Bell Aliant announces plan for conversion to a corporation and accelerated
fibre to the home rollout with first quarter 2010 results

    
    - Q1 2010 performance continues pattern of solid results
    - Conversion expected to be effective January 1, 2011, subject to
      unitholder vote in June
    - Distributions continue at $0.2417 per unit paid monthly ($2.90 per unit
      annually) for 2010
    - Post 2010 dividend policy targets sustainable high payout of annual
      free cash flow
    - Initial dividend expected to be $0.475 per share paid quarterly ($1.90
      per share annually) beginning in 2011; represents 7.5 per cent yield on
      today's unit price
    - $350 million investment in fibre to the home will accelerate expansion
      to pass over 600,000 homes and businesses by end of 2012
    

HALIFAX, May 4 /CNW/ - Bell Aliant Regional Communications Income Fund (Bell Aliant or the Fund) (TSX: BA.UN) today announced details of its plans for conversion from an income trust to a corporate structure (the Conversion), along with first quarter 2010 financial results for the Fund and Bell Aliant Regional Communications Holdings, LP (Bell Aliant Holdings LP). Bell Aliant Holdings LP also announced plans to accelerate its rollout of fibre to the home (FTTH) technology.

First quarter 2010 results

"Over the past 18 months we have made significant progress with resetting our cost structure and expanding broadband with our launch of FTTH, and that continued this quarter," said Karen Sheriff, president and chief executive officer. "I am pleased that despite increased competitive coverage in our territories we were able to stabilize our NAS declines to the same level as the first quarter of last year. Our Internet revenue growth was strong, and our operating and capital costs continued to decline, all of which helped us to deliver continued strong distributable cash performance."

"Our first quarter results were in line with our expectations and we expect to finish 2010 within the guidance ranges we announced in February," continued Ms. Sheriff.

Bell Aliant Holdings LP's first quarter financial highlights are as follows:

    
    -------------------------------------------------------------------------
    (In millions of dollars)           Q1          Q1          Percentage
                                     2010        2009              Change
    -------------------------------------------------------------------------
    Operating Revenue                $779        $818                (4.9%)
    -------------------------------------------------------------------------
    EBITDA                            354         359                (1.4%)
    -------------------------------------------------------------------------
    Capital Expenditures               95         107               (11.7%)
    -------------------------------------------------------------------------
    Distributable Cash                200         196                 1.9%
    -------------------------------------------------------------------------
    

Operating revenues were down $40 million (4.9 per cent) in the first quarter of 2010 compared to the first quarter of 2009. The decline was driven by reductions in low-margin Information Technology (IT) equipment sales after a strong first quarter in 2009, and declines in local and long distance revenues associated with lower network access services (NAS). These decreases were somewhat offset by increases in Internet revenues. Adjusting for IT revenues, revenues in the first quarter of 2010 declined $23 million or 3.2 per cent from the same quarter in 2009.

Operating expense reductions of $35 million (7.6 per cent) from lower cost of sales and the benefits of restructuring and other initiatives mitigated the effects on EBITDA of lower revenues, with overall EBITDA declining $5 million in the first quarter of 2010 from the same quarter in 2009. EBITDA margin improved to 45.4 per cent in the first quarter of 2010, up from 43.8 percent in the same quarter of 2009.

Local service revenue declined $15 million (4.5 per cent) in the first quarter of 2010 compared to the same quarter in 2009 as a result of NAS declines and a $5 million decrease in contribution revenues. Residential and Business NAS were 6.0 per cent and 3.4 per cent lower, respectively, than a year earlier primarily as a result of increased competitive activity. Total NAS declines in the quarter improved by approximately 5,000 over the fourth quarter of 2009 and were similar to those experienced in the first quarter of 2009.

Long distance revenue declined $9 million (8.2 per cent), in the first quarter of 2010 compared to the same quarter in 2009 as a result of NAS declines and migration to flat rate long distance plans.

