S&P Affirms Bell Mobility Cellular Inc.'s Ratings.

TORONTO--(BUSINESS WIRE)--S&P's CreditWire 6/10/99--

Standard & Poor's today affirmed its triple-'B'-plus corporate credit and senior unsecured debt ratings on Bell Mobility Cellular Inc.

The outlook is stable.

The ratings affirmation reflects Bell Mobility's leading market position as a provider of cellular and personal communication service (PCS) wireless services in the provinces of Quebec and Ontario, the strength of the company's brand name, the favorable characteristics of the Canadian wireless market, and the company's conservative operating and financial policies.

Bell Mobility's association with the BCE Inc. family of companies is also positive. Bell Mobility is permitted to market its services jointly with those of Bell Canada, and the two companies have recently established a jointly owned company, Bell Distribution Inc., to manage a new chain of outlets offering one-stop shopping for the full range of Bell products and services for consumer and business customers. Combined with the company's strong financial profile, these factors allow Bell Mobility to compete effectively in the increasingly competitive Canadian wireless industry.

Bell Mobility continues to benefit from strong subscriber growth, driven by the strength of the company's business position and underlying growth in the Canadian wireless market. The Canadian wireless industry continues to exhibit strong demand growth. During 1998, the number of wireless subscribers in Canada grew 26% to 5.3 million while the rate of penetration grew to 17.5% from 14.1% at the end of 1997. This rate of growth is expected to continue. At the same time, industry participants in the Canadian market benefit from relative price stability; lower levels of churn than those experienced in other markets, notably the United States; and declining handset costs, which has allowed reductions in the costs of subscriber acquisition.

Against this backdrop, Bell Mobility has grown its cellular and PCS subscriber base to 1.5 million subscribers by March 31, 1999, having attracted an industry-leading 66,000 net subscriber additions in the first quarter. Bell Mobility has benefited from the introduction of its prepaid service during 1998, and the company now has some 217,000 prepaid subscribers. However, increased penetration of the consumer segment combined with the introduction of prepaid service has prompted a decrease in Bell Mobility's average monthly revenue per subscriber (ARPU), which fell to C$50 in the first quarter of 1999 from C$60 a year earlier. As a means to mitigate the impact of the decline in ARPU, Bell Mobility has been active in launching new value-added services and in driving down its costs. Bell Mobility's cost of customer acquisition before migration costs fell to C$449 in the first quarter of 1999 from C$460 and C$666 in the fourth and first quarters of 1998, respectively.

In addition, the company recently announced that it will outsource its information technology requirements which will result in cost savings. Bell Mobility also continues to benefit from its low level of monthly churn, which stood at 1.4% for the first quarter of 1999 and is among the lowest in North America.

The strength of Bell Mobility's business position in its service territories of Ontario and Quebec provide the company with a sound basis from which to compete nationally, following the recent announcement that Mobility Canada will remove the restrictions preventing its members from competing in each other's territories. Under the new agreement, which is to be implemented in September 1999, members will be able to wholesale airtime to one another. This will allow Bell Mobility to target customers beyond its service area.

Bell Mobility's operating profitability weakened during 1998 as the company grew its PCS business. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins fell to 22.3% from 29.9% in 1997. However, debt protection measures remained comfortable despite high levels of capital expenditures incurred during the year. EBITDA interest coverage stood at 5.7 times (x) during 1998 while total debt to EBITDA stood at 2x at Dec. 31, 1998. Moving forward, Bell Mobility's credit protection measures will likely improve and become more consistent with the current rating category as the company's PCS business becomes profitable and as capital requirements decline.

OUTLOOK: STABLE

The strength of Bell Mobility's business position combined with its strong capital structure provide a solid foundation from which the company can further grow its PCS business and compete on a national basis, Standard & Poor's said.--CreditWire