fv1za

Approximate date of commencement of proposed sale to the public: At such time or from time to time after the effective date of this registration statement as the selling shareholders shall determine.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. þ

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.


(1)	This entire amount has been previously paid.

(2)	Calculated on the basis of each Warrant 2005 and Warrant 2008 being exercisable for 1.02 Common Shares, rather than 1 Common Share, pursuant to the terms of the relevant warrant indentures as a result of the Registrant’s rights offering, which closed in May 2004. Each Warrant 2005 retains an exercise price of Cdn$19.91, and each Warrant 2008 retains an exercise price of Cdn$20.69, so while the number of Common Shares to be issued has increased, the proposed maximum aggregate offering price remains unchanged.

The information in this prospectus is not complete and may be changed. The selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

This prospectus relates to the offer and resale by the selling shareholders identified in this prospectus, or their permitted successors or assigns, of up to 10,875,489 class A restricted voting shares or class B non-voting shares of Microcell Telecommunications Inc., which they may acquire by exercising our outstanding Warrants 2005 and Warrants 2008. The price at which the selling shareholders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions.

Our class A restricted voting shares are listed on the Toronto Stock Exchange, or TSX, under the symbol MT.A and our class B non-voting shares are listed on the TSX under the symbol MT.B. On October , 2004, the last sale price of our class A restricted voting shares on the TSX was Cdn.$ per share and the last sale price of our class B non-voting shares was Cdn.$ per share. At the noon buying rate as reported by the Federal Reserve Bank of New York on that date, those prices were equivalent to U.S.$ and U.S.$ .

Investing in our class A restricted voting shares and class B non-voting shares involves risks that are described in the “Risk Factors” section beginning on page 7 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

PROSPECTUS SUMMARY

This summary may not contain all of the information that may be important to you. You should read the entire prospectus before deciding whether to invest in our class A restricted voting shares and class B non-voting shares, especially the risks described under “Risk Factors.”

Overview

Microcell Telecommunications Inc. was incorporated in Canada pursuant to the Canada Business Corporations Act on April 28, 2003 under the name 4130910 Canada Inc. We changed our name on May 1, 2003 to Microcell Telecommunications Inc./Microcell Télécommunications Inc. We are the successor corporation of another corporation, which we refer to in this prospectus as Old Microcell when we need to differentiate it from the current Microcell. Old Microcell was incorporated pursuant to the CBCA on October 16, 1992 and liquidated into Microcell as of December 31, 2003. We were formed as a holding company for Old Microcell pursuant to a Plan of Reorganization and of Compromise and Arrangement under the Companies’ Creditors Arrangement Act (Canada) and the CBCA. The Companies’ Creditors Arrangement Act (Canada) is a Canadian law that permits companies to obtain court protection in order to implement a recapitalization plan. This court procedure is similar to Chapter 11 of the U.S. Bankruptcy Code, although the Companies’ Creditors Arrangement Act (Canada) is not a bankruptcy law.

As at December 31, 2003, we had 1,245,146 customers, an increase of 7% compared with 2002, shareholders’ equity of $343.9 million and deficit of $12.1 million. For full-year 2003, we also had total revenues of $570.8 million, operating loss of $19.6 million and net income of $50.5 million. As at June 30, 2004, we had 1,199,321 customers, shareholders’ equity of $469.7 million and deficit of $44.6 million. Total revenues for the three months ended June 30, 2004 were $161.4 million, our operating income was $6.9 million and our net loss was $11.2 million. Total revenues for the six months ended June 30, 2004 were $306.7 million, our operating income was $5.3 million and our net loss was $25.9 million

Our principal place of business is located at 800 de La Gauchetière Street West, Suite 4000, Montreal, Quebec, Canada H5A 1K3 and our registered office is located at 1250 René-Lévesque Blvd. West, 38th floor, Montreal, Quebec, Canada H3B 4W8. Our telephone number is (514) 937-2121. CT Corporation System, located at 111 Eighth Avenue, New York, NY 10011, (212) 894-8940, acts as our agent for service of process in the United States.

The Business of Microcell

From our inception, we have been involved in the design and deployment of wireless communications services. In September 1994, we were issued an experimental license from the Canadian Minister for the Department of Industry, known as Industry Canada, to test personal communication services technologies operating in the 1900 MHz frequency range. The experimental license was used to deploy a pilot network in Montreal. At the end of 1995, we were awarded our personal communication services license and began commercial deployment of our personal communication services network across Canada in 1996. In 2001, our personal communication services license was renewed for a second five-year term. In December of 2003, this second license term was expended to 2011.

To finance the deployment of a state-of-the-art digital voice and data-capable network and to establish the Fido brand for our retail wireless services, we raised approximately $2.4 billion of capital between 1996 and 2002, of which we borrowed $1.3 billion through the issuance of notes in the high yield market and through bank borrowings. By the end of 2002, our liability with respect to the notes and our bank credit facilities amounted to approximately $2.0 billion and there was significant uncertainty regarding our ability to continue as a going concern. Consequently, we undertook a process to restructure our operations in August 2002. This process was completed on May 1, 2003. The plan of reorganization eliminated approximately $1.6 billion of long-term debt and $140 million to $180 million of annual interest expense.

