Bell Canada International Inc.

Bell Canada International Inc.

March 21, 2005 18:27 ET

BCI Announces 2004 Results


NEWS RELEASE TRANSMITTED BY CCNMatthews



FOR: BELL CANADA INTERNATIONAL INC.

NEX BOARD SYMBOL: BI.H

MARCH 21, 2005 - 18:27 ET

BCI Announces 2004 Results

MONTREAL, QUEBEC--(CCNMatthews - March 21, 2005) - BCI (NEX:BI.H) - As a
result of the adoption on July 17, 2002 of BCI's Plan of Arrangement,
BCI's annual audited consolidated financial statements for 2004 reflect
only the activities of BCI as a holding company. Such audited
consolidated financial statements together with management's discussion
and analysis (the "MD&A") thereon are attached hereto and readers are
encouraged to refer to such documents for full details.

2004 Results

As at December 31, 2004, BCI's shareholders' equity was $277.4 million,
up by $51.8 million from December 31, 2003. This increase was mainly as
a result of the recognition in the fourth quarter of 2004 of an income
tax recovery of $62.0 million (and corresponding future income tax
asset) associated with BCI's Loss Monetization Plan (as defined below);
interest income of $7.6 million; and a $2.6 million gain on the
disposition of BCI's remaining interest in Axtel S.A. de C.V. ("Axtel").
Offsetting these factors were nine months of accrued interest expense
of $13.8 million on the BCI 11% senior unsecured notes, employee and
office costs of $3.2 million, legal, tax and audit fees of $2.1 million
and other administrative expenses of $1.3 million.

BCI's cash and cash equivalents together with temporary investments as
at December 31, 2004 were $221.6 million down by $163.0 million from
December 31, 2003. This decline was due principally to the repayment at
maturity on September 29, 2004 of BCI's $160 million 11% senior
unsecured notes, together with cash interest thereon paid during 2004 in
the amount of $17.6 million, partially offset by an initial distribution
from Canbras Communications Corp. ("Canbras") of $8.7 million and the
proceeds of disposition from Axtel of $2.6 million.

Accrued liabilities were $15.9 million at the end of 2004, down $6.5
million from December 31, 2003 mainly as a result of a reduction in
accrued interest payable on BCI's 11% notes.

Net income for 2004 was $51.8 million, or $1.29 per share reflecting
primarily the recognition of the income tax recovery together with
interest income and the Axtel gain, partially offset by interest and
administrative expenses.

Update on Loss Monetization Plan

On August 4, 2004, BCI announced that it had entered into an agreement
with BCE Inc. ("BCE") and Bell Canada to monetize a portion of BCI's
non-capital tax losses (the "Loss Monetization Plan") which was expected
to result in a compensatory cash payment to BCI of at least $42 million.
Following the completion of an audit by the Canada Revenue Agency
("CRA") of BCI's tax returns for years up to December 31, 2004 to
determine its losses, BCI now expects this compensatory payment to be
approximately $62.0 million. BCI expects to receive the proceeds of the
Loss Monetization Plan in the first quarter of 2007, although at BCI's
request and subject to the consent of BCE, the proceeds may be received
in 2006 at a reduced amount based on a discount rate to be mutually
agreed at that time.

Timing of Potential Shareholder Distributions

Prior to the end of the third quarter of 2004, BCI believed that an
initial distribution to shareholders could be made as early as the first
half of 2005. However, due to delays in resolving the 6.75% Debenture
Class Action and certain implications of BCI's Plan of Arrangement, the
Corporation now believes that no such distribution will be possible
until the second half of 2006 and that such initial distribution may be
further delayed. Furthermore, as a final distribution to shareholders
will not take place until BCI receives payment in connection with the
Loss Monetization Plan, such final distribution may not occur until 2007.

Estimated Future Net Assets

In recognition of the foregoing timing, BCI is now calculating its
estimated future net assets at June 30, 2007, rather than at March 31,
2006. Estimated future net assets of BCI at June 30, 2007 are $279.3
million ($6.98 per share). The differences between shareholders' equity
on the consolidated balance sheet at December 31, 2004 and the estimated
future net assets at June 30, 2007 are: (i) the deduction of estimated
future net costs from January 1, 2005 to June 30, 2007; and (ii) the
inclusion of the expected gain on the Canbras investment of $5.0 million.

The future net costs estimated at approximately $3.1 million are
comprised of administrative expenses of approximately $16.0 million
partially offset by interest income of approximately $12.9 million. The
expected gain on the Canbras investment of approximately $5.0 million
represents the excess over current carrying value that BCI expects to
receive on its investment in Canbras (see the attached MD&A for more
details).

The future net costs exclude any amounts that may be required to settle
contingent liabilities such as lawsuits. To the extent BCI remains in
operation beyond June 30, 2007, interest income thereafter may not be
sufficient to cover operating expenses estimated at approximately $1.5
million per quarter. The extent of any shortfall would be dependent on a
number of factors, including the level of interest rates and BCI's cash
balances at the time.

The currently estimated future net assets of BCI at June 30, 2007 of
$279.3 million have increased by $25.7 million from the estimate of
future net assets at March 31, 2006 prepared on October 26, 2004 in
connection with BCI's third quarter results. This increase is primarily
attributable to an increase in the expected proceeds from the Loss
Monetization Plan, higher assumed interest income on cash balances (due
to higher interest rate assumptions) as well as lower expected
administrative costs in the period up to March 31, 2006. These factors
are partially offset by an increase in estimated future net costs
resulting from an extension in the planning horizon from March 31, 2006
to June 30, 2007.

Plan of Arrangement Update

On March 3, 2005, the Supreme Court of Canada refused an application for
leave to appeal filed in connection with the two proposed class action
lawsuits brought by Mr. Wilfred Shaw and Mr. Cameron Gillespie on behalf
of BCI common shareholders and seeking $1 billion in damages against BCI
and BCE. No further appeal of these actions is available to the
plaintiffs and the actions are effectively dismissed.

BCI is operating under a court supervised Plan of Arrangement, pursuant
to which BCI intends to monetize its assets in an orderly fashion and
resolve outstanding claims against it in an expeditious manner with the
ultimate objective of distributing the net proceeds to its shareholders
and dissolving the company. BCI is listed on the NEX Exchange under the
symbol BI.H. Visit our Web site at www.bci.ca.

Certain statements made in this press release describing BCI's
intentions, expectations or predictions are forward-looking and are
subject to important risks and uncertainties. The results or events
predicted in these statements may differ materially from actual results
or events. For additional information with respect to risk factors
relevant to BCI, see the attached MD&A. BCI disclaims any intention or
obligation to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.

MANAGEMENT'S DISCUSSION & ANALYSIS

This management's discussion and analysis of financial condition and
results of operations ("MD&A") for Bell Canada International Inc. ("BCI"
or the "Corporation") for 2004 should be read in conjunction with BCI's
audited consolidated financial statements for the year ended December
31, 2004 including related notes thereto. The consolidated financial
statements, as well as information contained in this MD&A, are prepared
in accordance with Canadian generally accepted accounting principles and
reported in Canadian dollars. Information contained in this MD&A
includes all material developments up to March 21, 2005, the date on
which the consolidated financial statements were approved by the Board
of Directors.

Certain sections of this MD&A contain forward-looking statements with
respect to the Corporation. These forward-looking statements, by their
nature, necessarily involve risks and uncertainties that could cause
actual results to differ materially from those contemplated by the
forward-looking statements. Factors which could cause actual results to
differ materially from current expectations are discussed under "Risk
Factors".

Overview

BCI is operating under a plan of arrangement (the "Plan of Arrangement")
approved by the Ontario Superior Court of Justice (the "Court") on July
17, 2002. Pursuant to the Plan of Arrangement, BCI has now monetized a
significant portion of its assets and is in the process of resolving
outstanding claims against it in an expeditious manner with the ultimate
objective of distributing the net proceeds to its shareholders and
dissolving the Corporation all with the assistance of a court-appointed
monitor (the "Monitor"). Although BCI believes that a final
distribution to shareholders could be made in the first half of 2007,
such distribution may be delayed (see Risk Factors - "Timing of
Distribution to Shareholders and Completion of the Plan of Arrangement"
and "Future Costs").

In view of the purpose of the Plan of Arrangement, and in order to
provide relevant information to shareholders, this MD&A does not provide
a detailed analysis of the results of operations for the year ended
December 31, 2004 compared to the previous year. Instead, this MD&A
focuses on an analysis of BCI's balance sheet at December 31, 2004, and
develops it into a statement of estimated future net assets at June 30,
2007, the date that BCI now believes it may be in a position to make
its final distribution to shareholders. While BCI believes that an
initial distribution to shareholders could be made as early as the
second half of 2006, the initial and final distributions may be delayed
beyond such dates. (See Risk Factors - "Timing of Distribution and
Completion of the Plan of Arrangement" and "Future Costs").

This MD&A also includes a discussion of possible future events and
contingencies that could cause estimated future net assets to change and
consequently affect the amount which would ultimately be available for
distribution to shareholders.

Loss Monetization Plan

As described more fully in Note 9 to the consolidated financial
statements, the corporation has entered into an agreement to monetize a
portion of its non-capital taxes losses (the "Loss Monetization Plan")
which is expected to give rise to a compensatory cash payment to BCI of
approximately $62.0 million in the first quarter of 2007. This amount
was recorded as an income tax recovery with a corresponding future
income tax asset in the consolidated financial statements for 2004. The
amount of such recovery could be increased in certain circumstances, as
more fully described in Note 9 to the consolidated financial statements.
However, there can be no assurance that the amount to be realized under
the Loss Monetization Plan will exceed $62.0 million.

Statement of Estimated Future Net Assets at June 30, 2007

The following table summarizes the consolidated balance sheet of the
Corporation as at December 31, 2004 in the form of a statement of
estimated future net assets at June 30, 2007 (being the date by which
the Corporation believes it may be in a position to make a final
distribution to shareholders subsequent to the collection of the
expected benefit from Loss Monetization Plan). The difference between
the consolidated balance sheet and the statement of estimated future net
assets at June 30, 2007 is the inclusion of the following items: (i)
estimated future net costs of $3.1 million from January 1, 2005 to June
30, 2007 (ii) the expected gain on the Canbras Communications Corp.
("Canbras") investment of approximately $5 million (see Risk Factors -
"Timing of Distributions to Shareholders and Completion of the Plan of
Arrangement", "Future Costs" - and Realization of Canbras Sale
Proceeds").



