BCE Inc. (BECEF)

Executive Summary / Key Takeaways

• Strategic Pivot to North America: BCE is executing a transformative pivot, using the $4.2 billion MLSE sale proceeds to acquire Ziply Fiber, establishing the company as the third largest fiber Internet provider in North America and securing a high-growth, unregulated U.S. market.
• Enterprise AI Moat: The launch of Bell AI Fabric, in partnership with Cohere, positions BCE as the backbone of Canada's sovereign AI ecosystem, targeting a market projected to grow over 20% annually and providing a differentiated, high-growth revenue vertical.
• Financial Resilience and Deleveraging: The Board adjusted the dividend and updated the payout policy to accelerate deleveraging, targeting a net debt leverage ratio of approximately 3.5x by the end of 2027, supported by up to $7 billion in noncore asset sales.
• Guidance and Capital Efficiency: The updated 2025 guidance projects consolidated revenue and Adjusted EBITDA growth of 0% to 2% and Free Cash Flow growth of 6% to 11%, with the U.S. expansion funded to maintain a pro forma capital intensity of around 14.5% due to the PSP partnership.
• Operational Excellence and Technology: BCE's "fiber-first" strategy continues to drive market share gains (48% in fiber markets) and significant cost savings, with AI-powered tools eliminating 1.2 million support calls since 2022.

The Fiber-First Foundation and Competitive Arena

BCE Inc. is undergoing a profound strategic transformation, leveraging its 145-year history as the foundation of Canada’s communications infrastructure to pivot into a diversified North American Fiber and AI-powered technology company. This shift is a direct response to a hyper-competitive domestic market and challenging regulatory environment, particularly the CRTC's decision to expand mandatory wholesale access to its Fiber-to-the-Home (FTTH) network.

The company's core competitive advantage is its superior network technology. Fiber is the future, and it is a winning strategy that provides a sustainable advantage over cable and copper. This technological edge is quantifiable: where BCE has fiber, its market share has grown to 48%, and this superior service offering drives an 8% increase in households subscribing to mobility and Internet service bundles. Furthermore, the company is using technology to drive operational efficiency, with its AI-powered virtual repair diagnostics tool eliminating 1.2 million support calls since 2022, and its self-install program adopted by over 90% of new residential customers, generating significant cost savings.

In the Canadian competitive landscape, BCE is one of the top players, but it faces rivals like Telus (T) and Rogers (RCI), who often demonstrate stronger financial efficiency or aggressive urban market strategies. BCE's strategic response is to differentiate its enterprise business and seek growth in unregulated markets. Management noted that the performance of Bell Business Markets (BBM) stands in "stark contrast to North American peers who've seen significantly higher rates of decline for their enterprise businesses." This differentiation is now being supercharged by a focus on AI-powered solutions.

The Unregulated Growth Engine: U.S. Fiber and AI Fabric

The most significant strategic move is the acquisition of Ziply Fiber, which closed on August 1, 2025, cementing BCE's position as the third largest fiber Internet provider in North America. This move is a strategic redeployment of capital, funded by the $4.2 billion in net sale proceeds from the divestiture of the noncore MLSE asset. This is a crucial pivot, as the U.S. fiber market is attractive due to its unregulated nature (no mandated wholesale access) and the fact that U.S. fiber deployment lags Canada.

The U.S. expansion is designed for accelerated, capital-efficient growth. BCE has partnered with PSP Investments to fund the build-out of new fiber locations, with a plan to reach a total of 8 million fiber passings in the U.S. This strategic partnership is expected to significantly reduce BCE's capital investment and improve its free cash flow by over $1 billion over the 2026-2028 time period. Management is estimating an all-in rate of return in the U.S. of 20% or higher, with Ziply Fiber's EBITDA projected to accelerate to 20% plus in 2025.

