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December 12, 2006 5:35 pm

Bell Canada drops plans to convert to trust

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Bell Canada Enterprises, Canada’s biggest telecoms provider, has dumped plans to convert to a lightly taxed income trust, boosted its dividend by 11 per cent and renewed a share buyback programme.

BCE is one of dozens of Canadian companies reconsidering the income trust structure since the Conservative government shocked investors two months ago with measures that eliminate the trusts’ advantage over conventional companies.

The trust structure has allowed companies to pay out a large chunk – and in many cases, all – of their operating income to shareholders. Unit holders benefited from high dividend yields, but the federal government and the provinces grew increasingly concerned about leakage of tax revenues.

Prices of trusts, which at their peak made up 11 per cent of the Toronto stock exchange’s value, tumbled after the clampdown.

BCE, once one of Canada’s biggest conglomerates, also said on Tuesday that it would press ahead with plans to dissolve its holding company in line with a strategy of focusing on its core telecommunications business. The company will be renamed Bell Canada, the current name of its main phone operating subsidiary.

Bell and its chief rival, Vancouver-based Telus are expected to be the main beneficiaries of the government’s intention, announced on Monday, to speed up deregulation of local phone services.

Existing rules limit the big phone companies’ ability to lower prices, offer bundled services and win back lost to intensifying competition from cable-TV operators, wireless services and internet telephony.

BCE shares gained about 5.5 per cent to C$30.45 (US$26.51) in mid-day trading on Tuesday. They sank as low as C$27.63 after the income-trust clampdown.

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