STATEMENT OF ESTIMATED FUTURE NET ASSETS AT JUNE 30, 2007
(thousands of Canadian dollars)

Assets at December 31, 2004

Cash and cash equivalents $1,047
Temporary investments 220,561
Investment in Canbras 6,257
Other current assets 3,462
Future income tax asset 62,000
--------------------------------------------------------------------
Total assets 293,327

Liabilities at December 31, 2004

Accounts payable and accrued liabilities 15,895
--------------------------------------------------------------------
Net assets as at December 31, 2004 277,432
Items Affecting the Future Net Assets to June 30, 2007

Estimated future net costs until June 30, 2007 (3,130)
Expected gain on Canbras investment 5,000
--------------------------------------------------------------------
Estimated future net assets as at June 30, 2007(1) $279,302
--------------------------------------------------------------------

(1) Before unaccrued contingencies - See Note 13 to the consolidated
financial statements and the discussion that follows. Also
assumes no distribution to shareholders will be made before
June 30, 2007.


As at December 31, 2004, total assets were $293.3 million of which
$221.6 million, or 75.6%, were in the form of cash and temporary
investments.

Other current assets of $3.5 million consist of $2.4 million of accrued
interest on cash and cash equivalents as well as on temporary
investments, prepaid expenses and other current assets.

The future income tax asset was recorded in the fourth quarter of 2004
in the amount of the expected benefit to be received by BCI in the first
quarter of 2007 under the Loss Monetization Plan.

Total liabilities include accounts payable and accrued liabilities of
$15.9 million. This amount includes employee related accruals, such as
pension and severance costs typical for a company in a wind-down process
as well as other accounts payable and accruals.

The expected future net costs from January 1, 2005 until June 30, 2007,
of $3.1 million include estimated administrative expenses of
approximately $16.0 million partially offset by estimated interest
income on cash and cash equivalents and temporary investments of
approximately $12.9 million. In calculating estimated interest income,
it has been assumed that short-term investments will provide a 2.25% to
2.5% per annum return and that no distribution to shareholders will be
made before June 30, 2007.

As at December 31, 2003, the estimated future net assets of BCI were
reported as at December 31, 2004 and were estimated to be approximately
$217.1 million compared to the current estimate at June 30, 2007 of $
279.3 million, an increase of $ 62.2 million. This increase is
principally due to the income tax recovery associated with the Loss
Monetization Plan as well as the gain on Axtel S.A. de C.V. ("Axtel"),
both recorded in 2004. As the table below shows, excluding income from
the Loss Monetization Plan and the gain on Axtel (which had not been
previously estimated), all other costs for the one-year period from
January 1, 2004 to December 31, 2004 were $1.7 million lower than
previously estimated. This is principally due to lower administration
expenses of $2.6 million, partially offset by lower interest income as a
result of lower than estimated interest rates. Also impacting the
increase in estimated future net assets at June 30, 2007 are additional
net costs in the 30 month period from December 31, 2004 to June 30, 2007
as well as a lower estimated gain on Canbras (see Risk Factors -
"Realization of Canbras Sale Proceeds").



(thousands of Canadian dollars)

Estimated as Estimated as
at at Difference
December 31 December 31
2004 2003
---------------------------------------------------------------------
Net assets as reported
at December 31, 2003 $225,651 $225,651 $-

Income tax recovery 62,000 - 62,000
Reported/expected gain on Axtel 2,644 - 2,644
Reported/expected gain
on investment in Canbras - 6,000 (6,000)
All other costs (net) (12,863) (14,579) 1,716
---------------------------------------------------------------------

Net assets reported/estimated
at December 31, 2004 277,432 217,072 60,360

Expected gain on investment
in Canbras 5,000 - 5,000
Estimated future net costs
until June 30, 2007 (3,130) - (3,130)
---------------------------------------------------------------------
Estimated future net assets
at June 30, 2007 $279,302 $217,072 $62,230
---------------------------------------------------------------------
---------------------------------------------------------------------


In accordance with Canadian GAAP, contingent liabilities are not
included on a balance sheet unless the event giving rise to the
liability is likely and the amount of the liability can be reasonably
estimated. BCI has several contingent liabilities that are not included
on the consolidated balance sheet which are described in Note 13a) to
the consolidated financial statements. Such contingent liabilities,
although not considered likely at the present time, may result in
material changes to BCI's balance sheet and the statement of estimated
future net assets at June 30, 2007 and consequently in the amounts which
may be available for distribution to BCI's shareholders.

The following is a discussion of all material contingencies of which the
Corporation is currently aware.

1) Class Action Proceeding against the Corporation on behalf of former
debenture holders

As described more fully in Note 13a) to the consolidated financial
statements, the Corporation, and certain current and former members of
BCI's board of directors, and BCI's majority shareholder, BCE, are
defendants in a class action proceeding seeking $250 million in damages
plus costs of $5 million on behalf of certain former holders of 6.75%
convertible unsecured subordinated debentures in connection with BCI's
Recapitalization Plan (the "6.75% Debenture Class Action").

All of the defendants filed statements of defence with respect to the
6.75% Debenture Class Action in the third quarter of 2003 and a trial is
expected to take place in the second half of 2005.

The Corporation believes that the allegations in the class action are
without merit and intends to vigorously defend its position. As a
result, no provision has been included in the consolidated financial
statements.

2) Lawsuit filed by La Caisse de depot et placement du Quebec

As described more fully in Note 13b) to the consolidated financial
statements, La Caisse de depot et placement du Quebec ("CDP"), filed a
lawsuit with the Court in connection with CDP's former holdings of a
portion of BCI's 6.5% convertible unsecured subordinated debentures. CDP
is seeking up to $110 million in damages, together with interest and
costs, against BCI, BCE and certain current and former members of BCI's
board of directors (the "CDP Action").

As CDP's claim contains allegations that are substantially similar to
those contained in the 6.75% Debenture Class Action, BCI entered into an
agreement with CDP, which was approved by the Court on December 19,
2003, whereby the CDP Action was stayed pending a final adjudication or
settlement of the 6.75% Debenture Class Action, and the resolution of
the 6.75% Debenture Class Action shall form the basis for the final
resolution of the CDP Action.

The Corporation believes that the allegations in this action and the
6.75% Debenture Claim are without merit and intends to vigorously defend
its position. As a result, no provision has been included in the
consolidated financial statements.

3) Lawsuits against the Corporation on behalf of common shareholders
As described more fully in Note 13c) to the consolidated financial
statements, the Corporation and BCE were defendants in proposed class
action proceedings filed by Mr. Wilfred Shaw and Mr. Cameron Gillespie
each seeking $1 billion in damages on behalf of all persons who owned
BCI common shares on December 3, 2001.

On July 23, 2004, the Ontario Court of Appeal ("OCA") dismissed the two
proposed class action lawsuits. The OCA upheld the decision of the
lower court dismissing the lawsuits as failing to disclose a reasonable
cause of action. On September 29, 2004, the plaintiffs filed an
application with the Supreme Court of Canada ("SCC") seeking leave to
appeal the decision of the OCA. On March 3, 2005, the SCC refused the
plaintiff's application for leave to appeal. No further appeal of
these actions is available to the plaintiffs and these actions are
effectively dismissed.

4) Comcel's Voice-over Internet Protocol ('VOIP') litigation

As described more fully in Note 13d) to the consolidated financial
statements, BCI had indemnified Comcel in connection with litigation
claiming damages of approximately US$70 million relating to Comcel's
provision of VOIP service between December 1998 and September 1999.
Comcel believes that the claims lack an evidentiary basis and is
vigorously defending itself in this litigation.

In connection with the claims identification process as part of the Plan
of Arrangement, Comcel did not file a claim with the Monitor with
respect to its VOIP indemnity. As a result, pursuant to the order of the
Court approving the claims identification process, Comcel is now barred
from asserting any claim against BCI in connection with this lawsuit.
However, BCI understands that Comcel may dispute that its claim is so
barred.

BCI has not included any provision for its indemnity of Comcel in the
consolidated financial statements.

5) Employee Litigation

As more fully described in Note 13e) to the consolidated financial
statements, former employees have filed claims against BCI totaling $8.6
million. BCI believes that these claims are either without merit and
intends to vigorously defend its position or are in amounts
significantly in excess of BCI's potential liability. BCI has included
a provision in the consolidated financial statements (included in
accounts payable and accrued liabilities) in respect of the estimated
amount of its potential liability to such claims.

Results of Operations for 2004

As at December 31, 2004, BCI's shareholders' equity was $277.4 million,
up by $51.8 million from December 31, 2003. This increase was mainly as
a result of the recognition in the fourth quarter of 2004 of an income
tax recovery of $62.0 million (and corresponding future income tax
asset) associated with BCI's Loss Monetization Plan; interest income of
$7.6 million; and a $2.6 million gain on the disposition of BCI's
remaining interest in Axtel. Offsetting these factors were nine months
of accrued interest expense of $13.8 million on the BCI 11% senior
unsecured notes, employee and office costs of $3.2 million, legal, tax
and audit fees of $2.1 million and other administrative expenses of $1.3
million.

BCI's cash and cash equivalents together with temporary investments as
at December 31, 2004 were $221.6 million down by $163.0 million from
December 31, 2003. This decline was due principally to the repayment at
maturity on September 29, 2004 of BCI's $160 million 11% senior
unsecured notes, together with cash interest thereon paid during 2004 in
the amount of $17.6 million, partially offset by an initial distribution
from Canbras of $8.7 million and the proceeds of disposition from Axtel
of $2.6 million.

Accrued liabilities were $15.9 million at the end of of 2004, down $6.5
million from December 31, 2003 mainly as a result of a reduction in
accrued interest payable on BCI's 11% notes.

Net income for 2004 was $51.8 million, or $1.29 per share reflecting
primarily the recognition of income tax recovery of $62.0 million
together with interest income and the Axtel gain, partially offset by
accrued interest expense and administrative expenses.

Results of Operations for the Fourth Quarter of 2004

Earnings for the fourth quarter were $62.1 million, or $1.55 per share.
During the quarter, BCI recorded income of $62.0 million, being the
amount expected to be received in the first quarter of 2007 under the
Loss Monetization Plan. Interest income in the fourth quarter was $1.2
million while administrative expenses totaled $1.0 million.

Financial Instruments

The Corporation does not trade derivative financial instruments.

