An Insider’s Perspective On George Cope, CEO Of Bell Canada With Simon Avery Of The Globe And Mail

Simon Avery is a journalist with the Globe and Mail

Biography: Simon Avery has covered telecom and technology for the Globe since 2004. Previously, he was a staff reporter for The Associated Press in Los Angeles and for The Wall Street Journal in San Francisco. He covered the boom and bust in Silicon Valley for the Financial Post between 1998 and 2001. Mr. Avery holds a Master's degree in journalism from Columbia University and a Bachelor of Arts in English and political science from the University of Western Ontario.

In the March issue of the Report On Business Magazine published by the Globe and Mail, Mr. Avery profiles George Cope, President and Chief Executive Officer of Bell Canada [BCE:TSX]. Mr Avery traces Mr. Cope's journey from high school athlete of the year and student council president to the position of President and CEO of one of North America's largest regional communications providers.

Here's an snippet from the article, entitled "Who do you call to clean up a mess like BCE? A man called Cope"

George Cope inherited a company that was years behind its competitors, smarting from an aborted buyout attempt and developing a reputation for dismal customer service. If there was ever a time when steering Bell was the easiest game in town, it's not now.

Having been graciously provided the opportunity to ask Mr. Avery a few questions with regards to the article, I naturally jumped at the opportunity.

Q: Mr. Avery, if I were to ask you to think from an investor's standpoint, after your conversations with Mr. Cope, would you invest in BCE, over Telus, Shaw or Rogers if your objectives were capital appreciation (as opposed to dividend growth) - why or why not?

A: I hesitate to get too specific about investing advice, because that's not what I do and the world is a safer place for it. But generally speaking, I would say that BCE is not a capital appreciation stock. Mr. Cope has been very clear that BCE is a dividend growth stock. That means he's looking at growth that is close to GDP, and its purpose is to feed a steady increase in dividend payments and share buybacks. Telus is in the exact same position as BCE here. They are two companies managing a combination of growing, declining and maturing business lines. There will be no breakout moment for either of these incumbent carriers. But they represent a good opportunity for investors wanting dividend income and the potential for some moderate capital appreciation.

When I was interviewing Mr. Cope in January, BCE shares traded for $27 and change and the dividend yield was 6.5 per cent. I asked him if there was a danger of a stock having too large a yield, essentially because it says the company has to pay investors to buy and hold its stock. He agreed the yield was high, but said every financial investing model has proven that if management consistently raises its dividend, capital appreciation will follow. Today, less than 6 weeks later, the stock is up to $30 and the yield down to 5.8 per cent.

Q: With regards to the failed attempt at privatizing BCE, it appears form the article that Mr. Cope was a strong proponent of this deal and likely would have liked to see it go through. What do you think are the reasons that Mr. Cope would like to see BCE privatized and did you get the feeling that he might pursue this in the future?

A: Yes, Mr. Cope was one of the key drivers of the buyout. In the two quarters leading up to the buyout deadline, he was gradually shutting down all the processes associated with a public company. The quarterly financial data made public was bare bones and the analyst and investor calls were cancelled. He and his team couldn't wait to take shelter as a private operation. He is very competitive and guarded and he hates having to share any information that his competitors could put to their advantage. As a private operation BCE was going to apply its dividend savings to pay down the massive debt it would have acquired, and it was going to be able to operate without the scrutiny of the public markets.

I think for now Mr. Cope realizes that the opportunity for privatization is past and he is focused on running one of the biggest public companies in the country. Some of the financial analysts following the BCE see a merger down the road between Bell Canada and Telus, after new wireless competitors have taken some market share from the two incumbents. I think this transaction would be more likely than another privatization run. Mr. Cope gave no indication that he would be interested in an acquisition of, or merger with, his smaller rival. But he did emphasize that the two have partnered on several projects recently (a new national wireless network, satellite TV) where the move offered value to shareholders.

Q: Mr. Avery, what do you think are the odds of BCE and Telus spinning off their wireless divisions in the near future, which would then combine and form a separate entity to compete with the new wireless entrants into the Canadian market? Mr. Avery in the interview did you get a sense that Mr. Cope isn't ruling out some form of M&A with Telus in the future?

A: I don't see any indications that Bell or Telus are considering spinning off their wireless operations. These remain the growth engines of each company and separating them would leave a rump organization with few drivers. Mr. Cope believes in separating wireless from landline operations within Bell. This division avoids a situation where corporate customers, for instance, can negotiate for their wireless services to be 'thrown in' with their larger landline services. But he sees the entire organization moving forward with wireless at the front.

Q: As for corporate strategy going forward and the drivers of growth, Mr. Avery, did you get a clear, defined sense of Mr. Cope's plan for BCE? Where (as in which division or in terms of strategy) do you see Mr. Cope making dramatic changes going forward?

A: I think Mr. Cope sums up his strategy most succinctly by describing the "high-wire act of Bell" as maximizing growth in wireless and TV, cutting costs and maintaining quality service. That suggests that he will continue to spend on the growth segments while trimming costs wherever he can, but primarily in landline operations. I suspect that there will be more job losses at the company in the coming year or two. And I anticipate fierce marketing wars between Bell and the new wireless entrants. Bell won't be slashing its prices, but will be trying to build off its marketing momentum from its $200-million Winter Olympic sponsorship. Any significant price reductions will likely be made on its Solo discount brand and later on its older CDMA wireless network.