Internet revenue grew by $8 million (8.4 per cent) in the first quarter of 2010 compared to the same period in 2009, with the number of high-speed Internet customers 6.5 per cent higher than a year ago and growth in Bell Aliant TV subscribers. Residential High Speed average revenue per customer (ARPC) increased 5.5 per cent over the same quarter in 2009 as a result of pricing action and customer migration to higher value services.

IT revenues declined $17 million (15.0 per cent) compared to the same quarter a year ago with IT equipment sales down $16 million from very strong sales in the first quarter in 2009.

Other revenues declined $4 million (9.1 per cent) compared to the same quarter in 2009 as a result of lower product sales and rentals and lower outsourcing revenue.

Capital expenditures in the first quarter of 2010 were $95 million, down $12 million from the same quarter a year ago as 2009 included expenditures for the Bell Mobility backhaul project which was completed by mid 2009.

Distributable cash increased $4 million (1.9 per cent) in the first quarter of 2010 from the same period in 2009, with the effects of a lower capital program offset by lower EBITDA and higher interest costs.

The Fund reported distributions to unitholders of $92 million or $0.725 per unit for the quarter ended March 31, 2010.

Conversion and dividend policy beginning 2011

In light of tax changes to income trusts that become applicable January 1, 2011, Bell Aliant plans to convert from an income trust to a corporate structure. The conversion is expected to reduce administrative costs associated with a more complex trust structure, improve the comparability of Bell Aliant to its peers, and broaden the potential investor base. Pending unitholder and other regulatory approvals, and satisfaction of other applicable conditions, the conversion will be effective January 1, 2011.

Given that Bell Aliant will be subject to income taxes beginning in 2011, the existing distribution payout is not sustainable and changes to Bell Aliant's payout policy are inevitable. The Fund is expected to continue to declare and pay monthly distributions at the current annual rate of $2.90 per unit through the balance of 2010. The dividend policy beginning in 2011 will target a payout ratio of 75 - 85 percent of free cash flow, with the initial dividend expected to be $0.475 per share paid quarterly ($1.90 per share annually) beginning in March 2011. At today's unit price, the expected payout for 2011 would represent a dividend yield of approximately 7.5 per cent.

For taxable retail investors resident in Canada, dividends paid by a corporation are taxed at lower rates than the distributions paid by the Fund, prior to January 1, 2011, as an income trust. As such, under a corporate structure, the dividend tax credit mechanism can be expected to mitigate, in large part, the after-tax effect of a lower dividend for those investors.

"In developing our new dividend policy, we have taken a responsible, balanced approach that seeks to ensure dividend sustainability while maintaining a high payout to investors," said Glen LeBlanc, executive vice-president and chief financial officer. "Today, by announcing the expected policy beginning in 2011, we believe we will address the uncertainty that has existed for our investors since the tax changes for income trusts were announced in 2006."

An information circular outlining the details of the Conversion is expected to be mailed to Bell Aliant unitholders in late May 2010 with a vote on the Conversion to take place at Bell Aliant's annual and special meeting on June 16, 2010. To be approved, the Conversion must be approved by not less than two thirds of the votes cast by unitholders voting in person or by proxy at the meeting.

Accelerated rollout of fibre to the home technology

"Our competitive environment and the success we are having with our FibreOP(TM) Internet and TV service in New Brunswick make it clear to us that accelerating this technology rollout now is the right thing to do," said Ms. Sheriff. "We believe FTTH will help us grow revenue, retain and gain customers, improve customer service, and reduce our future operating and capital costs; all of which are fundamental to our future success."

Through its FTTH FibreOP Internet and TV services, Bell Aliant is providing premium Internet speeds and an exceptional TV experience in its New Brunswick markets of Fredericton and Saint John. The capabilities offered by this technology and Bell Aliant's largely aerial network make it the ideal architecture to address the growing bandwidth needs of customers. Bell Aliant believes FTTH will provide it with a significant competitive advantage in its markets now and in the future.