The Corporation's financial assets that are exposed to credit risk
consist primarily of temporary investments. Credit risk is minimized
substantially by ensuring that these financial assets are invested in
treasury bills, bankers' acceptances, commercial paper and corporate
bonds and debentures with investment grade credit ratings. In addition,
dollar limits are established on a per investment basis. Interest rate
risk is minimized by the Corporation purchasing financial assets with
the intention of holding them until maturity.

Temporary Investments

As at December 31, 2004, the Corporation held investment grade
commercial paper in the amount of $220.6 million. The commercial paper
matures at varying dates from January 4, 2005 to April 4, 2005. The
effective yields on the commercial paper range from 1.86% to 2.57%. At
December 31, 2004 the estimated fair value (based on market values) of
the commercial paper amounted to $ 222.9 million. During the year ended
December 31, 2004, the Corporation recorded interest income of $ 7.6
million related to temporary investments.

Senior Unsecured Notes due September 29, 2004

On September 29, 2004, the Corporation repaid on their scheduled
maturity date $160 million of senior unsecured notes. These notes were
issued on September 29, 1999 and bore interest at 11% per annum payable
semi-annually. During the year ended December 31, 2004 (and 2003), the
Corporation recorded interest expense of $13.8 million (and $18.5
million in 2003) related to the notes.

Stated Capital

An unlimited number of First Preferred Shares, issuable in series; an
unlimited number of Second Preferred Shares issuable in series; and an
unlimited number of Common Shares are authorized. All authorized
classes of shares are without nominal or par value.



Number of Stated
Common capital
Shares
Outstanding
--------------------------------------------------------------------
Balance, December 31, 2003 40,000,000 $10,000
--------------------------------------------------------------------
Balance, December 31, 2004 40,000,000 $10,000
--------------------------------------------------------------------
--------------------------------------------------------------------

At December 31, 2004, 6,071 stock options were outstanding and
exercisable. The stock options are exercisable on a one-for-one basis
for common shares of the Corporation. The total stock options
outstanding have exercise prices ranging from $2,368 to $5,037 per
share over the remaining term of the options of between 0.9 to 5.4
years.

Transactions with Related Parties

In the normal course of business, the Corporation had transactions
which were measured at exchange amounts with BCE, its affiliated
companies and associated companies as follows:

BCE and affiliated companies(1) 2004 2003
--------------------------------------------------------------------
Administrative expenses(2) $507,000 $639,000
Interest income on Bell Canada
medium term note $- $286,000

(1)Affiliated companies are companies under the control of BCE
(2)Principally information technology services and various
corporate services


As the Loss Monetization Plan is to be implemented between BCI and
related parties, an Independent Committee of the Board of Directors of
BCI was appointed to consider the transaction. The Independent
Committee recommended that the Board of Directors approve the Loss
Monetization Plan based in part on an opinion received from its
financial advisors that the transaction is fair, from a financial point
of view, to BCI and BCI's shareholders other than BCE Inc. After
receiving the recommendation of the Independent Committee, the BCI Board
approved the Loss Monetization Plan. In addition, because the Loss
Monetization Plan was to be entered into with BCI's majority
shareholder, BCE Inc., and Bell Canada (or their affiliates), the
transaction would be subject to the approval of a majority of BCI's
shareholders other than BCE Inc.; however, an exemption from such
requirement was granted to BCI by securities regulators on September 7,
2004.

Risk Factors

The following are major risk factors facing the Corporation. Certain of
these risk factors are also discussed in this MD&A under "Statement of
Estimated Future Net Assets at June 30, 2007".

Timing of Distributions to Shareholders and Completion of the Plan of
Arrangement

While BCI believes that an initial distribution to shareholders may be
possible in the second half of 2006, this timing is dependent upon the
resolution of claims against BCI (in particular, outstanding litigation
described below under "Litigation-6.75% Debenture Class Action" and
"Litigation-CDP Action"), the receipt of tax clearance certificates and
the completion of further steps in the Plan of Arrangement (such as
obtaining Court approval for such a distribution).

While BCI believes that a final distribution to shareholders may be
possible in the first half of 2007, this timing is dependent on the
factors affecting the initial distribution described above as well as on
the timely receipt of the proceeds from the Loss Monetization Plan, the
receipt of final tax clearance certificates and the completion of the
Plan of Arrangement.

Litigation - 6.75% Debenture Class Action

As described in Note 13a) to the consolidated financial statements, the
Corporation is currently involved in litigation with respect to the
6.75% Debenture Class Action.

Although BCI is confident that the allegations are without merit, there
can be no assurance that BCI will be successful in its defense.
Furthermore, regardless of the outcome with respect to the Corporation,
BCI has indemnification arrangements in place with its directors and
will therefore bear the cost of damages in the event, and to the extent,
that the claim is successful against BCI's directors. In addition, in
the event that BCI is not successful in its defence of the 6.75%
Debenture Class Action, BCI's insurers have indicated that this claim
will not be covered by BCI's insurance policies. BCI has indicated that
it disagrees with this interpretation and has reserved its rights to
contest such interpretation at a later date.

Litigation - CDP Action

As described in Note 13b) to the consolidated financial statements, the
Corporation is currently involved in litigation with respect to the CDP
Action. As CDP's claim contains allegations that are substantially
similar to those contained in the 6.75% Debenture Class Action, BCI
entered into an agreement with CDP, which was approved by the Court on
December 19, 2003, whereby the CDP Action was stayed pending a final
adjudication or settlement of the 6.75% Debenture Class Action, and the
resolution of the 6.75% Debenture Class Action shall form the basis for
the final resolution of the CDP Action.

Although BCI is confident that the allegations in this action and in the
6.75% Debenture Class Action are without merit, there can be no
assurance that BCI will be successful in its defense. Furthermore,
regardless of the outcome with respect to the Corporation, BCI has
indemnification arrangements in place with its directors and will
therefore bear the cost of damages in the event, and to the extent, that
the claim is successful against BCI's directors. In addition, in the
event that BCI is not successful in its defense of the CDP Action, BCI
expects that its insurers would take the position that this claim, as
with the 6.75% Debenture Class Action, would not be covered by BCI's
insurance policies. In this event, BCI would disagree with this
interpretation.

Comcel VOIP Indemnification

As described in Note 13d) to the consolidated financial statements, BCI
had indemnified Comcel in connection with litigation claiming damages of
approximately US$70 million relating to Comcel's provision of VOIP
service between December 1998 and September 1999. Comcel believes that
the claims lack an evidentiary basis and is vigorously defending itself
in this litigation. However, there can be no assurance that Comcel will
be successful in its defense.

In connection with the claims identification process as part of the Plan
of Arrangement (see Note 1 to the consolidated financial statements),
Comcel did not file a claim with the Monitor with respect to its VOIP
indemnity. As a result, pursuant to the order of the Court approving the
claims identification process, Comcel is now barred from asserting any
claim against BCI in connection with this lawsuit. However, BCI
understands that Comcel may dispute that its claim is so barred and
there can be no assurance that if the order of the Court were to be
appealed that such appeal would be denied.

Employee Litigation

As described in Note 13e) to the consolidated financial statements,
former employees have filed claims against BCI totaling $8.6 million.
BCI has included a provision in the consolidated financial statements in
the amount of the estimated amount of its potential liability to such
claims. However, there can be no assurance that such provision is
sufficient to cover BCI's ultimate liability to such claims.

Realization of Canbras Sale Proceeds

As described in Note 5 to the consolidated financial statements, on
December 24, 2003, Canbras announced the closing of the sale of all of
its assets (the "Canbras Sale"). Canbras received gross proceeds of
approximately $22.2 million in cash and a one year promissory note (the
"Note") bearing interest at 10% in the original principal amount of
$10.4 million (subject to reduction in the event indemnification
obligations of Canbras arise under the terms of the sale transaction).
In August 2004, BCI received an initial distribution from Canbras of
$8.7 million. On December 21, 2004, Canbras provided details of claims
made against it pursuant to the Canbras Sale. Canbras' potential
exposure to such claims is limited to the amount of the Note together
with accrued interest thereon. Canbras believes that less than R$2
million of the total amount claimed of R$58 million are potentially
subject to indemnification under the Canbras Sale. Based on this
estimate, BCI has reduced its estimate of BCI's expected gain on its
Canbras investment from $6 million to $5 million. However, there can be
no assurance that the full amount of the claims made against Canbras
will not be successfully asserted, in which case, Canbras may not
collect any amounts due to it under the Note. Furthermore, even if such
claims are not indemnifiable under the Canbras Sale, there can be no
assurances that the issuer of the Note or its guarantor will be able to
pay amounts due under the Note. As a result, BCI's ability to receive
future distribution from Canbras may be limited to BCI's approximate 76%
share of Canbras' cash on hand of $7.4 million at September 30, 2004
less the costs that Canbras will incur to contest the claims against it
as well as in the ordinary course of maintaining its corporate existence
until such time as it is wound up and liquidated.

Cash and Cash Equivalents and Temporary Investments

As at December 31, 2004, BCI has approximately $222 million of cash and
temporary investments. BCI has invested such funds in investment grade
debt instruments with various maturities, not extending beyond April 4,
2005, in such a manner as to preserve the value of capital while also
earning interest income. However, there can be no assurance that one or
more issuers of such debt instruments might not default on such
obligations.

Future Costs

BCI's actual future net costs after December 31, 2004, may be materially
different than estimated in this MD&A. Moreover, there can be no
assurance that BCI will be in a position to make a final distribution to
its shareholders in the first half of 2007. To the extent that BCI has
not completed its Plan of Arrangement by June 30, 2007, interest income
from BCI's temporary investments may not be sufficient to cover
operating costs estimated at approximately $1.5 million per quarter.

Stock Exchange Listing and US Deregistration

BCI's common shares currently trade on the NEX, a separate board of the
TSX Venture Exchange which provides a trading forum for listed companies
that have low levels of business activity. Effective December 21, 2004,
the Corporation voluntarily de-listed its common shares from the TSX and
effective December 31, 2003, the Corporation voluntarily de-listed its
common shares from the NASDAQ National market. Subject to TSX approval,
BCI would be permitted to remain listed and trade on NEX, an open
auction market on which trading takes place on the same electronic
system as the TSX Venture Exchange, indefinitely. However, there can be
no assurance that NEX will provide BCI's common shares with the same
level of liquidity or visibility as the TSX.

