Executive Summary / Key Takeaways

• BCE Inc. is undergoing a significant strategic transformation, pivoting towards high-growth fiber and AI-powered enterprise solutions, underpinned by a disciplined capital allocation strategy.
• The acquisition of Ziply Fiber in the U.S. Pacific Northwest and a partnership with PSP Investments are expanding BCE's fiber footprint to 16 million passings across North America, diversifying revenue streams into an unregulated, high-growth market with an estimated 20%+ internal rate of return (IRR).
• BCE is aggressively building out its enterprise technology services, aiming for $1 billion in annual revenue by 2030 through AI-powered solutions like Bell AI Fabric and Ateko, which are already driving low double-digit revenue growth in Bell Business Markets.
• To strengthen its balance sheet and fund growth, BCE has adjusted its dividend to $1.75 per share, targeting a net debt leverage ratio of 3.5x by 2027 and up to $7 billion in non-core asset divestitures.
• Despite facing Canadian regulatory headwinds regarding wholesale fiber access and intense competitive pricing, BCE's focus on customer-first initiatives, churn reduction, and cost savings (targeting $1.5 billion by 2028) is supporting resilient financial performance and positioning for long-term value creation.

A Century and a Half of Connection: BCE's Strategic Evolution

BCE Inc., with a heritage spanning 145 years, has consistently served as a foundational connector for Canadians, evolving from a traditional telecommunications provider into a diversified leader in connectivity, media, and technology solutions. This enduring purpose has recently culminated in a strategic pivot designed to drive sustainable free cash flow growth and enhance shareholder value. A pivotal shift began in 2020 with an accelerated fiber deployment in Canada, expanding its total fiber footprint by over 50% to more than 7.8 million households and business locations by early 2025. Concurrently, Bell Media initiated a digital transformation, with digital revenue surging from 17% in 2020 to 42% by the end of 2024, reflecting a strategic adaptation to changing consumption habits.

The company's strategic roadmap is anchored in four key priorities: prioritizing the customer experience, delivering superior fiber and wireless networks, leading in enterprise with AI-powered solutions, and building a digital media and content powerhouse. These pillars are supported by an ongoing business transformation program, which has already delivered $500 million in cost savings by the end of 2024 and aims for an ambitious $1.5 billion in total cost savings by the end of 2028. This transformation is not merely about cost reduction; it's about modernizing operations through technology, automation, and simplification to foster agility and efficiency.

Technological Edge: Fiber and AI as Core Differentiators

BCE's investment thesis is deeply rooted in its technological differentiation, particularly its extensive fiber infrastructure and burgeoning AI capabilities. Fiber-to-the-Home (FTTH) is recognized as a superior technology, offering faster symmetrical speeds, lower latency, robust security, and standout reliability compared to cable or fixed wireless alternatives. This technological advantage is a key driver of customer acquisition and retention. For instance, BCE's self-installed program, launched in 2020, has seen over 1 million self-installs since 2022, with more than 90% of new residential customers opting for this convenient service, generating significant cost savings for the company. Similarly, an AI-powered virtual repair diagnostics tool has eliminated 1.2 million support calls since 2022, improving customer satisfaction and operational efficiency.

Beyond core connectivity, BCE is establishing itself as a leader in AI-powered enterprise solutions. Bell AI Fabric, positioned as the backbone of Canada's AI ecosystem, comprises four layers: hardware infrastructure (including Canada's largest sovereign AI data centers), software infrastructure (customized Large Language Models), advisory and professional services (led by Ateko), and an application layer for AI applications. This initiative is not a standard colocation business but encompasses purpose-built AI data centers with high-impact AI services. The demand for Canadian AI data centers is projected to grow at an annual rate exceeding 20%, presenting a substantial, unregulated revenue and EBITDA stream for Bell's enterprise business. Partnerships with global leaders like Cohere further solidify Bell's position in providing full-stack sovereign AI solutions.

Ateko, launched in May 2025, integrates BCE's acquired tech startups (FX Innovation, CloudKettle, HGC Technologies) to specialize in major platforms like ServiceNow (NOW), Salesforce (CRM), AWS (AMZN), Azure (MSFT), and Google Cloud (GOOGL). This expertise, combined with Bell's robust cybersecurity offerings enhanced by the Stratejm acquisition, creates a unique and compelling suite of AI-powered technology solutions for enterprise customers across key industry verticals such as financial institutions, utilities, and the public sector. These technological differentiators are critical to BCE's competitive moat, driving higher average revenue per user (ARPU), lower operational costs, and stronger market positioning.

Competitive Landscape: A Battle for Connectivity and Digital Dominance

BCE operates within a highly competitive Canadian telecommunications and media market, primarily contending with Rogers Communications (RCI), Telus Corporation (TU), and Quebecor Inc. (QBR). Each competitor brings distinct strengths and strategies to the fore.

