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    BCE May Say Profit Fell as More Customers Defected (Update1)  
    Bloomberg News  
   

By Chris Fournier

 
    July 31, 2007  
   

July 31 (Bloomberg) -- BCE Inc., Canada's biggest telephone company, is getting new owners. It's still not getting enough customers.

BCE, which agreed to a C$51.7 billion ($49.1 billion) buyout last month led by Ontario Teachers' Pension Plan, is losing home-phone users to cable companies and isn't adding sufficient wireless subscribers to offset the decline.

The Montreal-based parent of Bell Canada may report a 14 percent drop in second-quarter profit tomorrow, to C$422.8 million, or 52 cents a share, according to the average analyst estimate in a Bloomberg survey. Sales probably fell 7.6 percent to C$4.44 billion, the survey found.

``New ownership isn't a magic bullet for the problems of Bell Canada,'' said Kevin Restivo, an analyst at communications industry researcher SeaBoard Group in Toronto. ``Cable companies are stealing customers left, right and center.''

BCE's land-line customer losses probably accelerated to about 184,400, 38 percent more than a year earlier, estimates National Bank Financial analyst Greg MacDonald in Toronto, who rates the stock ``sector perform.''

Rogers Communications Inc. and Shaw Communications Inc., Canada's biggest cable companies, may have added 138,000 phone customers combined in the quarter, he said.

Cable companies took a 12 percent share of Canada's local- phone market in 2006, almost double the 6.2 percent they had in 2005, according to the country's telecommunications regulator.

Wireless Struggles

BCE also has struggled to match the growth of its peers in the wireless phone business. Scotia Capital analyst John K. Henderson in Toronto estimates BCE added 75,000 subscribers last quarter, compared with 124,000 at Toronto-based Rogers and 114,000 at Vancouver-based Telus Corp., Canada's second-largest phone company.

BCE lost a wireless contract with the federal government, which may cost it as many as 50,000 subscribers in the next six months, said Henderson, who rates BCE ``sector outperform.''

BCE spokesman Bill Fox declined to comment.

Shares of the company fell 3 cents to C$40.14 at 9:42 a.m. in Toronto Stock Exchange trading. They had climbed 28 percent this year before today. Five analysts suggest buying the stock, and nine say hold.

BCE on June 30 agreed to a buyout offer of C$42.75 a share in cash from Toronto-based Teachers', its largest shareholder, and an investor group that includes Providence, Rhode Island- based Providence Equity Partners Inc. The deal, the world's biggest leveraged buyout, still needs to be approved by two- thirds of BCE shareholders.

Not Enough

``I don't think the Teachers' deal changes the environment for BCE,'' said Greg Eckel, a fund manager at Toronto-based Morgan Meighen & Associates, which manages C$1.3 billion in assets, including 150,000 BCE shares. ``They've got a legacy business, and they're getting hit by cable companies.''

Chief Executive Officer Michael Sabia reorganized the company after he took over in April 2002. He sold a stake in a computer-services business called CGI Group Inc., reduced ownership in its media group and agreed to sell a satellite business for C$3.25 billion. He also boosted the percentage of revenue the company gets from wireless and Internet services.

BCE's stock trailed those of rivals over the past five years, prompting investor calls for change that led to the company's sale.

Teachers', whose private-equity investments have returned an average of 25 percent a year since 1991, has pledged to revive growth.

The pension plan intends to ``invest for growth,'' Teachers' Senior Vice President Jim Leech said in an interview this month. As a privately held company, BCE will be able to boost capital spending and marketing without concern for analyst and investor reactions, Leech said.

Teachers' hasn't given specifics about its plans for the business.

 


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