In conjunction with the de-listing of its common shares from NASDAQ, on
January 8, 2004 BCI filed the appropriate form with the United States
Securities and Exchange Commission ("SEC") for the termination of the
registration of BCI's common shares with the SEC and the suspension of
all reporting obligations in the United States. Although BCI will
remain a Canadian reporting issuer and all relevant documents will
continue to be available through the company's web site (www.bci.ca) and
through SEDAR (System Electronic Document Analysis and Retrieval,
www.sedar.com), BCI shareholders in the United States can no longer
access documents filed by BCI by means of the SEC, NASDAQ, or the EDGAR
electronic reporting system.

(1) Before unaccrued contingencies - See Note 13 to the consolidated
financial statements and the discussion that follows. Also assumes no
distribution to shareholders will be made before June 30, 2007.

Management's Responsibility for Financial Statements

The accompanying consolidated financial statements of Bell Canada
International Inc. ("BCI"), and all information in this annual report
are the responsibility of management and have been approved by the Board
of Directors.

The financial statements have been prepared by management in conformity
with Canadian generally accepted accounting principles. The financial
statements include some amounts that are based on best estimates and
judgments of management, and in their opinion present fairly BCI's
financial position, results of operations and cash flows. Financial
information presented elsewhere in the annual report is consistent with
that in the financial statements.

Management of BCI, in furtherance of the integrity and objectivity of
the financial statements, has developed and maintains a system of
internal controls. Management believes the internal controls provide
reasonable assurance that financial records are reliable and form a
proper basis for the preparation of financial statements and that BCI's
assets are properly accounted for and safeguarded. The internal control
process includes management's communications to employees of policies
which govern ethical business conduct.

The Board of Directors carries out its responsibility for the
accompanying financial statements principally through its Audit
Committee. The Audit Committee reviews the Corporation's annual
consolidated financial statements and other information in the annual
report, and recommends their approval by the Board of Directors. The
shareholders' auditors have free and independent access to the Audit
Committee.

These financial statements have been audited by the shareholders'
auditors, Deloitte & Touche LLP, Chartered Accountants, and their report
follows.



(s/ William D. Anderson) (s/ Howard N. Hendrick)

William D. Anderson Howard N. Hendrick
Chairman and Chief Executive Officer Executive Vice-President and
Chief Financial Officer


Auditors' Report

To the Shareholders of Bell Canada International Inc.

We have audited the consolidated balance sheets of Bell Canada
International Inc. as at December 31, 2004 and 2003 and the consolidated
statements of operations, deficit and cash flows for the years then
ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion
on the financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Corporation as
at December 31, 2004 and 2003 and the results of its operations and its
cash flows for the years then ended in accordance with Canadian
generally accepted accounting principles.



(s/ Deloitte & Touche LLP)

Deloitte & Touche LLP
Chartered Accountants
Montreal, Canada
March 21, 2005



Consolidated Balance Sheets

Years ended December 31,
(in thousands of canadian dollars)
---------------------------------------------------------------------
---------------------------------------------------------------------
Notes 2004 2003
---------------------------------------------------------------------

Current assets
Cash and cash equivalents $1,047 $1,408
Temporary investments 3 220,561 383,143
Interest receivable on cash
equivalents and temporary
investments 2,380 5,809
Investment in Canbras 5 6,257 15,000
Prepaid expenses and other
current assets 1,082 2,713
---------------------------------------------------------------------
231,327 408,073

Future income tax asset 9 62,000 -
---------------------------------------------------------------------
$293,327 $408,073
---------------------------------------------------------------------
---------------------------------------------------------------------

Current liabilities
Accounts payable and accrued
liabilities 6, 14 $15,895 $22,422
Long-term debt due within one year 7 - 160,000
---------------------------------------------------------------------
15,895 182,422
---------------------------------------------------------------------
Contingencies and commitments 13

Shareholders' equity
Stated capital 8 10,000 10,000
Contributed surplus 8 1,941,560 1,941,560
Deficit (1,674,128) (1,725,909)
---------------------------------------------------------------------
277,432 225,651
---------------------------------------------------------------------
$293,327 $408,073
---------------------------------------------------------------------
---------------------------------------------------------------------


On behalf of the Board of Directors

(s/ H. Brian Thompson) (s/ William D. Anderson)

H. Brian Thompson William D. Anderson



Consolidated Statements of Operations
(In thousands of Canadian dollars, except per share amounts)
---------------------------------------------------------------------
---------------------------------------------------------------------
Notes 2004 2003
---------------------------------------------------------------------

Interest on long-term debt $(13,780) $(18,486)
Employee and office costs (3,204) (6,405)
Legal, tax and audit fees (2,058) (2,766)
Other administrative expenses (1,274) (772)
Interest income 7,601 10,421
Gain (loss) on disposal of
investments 5 2,644 (1,442)
Loss on settlement of Vesper loan
guarantees 12 - (16,947)
Gain on collection of Axtel
long-term note 4 - 9,778
Foreign exchange losses and other (148) (11,658)
---------------------------------------------------------------------
Net loss before income taxes (10,219) (38,277)
Income tax recovery 9 62,000 -
---------------------------------------------------------------------
Net earnings (loss) $51,781 $(38,277)
---------------------------------------------------------------------
---------------------------------------------------------------------

Net earnings (loss) per common
share - basic and diluted 8 $1.29 $(0.96)
---------------------------------------------------------------------
---------------------------------------------------------------------



Consolidated Statements of Deficit

Years ended December 31,
(in thousands of Canadian dollars)
---------------------------------------------------------------------
---------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------
Deficit, beginning of year $(1,725,909) $(1,687,632)
Net earnings (loss) 51,781 (38,277)
---------------------------------------------------------------------
Deficit, end of year $(1,674,128) $(1,725,909)
---------------------------------------------------------------------
---------------------------------------------------------------------



Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
---------------------------------------------------------------------
---------------------------------------------------------------------
Notes 2004 2003
---------------------------------------------------------------------

Operations
Net earnings (loss) $51,781 $(38,277)
Items not affecting cash
Income tax recovery 9 (62,000) -
Loss on settlement of Vesper loan
guarantees 12 - 16,947
Gain on collection of Axtel
long-term note 4 - (9,778)
(Gain) loss on investments 5 (2,644) 1,442
Depreciation and amortization 25 73
Foreign exchange losses 82 11,823
Amortization of deferred financing
costs 665 954
Amortization of premium on temporary
investments 35 867
Changes in working capital items 10 (2,236) (7,445)
---------------------------------------------------------------------

Cash used in operations (14,292) (23,394)
---------------------------------------------------------------------

Investing activities
Notes receivable, including exercise
of foreign currency option - 278,428
Decrease (Increase) in temporary
investments 162,547 (239,511)
Proceeds from Axtel disposition 5 2,644 3,821
Initial distribution from Canbras 5 8,743 -
---------------------------------------------------------------------
Cash provided by investing activities 173,934 42,738
---------------------------------------------------------------------

Financing activities
Repayment of long-term debt (160,000) -
Payment of Vesper loan guarantees 12 - (15,628)
---------------------------------------------------------------------
Cash provided by financing activities (160,000) (15,628)
---------------------------------------------------------------------
Foreign exchange loss on cash held in
foreign currencies (3) (4,925)
---------------------------------------------------------------------

Net decrease in cash and cash
equivalents (361) (1,209)
Cash and cash equivalents, beginning
of year 1,408 2,617
---------------------------------------------------------------------

Cash and cash equivalents, end of year $1,047 $1,408
---------------------------------------------------------------------
---------------------------------------------------------------------

See Note 10 for supplementary cash flow information



Notes to the Consolidated Financial Statements

Years ended December 31, 2004 and 2003
(all tabular amounts are in thousands of Canadian dollars, unless
otherwise noted and except per share amounts)


1. Description of business and basis of presentation

Bell Canada International Inc. ("BCI" or the "Corporation") is operating
under a Plan of Arrangement (the "Plan of Arrangement") approved by the
Ontario Superior Court of Justice (the "Court") pursuant to which, BCI
intends to monetize its assets in an orderly fashion and resolve
outstanding claims against it in an expeditious manner with the ultimate
objective of distributing the net proceeds to its shareholders and
dissolving the Corporation. The consolidated balance sheet at December
31, 2004 reflects BCI's 75.6% interest in Canbras Communications Corp.
("Canbras") as an investment recorded at the lower of carrying value and
net realizable value. BCI's 49.9% interest in Genesis Telecom S.A.
("Genesis") was previously written off. Since July 1, 2002, the
consolidated statements of earnings and cash flows have reflected only
the activities of BCI as a holding company.

PLAN OF ARRANGEMENT

On July 12, 2002, the shareholders and noteholders of BCI approved a
Plan of Arrangement under the Canada Business Corporations Act. Court
approval for the Plan of Arrangement was received on July 17, 2002.



The principal elements of the Plan of Arrangement are as follows:

- Performance by BCI of all its obligations pursuant to the share
purchase agreement to effect the disposition of its then held
investment in Telecom Americas Ltd;

- A share consolidation that took place on July 12, 2002 pursuant to
which the number of BCI common shares outstanding was reduced to 40
million;

- With the assistance of a court-appointed monitor, Ernst & Young
Inc., (the "Monitor") and under the supervision of the Court, BCI's
continued management of its remaining assets for purposes of
disposing of such assets in an orderly manner;

- BCI's development, with the assistance of the Monitor, of
recommendations to the Court with respect to the identification of
claims against BCI and a process for adjudicating and determining
such claims;

- Following the disposition of all the assets of BCI and the
determination and adjudication of all claims against BCI, the
liquidation of BCI and the final distribution to BCI's shareholders
with the assistance of the monitor and the approval of the Court;
and

- Following the liquidation of BCI and the final distribution to
BCI's shareholders, the dissolution of BCI.

BCI has discharged all of its obligations and monetized the entire
consideration in connection with the Telecom Americas disposition as
well completed the share consolidation.

On December 2, 2002, the Court approved a claims identification
process for BCI. The claims identification process established a
procedure by which all claims against BCI would be identified within
a specified period. This period began on May 31, 2003 and concluded
on August 31, 2003 (September 30, 2003 for taxation authorities) (the
"Claims Bar Date"). A creditor that did not submit a proof of claim
by the Claims Bar Date is not entitled to receive any payment in
respect of that claim and is barred from making that claim in the
future against BCI (see Note 13).

