BCE’s Q1 Earnings Reflect Strategic Shifts Amid Persistent Headwinds

BCE Inc., Canada’s largest telecommunications company, reported adjusted net earnings of $633 million for Q1 2025, resulting in an adjusted earnings per share (EPS) of $0.69—a 4.2% decline from the $0.72 recorded in the same period last year. The results underscore a challenging operating environment, marked by regulatory pressures, competitive pricing, and strategic shifts to prioritize balance sheet strength over short-term profitability.

Key Drivers of the EPS Decline

The earnings miss stemmed from a mix of structural and temporary factors:
1. Revenue Weakness in Core Segments:
- Bell Communication and Technology Services (CTS), BCE’s largest division, saw total operating revenues decline 2.4% to $5.25 billion. Service revenue fell 1.5% as pricing pressures and legacy service declines outpaced growth in mobile and broadband. Mobile phone postpaid net subscriber losses of 9,598 (vs. gains of 45,247 in Q1 2024) and a 1.8% drop in blended ARPU to $57.08 highlighted competitive intensity.
- Product revenue plummeted 7.4%, reflecting closures of The Source stores (part of BCE’s partnership with Best Buy) and lower mobile device sales to enterprise clients.

1. Margin Pressures and Costs:
2. While operating costs fell 2.1% overall due to workforce reductions and store closures, Bell Media’s expenses rose 1.3% due to higher TV content costs and integration expenses from its acquisition of OUTEDGE Media Canada.

3. Higher income taxes and the absence of one-time gains from early debt redemptions (which inflated Q1 y/y comparisons) further weighed on net earnings.

4. Regulatory and Macroeconomic Challenges:

5. BCE cited CRTC rulings restricting cable resale agreements and fiber expansion in certain markets, which slowed high-speed Internet subscriber growth. Retail fiber net additions dropped 69.4%, and the company reduced its fiber footprint expansion plans.
6. Slower immigration rates and housing starts dampened demand for residential services, exacerbating revenue pressures.

Strategic Shifts to Offset Challenges

BCE is repositioning its growth strategy to address these headwinds through two key initiatives:
1. The Network FiberCo Partnership:
BCE and PSP Investments announced a $1.5 billion venture to expand Ziply Fiber’s U.S. footprint. This joint venture aims to deliver fiber-to-the-home (FTTH) service to up to 8 million households by leveraging BCE’s operational scale and PSP’s capital. The non-recourse debt structure minimizes BCE’s financial risk while accelerating growth in underserved markets.

1. Balance Sheet Prioritization:
   BCE slashed its annualized dividend to $1.75 (from $3.99) to reduce debt and strengthen liquidity. The move aligns with its goal to lower leverage to 3.5x by 2027, a critical step in supporting capital-intensive projects like Network FiberCo.

Financial Outlook and Risks

BCE projects adjusted EPS to decline 13%–8% in 2025 due to:
- Elevated interest expenses and higher depreciation/amortization costs.
- Continued competitive pricing in wireless and broadband markets.
- Dilution from a larger share count following its discounted treasury dividend reinvestment plan.

Conclusion: Navigating a Transition Phase

While BCE’s Q1 results reflect near-term challenges, its strategic moves position it for long-term resilience. The Network FiberCo partnership offers a capital-efficient pathway to U.S. market dominance, a secular growth opportunity given rising broadband demand. However, investors must weigh these upside potential against short-term EPS pressures and execution risks.

Key data points to watch:
- Adjusted EPS guidance: A 13%–8% decline implies a full-year EPS of ~$3.00–$3.40, down from $3.99 in 2024.
- Network FiberCo progress: Deployment timelines and cost efficiencies will determine the partnership’s accretive impact on free cash flow.
- Balance sheet metrics: A leverage ratio below 3.5x by 2027 could reposition BCE as a defensive telecom play with dividend growth potential.

For now, BCE’s story is one of patience. Investors focused on its U.S. expansion and deleveraging success may find value, but near-term volatility remains likely as the company navigates its transition.