Rogers Communications, a major player in wireless and cable, often employs aggressive pricing and promotional strategies to capture market share. While Rogers has demonstrated strong revenue growth, particularly from its wireless segment, BCE counters with an emphasis on network reliability, integrated bundled services, and customer loyalty, leveraging its extensive infrastructure and brand recognition. BCE's focus on "better quality, profitable and margin-accretive subscriber acquisition" on its main Bell brand, as evidenced by all new postpaid wireless subscribers in Q2 2025 being on the Bell brand, contrasts with broader volume-driven approaches.

Telus Corporation, another dominant force, is known for its customer service and modern network infrastructure, alongside strategic investments in digital health. BCE's broader media portfolio, including Bell Media, provides a more diversified revenue base compared to Telus's more focused approach. While Telus may exhibit greater operational efficiency in certain areas, BCE's integrated telecom and media offerings aim to create a comprehensive ecosystem for customers.

Quebecor Inc., through Videotron, maintains a strong regional presence, particularly in Quebec, often competing on affordable pricing. BCE's national reach and premium service offerings differentiate it from Quebecor's value-driven, regional solutions. BCE's strategic adaptability across diverse markets is a key strength, though it faces challenges in matching the leaner cost structures of regionally focused competitors.

BCE's competitive advantages, or "moats," include its strong brand, extensive network infrastructure, and regulatory licenses that provide exclusive access to spectrum. These factors foster customer loyalty, support recurring revenue streams, and provide pricing power, contributing to superior margins and growth by reducing customer acquisition costs. The company's deep, long-standing enterprise relationships, coupled with its superior networks and trusted Bell brand, form a "unique set of inter-related assets and expertise that cannot be replicated in Canada". However, BCE also faces vulnerabilities, including regulatory burdens, such as the CRTC's decision on mandatory wholesale access to its fiber network, which management views as a "misguided" policy that "goes against its long-standing facilities-based competition policies". This decision has already led to a "significant scaling back of our fiber build in the last 18 months" in Canada, with targets plateauing around 8 million locations, down from an earlier 9 million aim.

Financial Performance and Strategic Rebalancing

BCE's recent financial performance reflects its strategic rebalancing amidst a challenging market. In Q2 2025, BCE returned to positive consolidated revenue growth, achieving a 1.3% increase, driven by its fiber strategy, wireless subscriber retention, digital media expansion, and enterprise technology solutions. This marks a notable improvement, especially considering a 1.3% decline in total revenue in Q1 2025, primarily due to lower-margin product sales.

Profitability metrics, while showing some fluctuations, underscore BCE's focus on cost management. Q2 2025 EBITDA saw a slight decline of 0.9% due to higher cost of goods sold associated with product revenue growth. However, Q1 2025 adjusted EBITDA remained stable, with a 40-point margin improvement driven by a 2.1% reduction in operating costs. For 2024, BCE achieved its highest annual consolidated EBITDA margin in over 30 years, at 43.4%, demonstrating disciplined execution and cost control. The company's ongoing business transformation program is a key enabler of these efficiencies, targeting $1.5 billion in cost savings by the end of 2028.

Cash flow generation remains robust, supporting strategic investments. Free cash flow increased by a solid 5% in Q2 2025, building on a $713 million year-over-year increase in Q1 2025, driven by CapEx reductions, lower cash taxes, and improved working capital. Capital expenditures are being managed prudently, with Q2 2025 CapEx down $215 million, contributing to $488 million in year-to-date savings, aligning with a plan to reduce capital spending by approximately $500 million in 2025.

Segment-specific performance highlights the impact of BCE's strategic initiatives. Bell Business Markets delivered a record quarter of revenue growth in Q2 2025, with low double-digit growth driven by its four growth vectors: core connectivity, Ateko, cybersecurity, and Bell AI Fabric. Internet revenue grew 3% in Q2 2025, reflecting a healthy balance between subscriber growth and disciplined pricing. In wireless, BCE added 94,479 new net mobile phone subscribers in Q2 2025, with postpaid churn improving by 12 basis points to 1.06%, marking the first year-over-year improvement in nearly three years. Bell Media achieved its fifth consecutive quarter of revenue and EBITDA growth in Q2 2025, with total revenue up approximately 4%, largely fueled by an 8.1% increase in subscriber revenue from Crave and sports direct-to-consumer (DTC) streaming. Digital revenue now constitutes 43% of total media revenues, up 9% year-over-year.