The following parties (the "Exempt Creditors") were not required to
submit proofs of claim, and their claims are not barred:

- Members of the class action lawsuit (the "6.75% Debenture Class
Action") seeking damages of $250 million against BCI, BCI's
directors and BCE Inc. ("BCE"), BCI's parent company, on
behalf of all persons that owned 6.75% Debentures on December 3,
2001, which action was certified as a class proceeding under the
Class Proceedings Act by order of the Court dated December 2, 2002;

- The holders of BCI's $160 million 11% senior unsecured notes due
September 29, 2004;

- Parties with claims relating to the supply of goods or services to
BCI in the ordinary course, whether before or after May 31, 2003;

- The holders of the Vesper Guarantees (see note 12); and

- Current or former employees of BCI in respect of employment-related
claims for services provided to BCI, whether before or after May
31, 2003, other than employment-related claims in respect of which
the current or former employee has initiated litigation against
BCI.

As a result of the claims identification process, the claims shown in
the following table were filed by non-exempt creditors:

Claims filed Amounts Claimed
---------------------------------------------------------------------

Shareholder Class Action (Shaw) (see Note 13c)) $1 Billion
Shareholder Class Action (Gillespie) (see Note 13c)) $1 Billion
Caisse de depot et placement ("CDP") (see Note 13b)) $110 Million
Other $19 Million


In addition to the claims listed above, claims were filed by certain
parties indemnified by BCI in connection with any liability they incur
as a result of the 6.75% Debenture Class Action or the action filed
by CDP. These claims were filed by BCI's directors, on the basis
of standard indemnification arrangements in place with all of BCI's
directors, and by BCI's financial advisor in the Recapitalization Plan,
on the basis of an indemnity granted to such advisor at the time of the
Recapitalization Plan. These indemnity claims do not increase BCI's
overall exposure to the underlying litigation.

Of the $19 million in claims listed above under the heading "Other",
approximately $4.5 million were filed by former holders of BCI's
convertible debentures who either filed a claim but neglected to opt out
of the 6.75% Debenture Class Action, in which case they still form part
of the Class Action and cannot advance a separate claim, or who opted
out but subsequently changed their mind. All of these claimants will be
bound by the resolution or settlement of the 6.75% Debenture Class
Action and cannot maintain separate claims against BCI. In addition,
approximately $9 million of the claims relate to litigation that has
been dismissed or settled for the payment of a nominal amount. For the
balance of the claims under the heading "Other", BCI has established
adequate provisions.

On January 27, 2004, the Court approved a claims resolution process
recommended by the Monitor. For all non-litigated claims, the Monitor
made a determination in February 2004 as to the validity of the claim.
If a claimant wished to contest the Monitor's finding, then the claim
was referred to a Court-appointed claims officer. The claims officer is
also empowered to make certain recommendations with respect to litigated
claims against BCI other than the 6.75% Debenture Class Action, the Shaw
and Gillespie Class Actions and the action filed by the CDP. These
latter actions will all remain subject to the case management of the
Court.

2. Summary of significant accounting policies

These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles ("GAAP"). The
preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The significant
estimates made are for the net realizable value of the Corporation's
investment in Canbras, the future income tax asset and provisions for
claims.



a) Investments

As a result of the adoption of the Plan of Arrangement, the
operations of the Corporation are limited to the execution of the
Plan of Arrangement. As of December 31, 2002, BCI's 75.6% interest
in Canbras and its 27.7% interest in Axtel, its remaining
investments as of that date, were recorded at the lower of
carrying value and net realizable value. The Corporation's
investments in the Vespers were previously written off. During
2003, BCI's then remaining 1.5% interest in Axtel was written down
to a net realizable value of zero and in 2004, BCI sold its
investment in Axtel (see Note 5b)).

b) Translation of Foreign Currencies

Unrealized translation gains and losses on assets and liabilities
denominated in foreign currencies are included in earnings for the
year.

Assets and liabilities denominated in foreign currencies are
translated at exchange rates in effect at the balance sheet dates.
Revenues and expenses are translated at average exchange rates
prevailing during the period.

c) Cash and Cash Equivalents

Cash and cash equivalents represent cash and highly-liquid
investments with an initial maturity of three months or less at
the date of acquisition.

d) Temporary Investments

Temporary investments consist of debt instruments with an initial
maturity date greater than three months at the date of acquisition
which the Corporation intends to hold to maturity. Temporary
investments are carried at cost with discounts or premiums arising
on purchase amortized to maturity.

e) Stock-Based Compensation Plans

Effective January 1, 2004, the Corporation adopted the amended
Handbook Section 3870, Stock-Based Compensation and other Stock-
Based Payments of the Canadian Institute of Chartered Accountants
("CICA"). The amended standards require the Corporation to use the
fair value-based method for all stock-based awards and the
recognition of an expense in the financial statements.

The adoption of this amended Section, applied retroactively as
required, did not have an impact on these financial statements
since no stock-based awards have been made since January 1, 2002.

f) Income Taxes

Future income taxes relate to the expected future tax consequences
of differences between the carrying amount of balance sheet items
and their corresponding tax values. Future tax assets are
recognized only to the extent that it is more likely than not that
the future income tax assets will be realized. Future income tax
assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment or substantive
enactment.

g) Postretirement Benefits

BCI maintains non-contributory defined benefit plans that provide
for pensions for substantially all its employees based on length
of service and rate of pay, as well as other retirement benefits
such as certain health care and life insurance benefits on
retirement and various disability plans, workers' compensation and
medical benefits to former or inactive employees, their
beneficiaries and covered dependants after employment but before
retirement, under specified circumstances.

BCI is responsible for adequately funding the postretirement
benefits plans. BCI accrues its obligations under employee
benefit plans and the related costs, net of plan assets. Pension
costs and other retirement benefits earned by employees are
actuarially determined using the projected benefit method pro
rated on service and based on management's best estimate of
expected plan investment performance, salary escalation,
retirement ages of employees and expected health care costs.
Pension plan assets are valued at fair value, which is determined
using current market values. For the purpose of calculating the
expected return on plan assets and the amortization of actuarial
gains and losses, a market-related value of assets recognizing
fluctuations over a four-year period is used. Past service costs
arising from plan amendments are amortized on a straight-line
basis over the estimated average remaining service period of the
employees active at the date of amendment. The excess of the net
actuarial gain (loss) over 10% of the greater of the benefit
obligation and the fair value of plan assets is amortized over the
estimated average remaining service period of active employees.

h) Future Accounting Changes

(i) Financial Instruments

The CICA recently issued revisions to section 3860 of the CICA
Handbook, Financial Instruments - Disclosure and Presentation.
The revisions change the accounting for certain financial
instruments that have liability and equity characteristics. It
requires instruments that meet specific criteria to be
classified as liabilities on the balance sheet. Some of these
financial instruments were previously classified as equities.

These revisions come into effect on January 1, 2005. Because
BCI does not have any instruments with these characteristics,
adopting this section on January 1, 2005 will not affect future
consolidated financial statements of the Corporation.

(ii) Comprehensive Income

The CICA recently issued section 1530 of the CICA Handbook,
Comprehensive Income. The section is effective for years
beginning on or after October 1, 2006. It describes how to
report and disclose comprehensive income and its components.

Comprehensive income is the change in a company's net assets
that results from transactions, events and circumstances from
sources other than the company's shareholders. It includes
items that would be excluded from net earnings, such as the
unrealized gains or losses on available-for-sale investments
and the additional minimum liability for pension obligations.

The CICA also made changes to section 3250 of the CICA
Handbook, Surplus, and reissued it as section 3251, Equity. The
section is also effective for years beginning on or after
October 1, 2006. The changes in how to report and disclose
equity and changes in equity are consistent with the new
requirements of section 1530, Comprehensive Income.

Adopting these sections on January 1, 2007 will require that
BCI report the following items in its consolidated financial
statements:

- comprehensive income and its components
- accumulated other comprehensive income and its components.

(iii) Financial Instruments - Recognition and Measurement

The CICA recently issued section 3855 of the CICA Handbook,
Financial Instruments - Recognition and Measurement. The
section is effective for years beginning on or after October 1,
2006. It describes the standards for recognizing and measuring
financial assets, financial liabilities and non-financial
derivatives.

This section requires that:
- all financial assets be measured at fair value, with some
exceptions like loans and investments that are classified as
held-to-maturity
- all financial liabilities be measured at fair value when they
are derivatives or classified as held for trading purposes.
Other financial liabilities are measured at their carrying
value.
- all derivative financial instruments be measured at fair
value, even when they are part of a hedging relationship.

Adoption of this section on January 1, 2007 is not expected to
affect future consolidated financial statements of the
Corporation.

(iv) Hedges

The CICA recently issued section 3865 of the CICA Handbook,
Hedges. The section is effective for years beginning on or
after October 1, 2006. It describes when and how hedge
accounting may be applied.

Hedging is an activity used by a company to change an exposure
to one or more risks by creating an offset between:
- changes in the fair value of a hedged item and a hedging item
- changes in the cash flows attributable to a hedged item and a
hedging item, or
- changes resulting from a risk exposure relating to a hedged
item and a hedging item.

Hedge accounting changes the normal basis for recording the
gains, losses, revenues and expenses associated with a hedged
item or a hedging item in a company's statement of operations.
It ensures that all offsetting gains, losses, revenues and
expenses are recorded in the same period.

Adoption of this section on January 1, 2007 is not expected to affect
future consolidated financial statements of the Corporation.

3. Temporary investments

As at December 31, 2004, the Corporation held investment grade
commercial paper in the amount of $220,560,892. The commercial paper
matures at varying dates from January 4, 2005 to April 4, 2005. The
effective yields on the commercial paper range from 1.86% to 2.57%.
At December 31, 2004 the estimated fair value of the commercial paper
amounted to $222,941,135.

4. Notes receivable

a) In connection with the Axtel restructuring (see Note 5), BCI
received two non-interest bearing notes from Axtel. One in the
amount of $4,737,000 (US$3,456,000) (the "Short-Term Note"), was
payable in installments on June 30, September 20, and December 31,
2003. The other note, in the amount of US$9,395,000 (recorded at
estimated fair value of zero) (the "Long-Term Note") was to mature
in the second quarter of 2006.