Bell Aliant expects to invest $350 million over 2011 and 2012 on fibre to the home. This accelerated investment will add approximately $100 million annually to Bell Aliant's current capital program run rate for those years. While almost all homes and businesses in Bell Aliant's competitive territory have access to the company's high-speed Internet services, this expansion of FTTH will mean by the end of 2012 over 600,000 homes and businesses or approximately one third of Bell Aliant's competitive territory will have access to this leading edge technology, significantly increasing Bell Aliant's TV coverage area and advancing its competitive position.

Because Bell Aliant has tax losses that are expected to allow the deferral of the payment of income taxes until at least late 2012, it expects to have sufficient cash available over this period to fund the accelerated FTTH expansion and also reduce overall debt levels, thereby improving its underlying financial strength.

Supplementary financial information

More information on the Fund's and Bell Aliant Holdings LP's first quarter 2010 results can be found in Bell Aliant's first quarter 2010 supplementary information package and Bell Aliant Holdings LP's first quarter 2010 management's discussion and analysis ("MD&A"), available at www.bellaliant.ca/investors.

Analyst conference call

A conference call with the financial community is scheduled for Wednesday, May 5, 2010 at 8:00 a.m. (Eastern). The dial-in numbers are (866) 226-1792 or (416) 340-2216 for Toronto area participants. Media are invited to attend in a listen-only mode. The title of the call is "Bell Aliant First Quarter 2010 Financial Results." A replay of the session can be heard until May 16, 2010. To access the replay, dial (800) 408-3053 or (416) 695-5800 and enter the passcode 6711147#.

A live audio webcast of the conference call can be accessed on www.bellaliant.ca under the Investor Relations section. A replay of the conference call will be available on the website for one year.

Notes

The information contained in this news release is unaudited.

    
    (1) Bell Aliant derives virtually all of its income from its indirect
    ownership in Bell Aliant Holdings LP. Bell Aliant Holdings LP's results
    combine the results of Bell Aliant Regional Communications, Limited
    Partnership (Bell Aliant LP), Télébec, Limited Partnership (Télébec) and
    NorthernTel, Limited Partnership (NorthernTel).

    (2) Percentage changes quoted in this release related to dollar values
    are based on amounts rounded to the nearest hundred-thousand, consistent
    with disclosure in the Fund's supplementary information package and Bell
    Aliant Holdings LP's MD&A for the first quarter of 2010. Dollar values
    quoted in this release are rounded to the nearest million unless
    otherwise stated.

    (3) Bell Aliant defines free cash flow, a non-GAAP measure, as cash from
    operating activities of Bell Aliant Holdings LP together with cash from
    operating activities of the Fund, less capital expenditures. For a
    reconciliation of free cash flow to the most closely comparable GAAP
    measures, please refer to Bell Aliant Holdings LP's MD&A for the first
    quarter of 2010.

    (4) Bell Aliant Holdings LP defines EBITDA, a non-GAAP measure, as
    operating revenue less expenses (earnings) before interest, income taxes,
    depreciation and amortization expense, net benefit plans cost, and
    restructuring and other charges. For a reconciliation of EBITDA to the
    most closely comparable GAAP measure, please refer to Bell Aliant
    Holdings LP's MD&A for the first quarter of 2010.

    (5) Bell Aliant defines EBITDA margin as EBITDA as a percentage of
    operating revenue.

    (6) Bell Aliant defines capital intensity as capital expenditures as a
    percentage of operating revenue.

    (7) Bell Aliant defines distributable cash, a non-GAAP measure, as cash
    from operating activities of continuing and discontinued operations of
    Bell Aliant Holdings LP and of the Fund, plus operating items funded
    through cash reserves or borrowings, such as working capital, pension
    deficit funding, restructuring and other charges and cash capital taxes
    in excess of normalized levels, plus amounts for current income tax
    provisions plus other elements of working capital changes that do not
    affect cash flow, less capital expenditures. For a reconciliation of
    distributable cash to the most closely comparable GAAP measure, please
    refer to Bell Aliant Holdings LP's MD&A for the first quarter of 2010.
    

