40.3 billion at year-end 2024 despite the acquisition. The dividend cut to $1.75 per share, combined with $7 billion in planned asset sales and $1.5 billion in cost savings by 2028, provides a clear path to 3.5x leverage by 2027 and 3.0x by 2030. This is significant because it frees capital for growth investments. The $5.2 billion MLSE gain and $90 million home security sale (with $80 million earn-out) are already delivering.

The PSP partnership's structure—off-balance-sheet debt for new U.S. fiber builds—reduces BCE's capital intensity by $1 billion through 2028 while targeting a 20%+ all-in return. This allows aggressive U.S. expansion without compromising credit metrics, a capital efficiency that competitors lack.

Outlook, Guidance, and Execution Risk

Management reconfirmed 2025 guidance in Q3, targeting 0-2% revenue growth and 6-11% free cash flow growth. This signals confidence that underlying operational trends are stabilizing despite macro headwinds. The wireless ARPU trajectory is particularly critical—CFO Millen noted new rates exceed embedded rates, and CEO Mirko Bibic expects "positive ARPU movement within the next 3 to 5 quarters" if pricing remains stable. This is the most important near-term catalyst.

The fiber build slowdown in Canada is a direct consequence of the CRTC's wholesale access decision, which Bibic called "the wrong policy at exactly the wrong time." BCE will not hit its 8.3 million home target, and the original 9 million plan is abandoned. This creates a binary regulatory risk—if the CRTC reverses course, BCE could accelerate builds and capture incremental returns; if not, Canadian growth will depend entirely on penetration gains and ARPU expansion from existing footprint.

In the U.S., Ziply Fiber is exceeding expectations with 17% EBITDA growth in 2024 accelerating to 20%+ in 2025. The 1.4 million homes passed today targets 3 million by 2028 and 8 million long-term via the PSP partnership. This provides a growth vector unencumbered by Canadian regulation, with penetration rates of 40% in mature markets suggesting significant runway. The 44.4% EBITDA margin in Q3 2025 demonstrates the asset's quality.

The AI solutions business targets $1.5 billion by 2030, requiring sustained 16.5%+ growth. Success would transform BCE's margin profile and reduce dependence on regulated connectivity revenue. Failure would leave the company exposed to traditional telecom commoditization. The 34% Q3 growth rate and "deep pipeline of interest" for Bell AI Fabric suggest momentum, but scaling from $700 million to $1.5 billion requires flawless execution.

Risks and Asymmetries: What Could Break the Thesis

Regulatory Risk: The CRTC's wholesale fiber access decision is the single largest threat. Bibic's statement that "we're not in the business of building fiber for TELUS's benefit" reveals the core issue—forced resale at regulated rates eliminates the incentive to invest. This directly caused the fiber build reduction and could permanently cap Canadian growth. The asymmetry is stark: a policy reversal would unlock billions in incremental NPV from resumed builds, while status quo forces BCE to rely on U.S. expansion and AI diversification.

Competitive Dynamics: Wireless pricing remains "frothy," with Q1 2025 showing a "reversion to kind of frothy pricing activity." If promotional intensity escalates again, ARPU recovery could stall indefinitely. The risk is mitigated by BCE's focus on premium brand loadings and multiproduct bundles, but the industry structure makes coordinated discipline fragile.

Execution Risk: The Ziply integration and PSP partnership are unproven at scale. While Q3 results exceeded plans, ramping to 8 million U.S. locations requires flawless operational execution. Any stumble would strand capital and compromise the deleveraging timeline. Conversely, faster-than-expected penetration could accelerate EBITDA growth and justify premium valuations.

AI Solutions Scaling: Ateko's hyper-focus on four verticals and five hyperscale platforms is either brilliant positioning or limiting. Success proves BCE can compete with global systems integrators; failure would show that telecom operators can't transform into tech consultancies. The 34% growth rate suggests early validation, but $700 million remains a small fraction of $17.5 billion in total revenue.

Valuation Context: Pricing the Transformation

At $23.51 per share, BCE trades at 4.95x trailing earnings, 8.17x EV/EBITDA, and 7.73x price-to-free-cash-flow. These multiples reflect a market pricing BCE as a declining utility despite evidence of operational inflection. The 5.28% dividend yield on the new $1.75 annual rate remains attractive but is now sustainable at a 40-55% FCF payout ratio, down from the previous unsustainable 100%+ level.

Comparing to TELUS (TU) (8.48x P/E, 7.31x EV/EBITDA), BCE trades at a lower P/E multiple (4.95x vs 8.48x) but a higher EV/EBITDA multiple (8.17x vs 7.31x), despite superior fiber scale and media assets. This suggests the market is penalizing BCE for higher leverage (3.8x vs TELUS's 1.24x debt-to-equity) and regulatory overhang. The discount should narrow as deleveraging progresses and U.S. growth becomes material.

The FCF yield of approximately 8.4% ($1.83 billion FCF on $21.92 billion market cap) provides a valuation floor. Even if growth stalls, the company generates sufficient cash to service debt, fund the reduced dividend, and invest in high-return projects. The asymmetry is that any acceleration in wireless ARPU, AI revenue, or U.S. fiber penetration would drive multiple expansion while downside is cushioned by the yield.

Conclusion: A 145-Year-Old Startup

BCE is simultaneously a mature utility deleveraging its balance sheet and a growth company pivoting to AI and U.S. fiber expansion. The central thesis rests on three interlocking pillars: the fiber moat provides defensive cash flows and multiproproduct leverage, the AI solutions business offers offensive growth at software margins, and the balance sheet repair creates strategic optionality.

The investment decision hinges on two variables: wireless ARPU inflection and regulatory policy reversal in Canada. If ARPU turns positive within 3-5 quarters as management expects, the market will re-rate the core connectivity business. If the CRTC reverses its wholesale access decision, BCE could resume aggressive fiber builds, unlocking billions in incremental value. The U.S. expansion and AI growth provide upside asymmetry while the 8.4% FCF yield and 5.3% dividend offer downside protection.

The risk is that regulatory hostility persists, wireless competition intensifies, and AI scaling proves elusive—trapping BCE in a slow-growth, high-leverage box. But the evidence suggests otherwise: churn is improving, new customer rates are accretive, AI revenue is scaling at 34%, and Ziply is exceeding plan. For investors willing to look past near-term headwinds, BCE offers a rare combination of yield, value, and transformation potential from a management team demonstrating capital discipline and strategic clarity.