U.S. Expansion: A New Growth Horizon

A cornerstone of BCE's growth strategy is its expansion into the U.S. fiber market through the acquisition of Ziply Fiber, completed on August 1, 2025. This acquisition, largely funded by the $4.2 billion net proceeds from the sale of MLSE, expands Bell's fiber footprint by 1.4 million locations, solidifying its position as North America's third-largest fiber Internet provider. The U.S. market is particularly attractive due to its lagging fiber deployment (only 50% of homes have fiber compared to 75% in Canada) and favorable competitive dynamics, including the absence of mandated wholesale access to fiber.

Ziply Fiber has consistently outperformed expectations, with revenue and EBITDA tracking ahead of initial projections. Its EBITDA growth, which was 17% in 2024, is projected to accelerate to "20% plus" in 2025. The company serves approximately 440,000 retail subscribers, with 85% on pure fiber service. Mature markets already show 40% penetration, indicating significant growth runway given that over 40% of fiber locations were built in the last four years.

Further accelerating this growth is a strategic partnership with PSP Investments, which will support Ziply's fiber infrastructure in underserved U.S. markets, aiming to reach a total of 8 million fiber passings in the U.S.. This partnership is structured to significantly reduce BCE's capital investment and is expected to improve BCE's free cash flow by over $1 billion over the 2026-2028 period. The partnership will be deconsolidated, keeping its CapEx and debt financing off BCE's balance sheet, and is expected to yield an all-in rate of return of 20% or higher in the U.S..

Outlook and Guidance: Disciplined Growth Ahead

BCE's updated financial guidance for 2025 reflects the strategic inclusion of Ziply Fiber and a disciplined approach to capital allocation. Consolidated revenue and adjusted EBITDA guidance for full-year 2025 have been increased to a range of 0% to 2%. Adjusted EPS guidance for 2025 is revised to a range of minus 13% to minus 10%, reflecting higher depreciation, amortization, and interest expense related to the Ziply Fiber acquisition. Capital intensity is expected to increase to approximately 15% in 2025 due to Ziply's planned CapEx, but the PSP partnership is anticipated to maintain the pro forma combined company capital intensity at around 14.5%. Free cash flow guidance for 2025 is adjusted to a range of 6% to 11%.

Management anticipates positive ARPU movement in wireless within the next 3 to 5 quarters, assuming pricing stability. The focus for Canadian fiber remains on penetrating the already built plant, where significant upside exists due to many markets being lower on the penetration curve. The enterprise growth strategy is expected to generate significant internal rates of return (IRRs) at manageable investment levels, capitalizing on the large and rapidly growing total addressable market (TAM) for AI solutions. Bell Media is projected to generate positive revenue and EBITDA for the full year, driven by its digital pivot.

Balance Sheet Optimization and Risk Considerations

BCE is actively optimizing its balance sheet to support its growth initiatives. The company is targeting a year-end 2025 net debt leverage ratio of approximately 3.8x, with a longer-term goal of reaching 3.5x by the end of 2027 and approaching 3.0x by 2030. This deleveraging strategy is supported by the adjusted annualized dividend of $1.75 per share, effective with the Q2 2025 payment, and an updated payout policy targeting 40% to 55% of free cash flow. BCE also plans to generate up to $7 billion from the divestiture of non-core assets, including the already announced sales of Northwestel and MLSE. The company is exploring ways to surface value from its telecom infrastructure, recognizing its significant untapped potential.

Despite this proactive approach, BCE faces several key risks. The CRTC's decision to expand mandatory wholesale access to its fiber network is a significant concern, as it disincentivizes investment in critical infrastructure and has already led to a "significant scaling back" of BCE's Canadian fiber build. The company urges the government and CRTC to ensure proper compensation for network builders. Sustained competitive pricing pressure in the wireless market and macroeconomic headwinds impacting advertiser demand in media also pose challenges to revenue and profitability. Furthermore, a slowdown in newcomer growth affects overall market expansion in wireless. While postpaid churn has shown improvement, it remains an area of focus for management.

Conclusion

BCE Inc. is at a pivotal juncture, strategically transforming its business to capitalize on the secular growth trends in fiber connectivity and AI-powered enterprise solutions. The disciplined expansion into the U.S. fiber market through Ziply Fiber and the PSP Investments partnership represents a bold, high-return initiative that diversifies revenue and leverages BCE's core expertise. Concurrently, the company's aggressive pursuit of AI leadership in Canada through Bell AI Fabric and Ateko is unlocking new, unregulated revenue streams with substantial growth potential.

While navigating a challenging Canadian regulatory environment and intense competitive pressures, BCE's unwavering focus on customer experience, operational efficiency, and balance sheet optimization provides a resilient foundation. The strategic dividend adjustment and asset divestiture program underscore a commitment to financial flexibility and long-term shareholder value creation. Investors should monitor BCE's execution on its U.S. fiber build-out, the continued momentum in its enterprise AI offerings, and the impact of regulatory decisions on its Canadian investment plans, as these factors will be critical in shaping its trajectory as a diversified growth leader.