Aug. 4 (Bloomberg) -- BCE Inc., Canada's biggest telephone company, said second-quarter profit rose 19 percent as more consumers signed up for wireless and television services and interest expenses declined.

Net income increased to C$571 million ($434 million), or 60 cents a share, from C$478 million, or 50 cents, a year earlier, Montreal-based BCE said in a statement. Sales gained 2.4 percent to C$4.78 billion from a restated C$4.67 billion.

BCE posted its biggest quarterly sales gain in two years as the company added more wireless, TV and Internet clients, in part because it sold more services in packages. Chief Executive Michael Sabia is using such bundling to reduce defections as competition picks up from cable operators, and he has cut debt to lower interest costs.

``The thing to focus on is that bundles increased in the quarter,'' said Greg MacDonald, an analyst at National Bank Financial in Toronto, who rates BCE ``outperform'' and said he doesn't own the shares. ``That's really important going forward. That's the way you're fighting the battle in today's telecom and cable world.''

Sabia reduced BCE's debt by C$370 million since the start of the year, paring interest expenses by 12 percent in the quarter. Interest expenses fell to C$253 million from C$289 million in the quarter. BCE's net debt declined to C$12.9 billion from C$13.3 billion a year earlier.

Exceeding Estimates

Excluding a gain on an asset sale, income from a lawsuit settlement, and a provision for building a high-speed Internet network in Alberta, BCE had a profit of 55 cents a share. On that basis, analysts expected 53 cents, the average of 14 estimates in a survey by Thomson Financial. Four analysts estimated sales of C$4.75 billion.

Shares of BCE fell 1 cent to C$27.93 at 4:05 p.m. on the Toronto Stock Exchange. They have fallen 3.4 percent this year.

``They seem to be managing the business quite well,'' said Robert Callander, a fund manager at Caldwell Securities Ltd. in Toronto, which holds BCE shares. ``The stock was actually a fair bit stronger the last few days so maybe people were anticipating some better results, and they got them.''

Revenue at BCE's Bell Canada phone unit rose 1 percent to C$4.17 billion. Sales at BCE's other businesses rose 9.2 percent to C$725 million as a purchase boosted growth at CGI Group Inc., a computer-services company in which BCE holds a minority stake.

Wireless, Long Distance

Bell Canada in June introduced a C$5-a-month long-distance plan with 1,000 minutes in Canada and the U.S. for consumers who have at least two of its high-speed Internet, wireless or television services.

BCE's new long-distance plan will boost sales of bundled packages to at least 300,000 by the end of 2004, Sabia said in June. Almost 70,000 users signed up for the packages in the quarter, Bell Canada said. Demand for bundled services will increase this quarter, Sabia said on a conference call.

``Today, just because it's early days, we're not looking at the bundle as something that's significantly driving revenue performance,'' Sabia said on the call. ``That will change on a quarter-by-quarter basis as we ramp up and expand the number of bundles we're doing.''

Subscriber Gains

Bell Canada's wireless revenue rose 15 percent to C$698 million. The company added 95,000 users for a total of 4.6 million. Average monthly revenue for each user increased to C$50 from C$48 on higher data and long-distance sales.

The wireless results ``showed that this is really the one area of growth within telecommunications,'' said Juliette John, who helps manage the equivalent of $7.99 billion at Bissett Investment Management in Calgary, including BCE shares.

Churn, the rate at which customers drop service, fell to 1.3 percent from 1.4 percent a year earlier.

The company gained 24,000 subscribers for its Expressvu TV service, bringing the total to 1.43 million. High-speed Internet subscribers rose 73,000 percent to 1.67 million.

Bell Canada's closest competitor, Telus Corp., made a hostile C$1.1 billion bid for Microcell Telecommunications Inc. BCE might also bid for Microcell, analysts have said. Sabia declined to comment.

Long-distance sales declined for the eighth-straight quarter, falling 7 percent to C$572 million. Consumers switched to cheaper long-distance plans or replaced calls with e-mail.

Local-calling sales were little changed at C$1.4 billion. The number of lines in service declined by 79,000.

Bell Canada reported a 5.1 percent increase in sales to consumers and revenue from business clients fell 0.8 percent on lower data, local and long-distance sales to large corporations.

Bell Canada may face a strike this month as 7,000 technicians vote on a contract. The workers, represented by the Communications, Energy and Paperworkers Union of Canada, rejected an earlier offer. The union on July 19 gave 72-hour notice of its intent to strike, and suspended action after Bell Canada made a new offer.

To contact the reporter on this story: Catherine McLean in Toronto at mclean@bloomberg.net.

Last Updated: August 4, 2004 16:08 EDT