On December 17, 2003 BCI received US$8,555,000 in connection with
the prepayment by Axtel of the two promissory notes then held by
BCI: US$1,172,000 in respect of the final instalment on the Short-
Term Note, and US$7,383,000 in respect of the Long-Term Note.
These prepayment amounts were provided for in the agreement
governing the notes. As a result of these prepayments, BCI
recorded a net gain of approximately $9,778,000 (US$7,380,000).

b) On March 3, 2003, BCI received the payment of the remaining
balance of US$170 million due from America Movil. These proceeds
represented the final payment on the sale of BCI's interest in
Telecom Americas on July 24, 2002. Upon the exercise of a foreign
currency option on March 4, 2003, the Corporation received net
proceeds of approximately $264,010,000.

5. Investment in Canbras and Axtel

The Corporation's 75.6% economic interest in Canbras is recorded at
the lower of carrying value and net realizable value.

a) Investment in Canbras

On October 8, 2003, Canbras announced that it had entered into
agreements to sell all its operations which sale was completed on
December 24, 2003, (the "Canbras Sale"). Canbras received gross
proceeds of $32,600,000, comprised of $22,168,000 in cash and a
one-year promissory note bearing interest at 10% in the original
principal amount of $10,432,000 (subject to reduction in the event
indemnification obligations of Canbras arise under the terms of
the sale transaction).

In connection with Canbras' winding up process which began as a
result of the Canbras Sale, the Corporation received a preliminary
distribution from Canbras of $8,742,994 in August 2004. As a
result, as of that date, BCI reduced its carrying value for its
investment in Canbras from $15,000,000 to $6,257,006.

On December 21, 2004, Canbras provided details of claims made
against it under the Canbras Sale. Canbras' potential exposure to
such claims is limited to the amount of the Note together with
accrued interest thereon. Canbras believes that less than R$2
million of the total amount claimed of R$58 million is potentially
subject to indemnification under the Canbras Sale in which case
the Corporation will likely recover from Canbras an amount in
excess of the Corporation's current carrying value. However,
there can be no assurance that the full amount of the claims will
not be successfully asserted, in which case, Canbras may not
collect any amounts due to it under the Note. Furthermore, even
if such claims are not indemnifiable under the Canbras Sale, there
can be no assurances that the issuer of the Note or its guarantor
will be able to pay amounts due under the Note. As a result,
BCI's ability to receive future distributions from Canbras and the
Corporation's net realizable value for its investment in Canada
may be limited to BCI's approximate 76% share of Canbras' cash on
hand of $7.4 million at September 30, 2004 less the costs that
Canbras will incur to contest the claims against it as well as in
the ordinary course of maintaining its corporate existence until
such time as it is wound up and liquidated.

b) Investment in Axtel

On March 27, 2003, BCI announced that Axtel was proceeding with a
series of transactions pursuant to which Axtel's debt was reduced
by US$400 million. These restructuring transactions, which were
concluded in the second quarter of 2003, included a capital call
on shareholders, in which BCI did not participate, which resulted
in a reduction of BCI's equity interest in Axtel to 1.5%.

In connection with the restructuring, which also included a
settlement of all obligations under a BCI service agreement with
Axtel, on May 30, 2003, BCI received $3,821,000 (US$2,787,000) in
cash and two non-interest bearing notes. One note, in the amount
of $4,737,000 (US$3,456,000), was payable in instalments on June
30, September 20 and December 31, 2003, and was recorded at
estimated fair value equal to face value. The other note, in the
amount of US$9,395,000, was payable in the second quarter of 2006,
and was recorded at its estimated fair value of zero. BCI's
residual equity interest in Axtel was also recorded at its
estimated fair value of zero. As a result of the Corporation
having carried its investments in Axtel at $10,000,000, a loss of
$1,442,000 was recorded in the second quarter of 2003. On
December 17, 2003 BCI received US$8,555,000 in connection with the
prepayment by Axtel of the two promissory notes then held by BCI:
US$1,172,000 in respect of the final installment on the Short-Term
Note, and US$7,383,000 in respect of the Long-Term Note. As a
result of these prepayments, BCI recorded a net gain in the fourth
quarter of 2003 of approximately $9,778,000 (US$7,380,000).

On July 14, 2004, BCI sold its remaining investment in Axtel for
US $2,000,000 (C $2,644,200). This investment had previously been
written off.

6. Accounts payable and accrued liabilities


2004 2003
---------------------------------------------------------------------

Third parties $15,871 $22,377
Affiliated companies 24 45
---------------------------------------------------------------------
$15,895 $22,422
---------------------------------------------------------------------
---------------------------------------------------------------------

7. Long-term debt due within one year

On September 29, 1999 the Corporation issued $160,000,000 of Senior
Unsecured Notes bearing interest at 11% payable semi-annually. These
notes were repaid on their scheduled maturity date on September 29,
2004.

8. Stated capital

AUTHORIZED

An unlimited number of First Preferred Shares, issuable in series; an
unlimited number of Second Preferred Shares issuable in series; and
an unlimited number of Common Shares are authorized for issuance.
All authorized classes of shares are without nominal or par value.

ISSUED AND OUTSTANDING

There has been no issuance of First and Second Preferred Shares.
Common shares for 2004 and 2003 are as follows:


Number of Stated
Shares Capital
---------------------------------------------------------------------
Balance, December 31, 2003 40,000,000 $10,000
---------------------------------------------------------------------
Balance, December 31, 2004 40,000,000 $10,000
---------------------------------------------------------------------
---------------------------------------------------------------------

Contributed surplus for 2004 and 2003 is as follows:

Stated
Capital
---------------------------------------------------------------------
Balance, December 31, 2003 $1,941,560
---------------------------------------------------------------------
Balance, December 31, 2004 $1,941,560
---------------------------------------------------------------------
---------------------------------------------------------------------

STOCK-BASED COMPENSATION PLANS

a) Stock options (1997 Plan)

The Corporation implemented a stock option plan ("1997 Plan") in
order to assist in attracting and retaining executives and other
key employees. Options were granted based on the position of the
incumbent and at a price equal to the market value of the
Corporation's shares on the last trading day prior to the
effective date of the grant. The right to exercise an award of
options in its entirety, accrues over a period of four years
unless otherwise determined by the Corporate Governance Committee
at the time of grant, and options must be exercised during a
period established by the Corporation but, in any event, within
ten years of the grant date. 14,813 common shares were reserved
for issuance under the stock option plan.

As at December 31, 2004, 5,904 options are outstanding to acquire
common shares at prices ranging from $2,213 to $2,396 per share,
representing the market value of such shares at the date of grant,
expiring at various dates to July 24, 2010.

The following table summarizes information concerning stock
options granted under the 1997 Plan:


2004 2003
---------------------------------------------------------------------
Weighted- Weighted-
average average
exercise exercise
Number price per Number price per
of share of share
options $ options $
---------------------------------------------------------------------

Outstanding
beginning of year 6,789 2,743 6,950 2,768
Forfeited during the
year (885) 1,983 (161) 3,795
---------------------------------------------------------------------
Outstanding end of year 5,904 2,857 6,789 2,743
---------------------------------------------------------------------
---------------------------------------------------------------------
Exercisable end of year 5,904 2,857 6,680 2,706
---------------------------------------------------------------------
---------------------------------------------------------------------

The following table presents additional information concerning
stock options granted under the 1997 Plan which were outstanding
at December 31, 2004:

---------------------------------------------------------------------
Options outstanding Options exercisable
---------------------------------------------------------------------
Weighted- Weighted-
Range of average average
exercise Weighted- exercise exercise
prices per average price per price per
share Number remaining share Number share
$ outstanding life (years) $ exercisable $
---------------------------------------------------------------------
2,213
to 2,396 275 3 2,368 275 2,368
2,686
to 2,710 5,193 2 2,700 5,193 2,700
5,037 436 5 5,037 436 5,037
---------------------------------------------------------------------
5,904 3 2,857 5,904 2,857
---------------------------------------------------------------------
---------------------------------------------------------------------

b) BCI - Stock options (2000 Plan)

On January 25, 2000, the Board of Directors of BCI approved an
additional stock option plan ("2000 Plan") for employees of BCI.
Under the 2000 Plan, 25,014 common shares were reserved for
issuance. Options were granted based on the position of the
incumbent and at a price equal to the market value of the
Corporation's shares on the last trading day prior to the
effective date of the grant.

The right to exercise an award of options vests at a rate of 33
1/3% per year, provided BCI's share price (measured as the average
price on the TSX over the last 60 days prior to each anniversary
date) increases by at least 25% per year on a compounded basis.
The right to exercise an award of options may also vest under
certain circumstances at the discretion of the Corporation's Board
of Directors.

As at December 31, 2004, 167 options are outstanding to acquire
common shares at $3,904 per share representing the market value of
such shares at the date of grant, expiring on various dates to
November 18, 2005.

The following table summarizes information concerning stock
options granted under the 2000 Plan:

2004 2003
---------------------------------------------------------------------
Weighted- Weighted-
average average
Number exercise Number exercise
of price per of price per
options share $ options share $
---------------------------------------------------------------------
Outstanding beginning
of year 167 3,904 2,591 3,996
Exercised during the year - - - -
Forfeited during the year - - (2,424) 4,002
---------------------------------------------------------------------
Outstanding end of year 167 3,904 167 3,904
---------------------------------------------------------------------
Exercisable end of year 167 3,904 167 3,904
---------------------------------------------------------------------

The following table presents additional information concerning stock
options granted under the 2000 Plan at December 31, 2004:

---------------------------------------------------------------------
Options outstanding Options exercisable
---------------------------------------------------------------------
Weighted- Weighted-
Exercise Weighted- average average
price average exercise exercise
per Number remaining price per Number price per
share $ outstanding life (years) share $ exercisable share $
---------------------------------------------------------------------
3,904 167 1 3,904 167 3,904

c) Performance Share Units ("PSUs")

Certain executives of the Corporation were granted PSUs. PSUs are
notional shares which fluctuate with the share price of the
underlying security and vest over a period of four years. As at
December 31, 2004, 187 PSUs were outstanding, of which 182 were
vested. The compensation expense related to PSUs amounted to $150
in 2004, ($45,000 in 2003).

d) BCE Employees' Savings Plan ("ESP")

The ESP enables employees of BCI to acquire BCE common shares
through regular payroll deductions plus employer contributions, if
applicable. Under the terms of the ESP, employees can choose each
year to have up to 10% of their annual salary and annual incentive
plan ("AIP") bonus withheld to purchase common shares. BCI matches
employees' contributions up to 2% of these earnings. Compensation
expense related to the ESP amounted to $39,000 in 2004 ($43,000 in
2003).

e) BCE - Stock options

Certain executives and key employees of the Corporation have been
granted options by BCE. Under the terms of the plan, the
subscription price for each share covered by an option is
established at 100% of the market value of a share on the last
trading day prior to the effective date of the grant. The options
are exercisable during a period not to exceed ten years. The right
to exercise the options generally accrues over a period of four
years of continuous employment. Options are not generally
exercisable during the first twelve months after the date of the
grant. As a result of the distribution of common shares of Nortel
Networks Inc., ("Nortel") to holders of BCE common shares by BCE
in May 2000, each of the then outstanding BCE stock options was
replaced by a new stock option which, in addition to the right to
acquire one BCE common share, gave the holder the right to acquire
approximately 1.57 post-split common shares of Nortel. Prior to
2000, simultaneously with the grant of an option, certain
employees of the Corporation may have also been granted the right
to a Special Compensation Payment ("SCP"). As a result of the
distribution of Nortel common shares, the related SCPs were
appropriately adjusted. The amount of any SCP is equal to the
increase in market value of the number of the BCE and Nortel
shares covered by SCPs from the date of grant of SCPs to the date
of exercise of the option to which the SCP is related.
Compensation expense related to SCPs amounted to NIL in 2004
($492,000 in 2003).