Forward-looking Information

This news release contains forward-looking statements concerning anticipated future events, results, circumstances or expectations, including, but not limited to statements concerning the anticipated conversion to a corporate structure, the expected dividend policy and free cash flow payout ratio at that time, the expected deferral of payment of income tax until at least late 2012, the planned accelerated rollout of FTTH technology and the associated capital expenditures in 2011 and 2012, and the anticipated impact on Bell Aliant's competitive position, all as more particularly described in the "Conversion and Dividend Policy beginning 2011" and "Accelerated Rollout of Fibre to the Home Technology" sections of this news release. Unless otherwise indicated, such forward-looking statements describe management's expectations at May 4, 2010. These statements are based on management's beliefs regarding future events, many of which, by their nature are inherently uncertain and beyond management's control. Therefore, actual results may differ materially from what is predicted.

Assumptions made and risk factors considered in preparing our forward-looking statements are discussed in detail in Bell Aliant's 2009 earnings results and 2010 guidance news release dated February 3, 2010, as well as in the Fund's and Bell Aliant Holdings LP's 2009 annual MD&As and annual information forms, and 2010 first quarter MD&As which are available at www.bellaliant.ca or at www.sedar.com. Additional assumptions made in connection with the anticipated conversion and dividend policy beginning in 2011 and the planned accelerated rollout of FTTH technology in 2011 and 2012 are set out below under "Additional Assumptions and Risk Factors". All forward-looking statements in this news release are qualified by these cautionary statements, and there can be no assurance that the results or events predicted will be realized. Except as may be required by Canadian securities laws, Bell Aliant disclaims any intention and assumes no obligation to update or revise any forward-looking statement even if new information becomes available, as a result of future events or for any other reason. Readers should not place undue reliance on any forward-looking statements.

Additional Assumptions and Risk Factors

In making the foregoing forward-looking statements regarding the expectation that the proposed 2011 dividend rate of $1.90 per share annually for the new corporation will be approximately 75 - 85 per cent of free cash flow, and that Bell Aliant will invest $350 million in FTTH over 2011 and 2012, Bell Aliant has made and considered additional assumptions and risk factors in addition to those discussed in Bell Aliant's 2009 earnings results and 2010 guidance news release dated February 3, 2010, and in the Fund's and Bell Aliant Holdings LP's 2009 annual MD&As and annual information forms. These additional assumptions and risk factors are as follows:

    
    Assumptions

    - Bell Aliant's operating and financial performance trends will be
      approximately the same as those in 2009 and 2010;
    - Bell Aliant will be able to defer incurring an obligation to pay cash
      income taxes until late 2012;
    - that income tax rates Bell Aliant will be subject to will be
      approximately 29 per cent in 2011 and decline to 27 per cent by 2013;
      and
    - the cost of and returns from Bell Aliant's investment in FTTH will
      continue to make the proposed investment an attractive investment
      opportunity for Bell Aliant.

    Risk Factors

    - that tax losses Bell Aliant currently has may not be allowed as
      deductions due to reassessment, changes in laws, or misinterpretation
      of existing laws;
    - that corporate tax rates to which Bell Aliant will be subject may not
      decline as previously announced by federal and provincial governments;
      and
    - that costs of or returns from Bell Aliant's investment in FTTH may
      change due to changes in market conditions.
    

About Bell Aliant

Bell Aliant (TSX: BA.UN) is one of North America's largest regional communications providers. Through its operating entities it serves customers in six Canadian provinces with innovative information, communication and technology services including voice, data, Internet, video and value-added business solutions. Through its xwave offices, Bell Aliant also provides IT professional services and advanced technology solutions. Bell Aliant's employees are committed to deliver the highest quality of customer service, choice and convenience.

SOURCE Bell Aliant Inc.

For further information: For further information: Media Relations: Alyson Queen, (866) 696-6700, Alyson.queen@bellaliant.ca; Investor Relations: Zeda Redden, (877) 487-5726, zeda.redden@bellaliant.ca

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