Complementing the U.S. fiber expansion is the launch of Bell AI Fabric, positioned as the backbone of Canada’s AI ecosystem. This is not a standard colocation business; it encompasses purpose-built AI data centers and a cluster of high-impact AI services. Demand for Canadian AI data centers is projected to grow at an annual rate exceeding 20%. The partnership with Cohere, a global leader in large language models, will provide full stack sovereign AI solutions for government and enterprise customers, creating a meaningful future unregulated revenue and EBITDA stream for the enterprise business.

Operational and Financial Momentum

BCE's financial results in the first half of 2025 reflect the early success of its strategic pivot and disciplined execution. Consolidated revenue returned to positive growth of 1.3% in Q2 2025, driven by the fiber strategy, digital media, and momentum in enterprise.

• Bell Business Markets (BBM) delivered a record quarter of revenue growth in Q2 2025, with core connectivity stabilizing and showing modest growth, complemented by rapid growth in Ateko (technology services) and cybersecurity. The goal is to generate $1 billion in annual revenue from technology solutions by 2030.
• Wireline Internet revenue was up 3.0% in Q2 2025, reflecting a healthy balance between subscriber growth and disciplined pricing.
• Wireless service revenue decline improved for the second straight quarter, down 0.3% in Q2 2025. Postpaid churn improved 12 basis points to 1.06%, marking the first year-over-year improvement in nearly three years. Management noted that all new postpaid customer net activations were on the main Bell brand, consistent with the focus on "better quality, profitable and margin-accretive subscriber acquisition."
• Bell Media’s digital pivot continues to pay off, with digital revenue up 9% in Q2 2025, now comprising 43% of total media revenues. The goal is to grow Crave from 4 million subscribers to 6 million by 2028.

To solidify its financial foundation, the company upsized its total cost savings goal to $1.5 billion by the end of 2028. This transformation agenda, which includes modernizing operations and leveraging AI, is halfway to its original $1 billion goal.

Outlook, Guidance, and Regulatory Headwinds

The updated 2025 financial guidance reflects the inclusion of Ziply Fiber for five months. Consolidated revenue and Adjusted EBITDA guidance were increased to a range of 0% to 2%. Free Cash Flow guidance was also adjusted to a range of 6% to 11% growth.

The capital intensity outlook is critical. While the Ziply acquisition increases the 2025 capital intensity to approximately 15%, the PSP partnership is expected to maintain the pro forma combined company capital intensity at around 14.5%. This is a testament to the capital-efficient structure of the U.S. expansion.

The primary risk remains the Canadian regulatory environment. The CRTC's decision to expand mandatory wholesale access to the FTTH network has already forced a greater-than-anticipated CapEx cut for 2025, with the company not delivering its original 8.3 million fiber build-out target. Management expressed disappointment, urging the government to ensure network builders are "fully compensated for the significant build cost and investment risk they take in building." On the wireless front, ARPU recovery remains dependent on pricing stability, with management expecting "positive ARPU movement within the next 3 to 5 quarters," assuming the competitive environment stabilizes.

Conclusion

BCE Inc. is executing a fundamental and necessary transformation, shifting capital and strategic focus from a highly regulated, intensely competitive domestic market to high-growth, unregulated verticals in North American fiber and enterprise AI. The core investment thesis rests on the successful execution of this pivot: leveraging the capital from noncore asset sales to fund a high-return U.S. fiber expansion and building a differentiated, high-margin AI-powered technology moat in Canada.

The company's disciplined capital allocation, including the dividend adjustment and the target to reach 3.5x net debt leverage by 2027, provides the financial resilience needed to weather domestic pricing pressures and regulatory uncertainty. By focusing on its technological superiority, driving operational efficiencies through AI, and aggressively pursuing the 20%+ EBITDA growth in the U.S. and the 20%+ market growth in Canadian AI data centers, BCE is positioning itself for sustained, long-term free cash flow growth and a more favorable competitive standing.

Investors should monitor the pace of deleveraging and the execution of the U.S. fiber build-out as key indicators of the success of this bold strategic transformation.