The following table summarizes information concerning BCE stock
options granted on a post-split basis:

2004 2003
---------------------------------------------------------------------
Weighted- Weighted-
average average
Number exercise Number exercise
of price per of price per
options share $ options share $
---------------------------------------------------------------------
Outstanding beginning of
year 120,618 13.27 147,590 13.16
Exercised during the year (73,174) 16.76 (26,972) 12.62
---------------------------------------------------------------------
Outstanding end of year 47,444 7.90 120,618 13.27
---------------------------------------------------------------------
Exercisable end of year 47,444 7.90 120,618 13.27
---------------------------------------------------------------------

The following table presents additional information concerning BCE
stock options granted to certain executives and key employees of the
Corporation at December 31, 2004:

---------------------------------------------------------------------
Options outstanding
---------------------------------------------------------------------
Weighted- Weighted-
average average
remaining exercise
Range of Number contractual price per
exercise prices outstanding life (years) share $
---------------------------------------------------------------------
$6.11 to $8.24 47,444 1.8 7.90


EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings (loss) per share:

2004 2003
---------------------------------------------------------------------
Numerator:
Net earnings (loss) $51,781 $(38,277)
---------------------------------------------------------------------
Net earnings (loss) applicable to
common shares - basic and diluted $51,781 $(38,277)
---------------------------------------------------------------------
---------------------------------------------------------------------
Denominator (in thousands):
Weighted-average number of common
shares - basic and diluted 40,000 40,000
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic and diluted earnings (loss)
per share $1.29 $(0.96)
---------------------------------------------------------------------
---------------------------------------------------------------------

For the years ended December 31, 2004 and 2003, the Corporation
excluded all potential common share equivalents from the earnings
(loss) per share calculation as they were anti-dilutive.


9. Income taxes

At December 31, 2004, the Corporation's income tax returns contained
Canadian non-capital tax losses carried forward amounting to
approximately $440,722,000, expiring at various dates to the year 2014.
In addition, the Corporation had Canadian capital losses amounting to
approximately $279,782,000 that can be carried forward indefinitely.

On August 4, 2004, the Corporation announced that it had entered into an
agreement to monetize a portion of its non-capital tax losses (the "Loss
Monetization Plan"). As further announced on March 21, 2005, the Loss
Monetization Plan is expected to result in a compensatory cash payment
to BCI of approximately $62,000,000 (based on the monetization of
$297,600,000 of losses as described below), and this amount was recorded
as a future income tax asset in the Corporation's financial statements
for 2004. The Loss Monetization Plan, which is the subject of an
advance income tax ruling received from the Canada Revenue Agency
("CRA") was approved by the Court pursuant to BCI's Plan of Arrangement
on September 8, 2004. BCI expects to receive the proceeds of the Loss
Monetization Plan in the first quarter of 2007, although at BCI's
request, and subject to the consent of BCE, the proceeds may be received
in 2006 at a reduced amount based on a discount rate to be mutually
agreed at that time.

In connection with the Loss Monetization Plan, BCI had requested that
the CRA audit BCI's income tax returns for years up to December 31, 2004
for the purpose of making a final determination of BCI's losses. While
the Corporation's income tax returns were filed using tax positions that
were believed at the time to be appropriate, based on more recent
discussions with the CRA, the Corporation believes that the maximum
amount available for use under the Loss Monetization Plan will be less
than the amounts filed. Following the completion of the CRA audit, the
Loss Monetization Plan is now estimated to be based on the monetization
of $297,600,000 of losses. Discussions are ongoing with certain
government officials that could result in an increase in the
compensatory payment under the Loss Monetization Plan. Such discussions
are expected to be resolved before the end of 2005. There can be no
assurance that these discussions will result in any increase of the
amount to be received by BCI under the Loss Monetization Plan.

As the Loss Monetization Plan is to be implemented between BCI and
related parties, an Independent Committee of the Board of Directors of
BCI was appointed to consider the transaction. The Independent
Committee recommended that the Board of Directors approve the Loss
Monetization Plan based in part on an opinion received from its
financial advisors that the transaction is fair, from a financial point
of view, to BCI and BCI's shareholders other than BCE. After receiving
the recommendation of the Independent Committee, the BCI Board approved
the Loss Monetization Plan. In addition, because the Loss Monetization
Plan was to be entered into with BCI's majority shareholder, BCE Inc.,
and Bell Canada (or their affiliates), the transaction would be subject
to the approval of a majority of BCI's shareholders other than BCE;
however, an exemption from such requirement was granted to BCI by
securities regulators on September 7, 2004.



As at December 31, future income taxes are as follows:


2004 2003
---------------------------------------------------------------------
Future income tax asset $62,000 $-
---------------------------------------------------------------------
---------------------------------------------------------------------

The reconciliation of income taxes at Canadian statutory rates to
income tax expense for continuing operations is as follows:

2004 2003
---------------------------------------------------------------------
Income tax (recovery) at Canadian
statutory rates $(3,921) $(15,472)

Reduction (increase) of tax
recovery resulting from:
Loss on sale of investments not tax
effected - 584
Difference between Canadian
statutory rates and those applicable
to the Loss Monetization 1,775 -

Difference between Canadian
statutory rates and those
applicable to foreign operations - (913)
Losses not tax effected - 15,801
Monetization of prior years' losses (59,854) -
---------------------------------------------------------------------
Income tax expense $(62,000) $-
---------------------------------------------------------------------
---------------------------------------------------------------------



10. Supplementary cash flow information.
2004 2003
---------------------------------------------------------------------
a) Changes in working capital items
Decrease (increase) in current assets
Accounts receivable including
interest receivable $3,429 $(4,700)
Prepaid expenses and other current
assets 942 (1,781)
(Decrease) in accounts payable and
accrued liabilities (6,607) (964)
---------------------------------------------------------------------
(Increase) in working capital items $(2,236) $(7,445)
---------------------------------------------------------------------
---------------------------------------------------------------------
b) Other cash flow information
Interest paid $17,600 $17,600
---------------------------------------------------------------------
---------------------------------------------------------------------


11. Postretirement benefits

BCI maintains non-contributory defined benefit plans that provide for
pension, other retirement and post-employment benefits for
substantially all its employees based on length of service and rate
of pay. Certain employees participate in a defined contribution plan.
BCI's funding policy is to make contributions to its pension funds
based on various actuarial cost methods as permitted by pension
regulatory bodies. BCI is responsible to adequately fund the plans.
Contributions reflect actuarial assumptions concerning future
investment returns, salary projections and future service benefits.
Plan assets are represented primarily by Canadian and foreign
equities, government and corporate bonds, debentures and secured
mortgages.

The changes in the benefit obligations and in the fair value of
assets and the funded status of the defined benefit plans as at
December 31, were as follows:

Pension Other Pension Other
Benefits Benefits Benefits Benefits
2004 2004 2003 2003
---------------------------------------------------------------------
Change in benefit
obligations:
Benefit obligation,
beginning of year $14,021 $1,135 $13,267 $822
Current service cost 148 - 154 14
Interest cost 892 58 850 45
Actuarial (gains)
losses 1,051 (351) 441 385
Benefit payments (904) (20) (691) (131)
---------------------------------------------------------------------
Benefit obligation,
end of year $15,208 822 $14,021 $1,135
---------------------------------------------------------------------

Change in fair value
of plan assets:
Fair value of plan
assets, beginning of
year $15,470 $- $14,615 $-
Return on plan assets 1,979 - 1,546 -
Benefit payments (904) - (691) -
---------------------------------------------------------------------
Fair value of plan
assets, end of year 16,545 - $15,470 $-
---------------------------------------------------------------------
Plan surplus (deficit) 1,337 (822) 1,449 (1,135)
Unamortized net
actuarial (gains)
losses 4,577 - 4,542 -
Unamortized
transitional (asset)
obligation (3,426) - (3,854) -
Valuation allowance (2,488) - (2,137) -
---------------------------------------------------------------------
Accrued (liability)
included in accounts
payable and accrued
liabilities $- $(822) $- $(1,135)
---------------------------------------------------------------------

The significant assumptions adopted in measuring the Corporation's
pension and other benefit obligations as at December 31, were as
follows:

Pension Other Pension Other
Benefits Benefits Benefits Benefits
2004 2004 2003 2003
---------------------------------------------------------------------
Weighted-average
discount rate 6.0% 6.0% 6.5% 6.5%
Expected long-term
rate of return on
plan assets 7.5% - 7.5% -
Rate of compensation
increase 3.5% 3.5% 3.5% 3.5%
Inflation 2.5% 2.5% 2.5% 2.5%


For measurement purposes, a 10.5% (prescription medication) and 4.5%
(other) annual rate of increase in the per capita cost of covered
health care benefits (the health care cost trend rate) was assumed
for 2004. This prescription medication rate was assumed to gradually
decline to 4.5% over six years and remain at that level thereafter.

The net benefit expenses for the years ended December 31, included
the following components:


Pension Other Pension Other
Benefits Benefits Benefits Benefits
2004 2004 2003 2003
---------------------------------------------------------------------
Current service cost $148 $- $154 $14
Interest cost 892 58 850 45
Expected return on
plan assets (1) (1,173) - (1,180) -
Amortization of net
actuarial loss
(gain) (1) 210 (351) 140 457
Amortization of
transitional (asset)
obligation (428) - (428) -
Increase in valuation
allowance 351 - 464 -
---------------------------------------------------------------------
Net benefit expense $- $(293) $- $516
---------------------------------------------------------------------

(1) The market-related value of pension plan assets for purposes of
calculating expected returns on plan assets and the amortization
of net actuarial losses was $16,089,000 for 2004 and $16,076,000
for 2003.

12. Vesper loan guarantees

As part of the Vesper financial restructuring, which was concluded in
November 2001, the Corporation entered into agreements (the "Vesper
Guarantees") with certain Brazilian banks (the"Vespers' Banks") to
guarantee 31.4% of the US dollar equivalent of the Vespers' debt
outstanding with such banks. At the time BCI entered into the Vesper
Guarantees, the aggregate debt outstanding with the Vespers' Banks,
which was principally denominated in Brazilian reais, represented the
equivalent of approximately US$102.9 million.

Following certain prepayment transactions in January 2003, BCI's
exposure under the Vesper Guarantees was reduced to US$20.2 million.
In light of this prepayment, and as a consequence of certain public
statements by the Vespers' majority shareholder, QUALCOMM, concerning
the Vespers', a provision of $27,336,000 was recorded as of June 30,
2003. On December 2, 2003, pursuant to the agreement announced on
September 23, 2003 among BCI, the Vespers, the Vespers' majority
shareholder QUALCOMM and the Vespers' Banks, BCI paid US$12,000,000
as consideration for the absolute release of its obligation under the
Vesper Guarantees. At the same time, BCI disposed of its remaining
1.5% indirect equity interest in the Vespers for nominal
consideration, and BCI and QUALCOMM provided each other with full
releases with respect to all matters related to the Vespers. As a
result of these transactions, BCI recorded a gain of $10,389,000 in
the fourth quarter of 2003 resulting in a net loss on the settlement
of the Vesper loan guarantees of $16,947,000.

13. Contingencies and commitments

CONTINGENCIES

With the exception of employee litigation, the Corporation has not
accrued any amounts with respect to the following contingencies:

a) On April 29, 2002, BCI announced that a lawsuit had been filed
with the Court by certain former holders of BCI's $250 million
6.75% convertible unsecured subordinated debentures, (the "6.75%
Debenture Class Action"). The plaintiffs seek damages from BCI,
BCE and certain current and former members of BCI's Board of
Directors, for up to an amount of $250 million plus $5 million in
costs in connection with the settlement, on February 15, 2002, of
the debentures through the issuance of common shares, in
accordance with BCI's recapitalization plan (the "Recapitalization
Plan") completed on February 15, 2002. In accordance with an
agreement reached among the parties to this lawsuit in December
2002, the Court has ordered that this lawsuit be certified as a
class action within the meaning of applicable legislation. The
certification order does not constitute a decision on the merits
of the class action, and BCI continues to be of the view that the
allegations contained in the lawsuit are without merit and intends
to vigorously defend its position.

As part of the agreement among the parties, the plaintiffs in the
class action have abandoned their claim for punitive damages (the
statement of claim originating the lawsuit sought $30 million in
punitive damages). The plaintiffs have also agreed to the
dismissal of the class action against BMO Nesbitt Burns Inc., one
of the original defendants in the proceeding.

All of the defendants filed statements of defense in the third
quarter of 2003. Document production and examinations on discovery
have proceeded throughout 2004. Certain motions were brought to
the Court during the fourth quarter to resolve procedural issues
that have arisen during this process, and BCI further expects the
plaintiffs to bring a motion to the Court seeking certain
amendments to the statement of claim before the end of the first
quarter of 2005. As a result of these developments, BCI no longer
believes, as it has previously advised shareholders, that a trial
of this matter is likely in the first quarter of 2005. Rather,
the Corporation expects that the trial will take place in the
fourth quarter of 2005.

BCI is of the view that the allegations are without merit and
intends to take all appropriate actions in order to vigorously
defend its position.

b) In August 2003, La Caisse de depot et placement du Quebec (CDP)
filed a proof of claim with the Monitor and a Notice of Action in
the Court in connection with CDP's former holdings of a portion of
BCI's 6.5% convertible unsecured subordinated debentures (the "CDP
Action") CDP is seeking up to $110 million in damages, together
with interest and costs, against BCI, BCE and certain current and
former members of BCI's board of directors. CDP's claim contains
allegations that are substantially similar to those contained in
the 6.75% Debenture Class Action.

On September 9, 2003, BCI, BCE and the other defendants in the CDP
Action entered into an agreement (modified November 28, 2003) with
CDP with respect to the procedure to be followed in connection
with the CDP action. Pursuant to the agreement, the defendants
agreed with CDP that the prosecution of the CDP Action should be
stayed pending a final adjudication or settlement of the 6.75%
Debenture Class Action, and the resolution of the 6.75% Debenture
Class Action shall form the basis for the final resolution of the
CDP Action. CDP has also agreed not to advance any claims as a
holder of 6.75% debentures outside of the 6.75% Debenture Class
Action, nor any claims as a common shareholder of BCI outside of
any certified common shareholder class action of which it may be
found to be a member.

By order dated December 19, 2003, this agreement was approved by
the Court and the action was stayed until final disposition of the
6.75% Debenture Class Action.

BCI is of the view that the allegations are without merit and
intends to take all appropriate actions in order to vigorously
defend its position.

c) On July 23, 2004, the Ontario Court of Appeal ("OCA") dismissed
the two proposed class action lawsuits brought by Mr. Wilfred Shaw
and Mr. Cameron Gillespie on behalf of BCI common shareholders and
seeking $1 billion in damages against BCI and BCE (the
"Shareholder Class Actions"). The OCA upheld the decision of the
lower court dismissing the lawsuits as failing to disclose a
reasonable cause of action. On September 29, 2004, the plaintiffs
filed an application with the Supreme Court of Canada ("SCC")
seeking leave to appeal the decision of the OCA and BCI filed
materials with the SCC opposing the plaintiff's application. On
March 3, 2005, the SCC refused leave to appeal the Shareholder
Class Action. No further appeal of these actions is available to
the plaintiffs and the actions are effectively dismissed.

d) Communicacion Celular S.A. - Comcel S.A. ("Comcel") is currently
involved in litigation before the Superintendent of Industry and
Commerce ("SIC") in Colombia wherein plaintiffs are claiming
damages of approximately US$70 million relating to the provision
by Comcel of long-distance services through voice-over internet
protocol ("VOIP") between December 1998 and September 1999.
During the fourth quarter of 2003, Comcel's attempt to have the
SIC's initial finding that it improperly provided services
appealed to a judicial tribunal was dismissed and the action has
returned to a damages determination phase before the SIC. Comcel's
Colombian counsel believes that the damage allegations will be
subject to defenses on the merits and that substantially all of
the claims lack a sufficient evidentiary basis.

BCI had agreed to indemnify Comcel and its affiliates for the
initial US$5 million of damages and for any damages Comcel may
suffer in excess of US$7.5 million. Comcel is responsible for any
damages incurred in excess of US$5 million and up to US$7.5
million. However, in connection with BCI's claims identification
process (see Note 1), Comcel did not file a claim with BCI's
court-appointed Monitor with respect to the Comcel VOIP indemnity.
As a result, pursuant to the order of the Court approving the
claims identification process, Comcel is now barred from asserting
any claim against BCI in connection with this lawsuit. However,
BCI understands that Comcel may dispute that its claim is so
barred.

e) Former employees of BCI have filed claims against it totaling $8.6
million. These claims contain allegations of a failure to
honour a promise of employment, breaches of an employee agreement
and inaccurate pension calculations. A provision has been
included in accounts payable and accrued liabilities in the amount
of BCI's estimated exposure to such claims.

Commitments

At December 31, 2004, the Corporation has no commitments under
operating leases or other arrangements. However, the Corporation was
in negotiations to extend its lease for office premises.

Annual lease payments in 2004 amounted to $296,000 (2003 - $892,000).

It is not expected that future payments will be materially different.

14. Related party transactions (see also Note 9)

In the normal course of business, the Corporation had transactions
which were measured at exchange amounts with BCE, its affiliated
companies and associated companies, and not otherwise disclosed
elsewhere herein, as follows:

2004 2003
---------------------------------------------------------------------
BCE and affiliated companies: (1)
Administrative expenses $507 $639
Interest income $- $286

(1) Affiliated companies are companies under the control of the
Corporation's ultimate parent company.

15. Financial instruments

a) Currency Risk

The Corporation is exposed to market risks from changes in foreign
currency rates. From time to time, the Corporation may enter into
foreign currency contracts to mitigate this risk.

The Corporation does not trade derivative financial instruments.

b) Credit Risk

The Corporation's financial assets that are exposed to credit risk
consist primarily of temporary investments. Credit risk is
minimized substantially by ensuring that these financial assets
are invested in treasury bills, bankers' acceptances, commercial
paper and corporate bonds with investment grade credit ratings.
In addition, dollar limits are established on a per investment
basis.

c) Fair Value of Financial Instruments

As at December 31, 2004 the Corporation's financial instruments
were comprised of cash and cash equivalents, temporary
investments, interest receivable and accounts payable and accrued
liabilities.

Fair values approximate amounts at which financial instruments
could be exchanged for instruments of similar risk, principal and
remaining features. Fair values are based on estimates using
present value and other valuation techniques which are
significantly affected by assumptions concerning future cash flows
and discount rates and should not be interpreted as being
realizable in an immediate settlement of the instruments.

Estimated fair value of the Corporation's financial instruments,
where the fair value differs from the carrying amounts in the
financial statements as at December 31, 2004 and 2003, are as
follows:

2004 2003
---------------------------------------------------------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
---------------------------------------------------------------------

Long-term debt $- $- $160,000 $163,600
---------------------------------------------------------------------
Temporary investments
(see Note 3) $220,561 $222,941 $383,143 $388,977
---------------------------------------------------------------------
---------------------------------------------------------------------

The carrying amounts of cash and cash equivalents, interest
receivable, and accounts payable, in the consolidated balance
sheets, approximate their estimated fair values.

16. Comparative figures

Certain comparative figures have been reclassified in order to
conform with the presentation adopted in 2004.



-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    BCI
    Howard N. Hendrick
    Executive Vice-President and Chief Financial Officer
    (514) 392-2260
    howard.hendrick@bci.ca