Since May 1, 2003, we have carried on our operations through two principal wholly owned subsidiaries:

• Microcell Solutions Inc., which we refer to as Solutions, and which owns our personal communication services network and retails personal communication services under the Fido brand name;

• Inukshuk Internet Inc., a company selected to be awarded multipoint communications systems licenses by Industry Canada in the spring of 2000 that cover some 30 million people in Canada. On November 19, 2003, Inukshuk announced arrangements with third parties to advance the multipoint communications systems project.

We have positioned our company as the preferred access network for the mass market. We were the first wireless operator in Canada to deploy an all-digital data network based on next generation infrastructure. In addition, we are the only wireless competitive local exchange carrier in Canada, which provides us with the ability to port landline numbers to wireless phones. This enables us to differentiate ourselves in the Canadian wireless industry by allowing us to actively pursue a local wireline substitution strategy.

On May 17, 2004, TELUS Corporation launched unsolicited offers to purchase our class A restricted voting shares for $29.00 per share, class B non-voting shares for $29.00 per share, Warrants 2005 for $9.67 per warrant and Warrants 2008 for $8.89 per warrant. On May 20, 2004, we announced that, after careful review and analysis of the TELUS offers performed with the assistance of our legal and financial advisors, our board of directors recommended that holders of these securities not tender into the TELUS offers. We have sent to all holders of the securities our directors’ circular, dated May 28, 2004, which contains a description of the TELUS offers, including the conditions to closing of the offers. Further to the TELUS offers, our board of directors initiated a full strategic review in order to determine the best way to maximize value for all holders of securities and use the time provided by the rights plan to actively pursue all its alternatives. The special committee directed the financial advisors and our management to contact TELUS and a number of other parties, in order to evaluate all strategic and financial alternatives available to Microcell. Among the parties so contacted was Rogers Communications Inc., or RCI, the majority shareholder of Rogers Wireless Communications Inc., or RWCI, and Rogers Wireless Inc., or Rogers. On June 22, 2004, TELUS announced that it would extend the TELUS offers until July 22, 2004. On June 29, 2004, we issued a press release confirming the recommendation in our Directors’ Circular. The TELUS offers were further extended on July 22, 2004, on August 20, 2004 and, after the announcement of the Rogers offers (described below) on September 20, 2004. On October 12, 2004, TELUS announced that it would not extend its offer to purchase all of the issued and outstanding publicly traded shares and warrants of Microcell and, as a result, the TELUS offers expired on that day.

As part of the strategic review process initiated by our board of directors, we, along with our legal advisors and our financial advisors engaged in discussions, and we entered into confidentiality agreements, with interested parties. On July 14, 2004, we entered into a confidentiality and standstill agreement with RCI and RWCI.

On September 19, 2004, the special committee of our board met to review the terms of the offers submitted by Rogers to purchase all our class A restricted voting shares for $35.00 per share, class B non-voting shares for $35.00 per share, Warrants 2005 for $15.79 per warrant and Warrants 2008 for $15.01 per warrant, and the terms of a proposed support agreement. Following our special committee’s review of the relevant considerations and based upon the advice received from our legal and financial advisors and the opinions of our financial advisors to our board of directors to the effect that, as at such date and subject to the matters stated in such opinions, the consideration to be received by holders of shares under the share offers

was fair, from a financial point of view, to such holders, our special committee unanimously concluded that the share offers were fair to the holders of shares and in the best interests of Microcell and determined to unanimously make a favorable recommendation to our board of directors to recommend that holders of shares accept the share offers and tender their shares into the Rogers offers.

On September 19, 2004, our board of directors met immediately following the meeting of our special committee. At such meeting, our board of directors received the report and recommendation of our special committee and the opinions of our financial advisors. After discussion and consideration of the terms of the proposed support agreement and of the Rogers offers, our board of directors concluded that the share offers are fair to the holders of shares and in the best interests of Microcell and approved the entering into of a support agreement in connection therewith. We entered into a support agreement late on September 19, 2004 in respect of the Rogers offers. In accordance with the support agreement, our board of directors also resolved on such date to waive the application of certain provisions of the shareholder rights plan to allow RWCI to proceed with the Rogers offers without any dilutive effects.

On September 20, 2004, Microcell, RWCI and RCI jointly announced the execution of the support agreement with respect to the Rogers offers. The terms of the support agreement do not prohibit the board of directors from fulfilling its fiduciary duties to consider and, in certain circumstances, to approve or recommend a superior proposal. The board of directors may, under certain circumstances, withdraw or modify in a manner adverse to Rogers its approval or recommendation of Rogers’ offers for our class A shares and class B shares or accept, approve, recommend or enter into any agreement in respect of an acquisition proposal on the basis that such an acquisition proposal would constitute a superior proposal. In such circumstances, among others, Microcell has agreed to pay to Rogers a termination fee of $45 million.

THE OFFERING

Common shares offered by this prospectus


Upon Exercise of Warrants 2005		4,078,268 common shares issuable as class A restricted voting shares or class B non-voting shares. Each whole Warrant 2005 entitles its holder to purchase either 1.02 class A restricted voting share or 1.02 class B non- voting share at a price of Cdn.$19.91, subject to adjustment, until May 1, 2005.

Upon Exercise of Warrants 2008		6,797,221 common shares issuable as class A restricted voting shares or class B non-voting shares. Each whole Warrant 2008 entitles its holder to purchase either 1.02 class A restricted voting share or 1.02 class B non- voting share at a price of Cdn.$20.69, subject to adjustment, until May 1, 2008.

Estimated common shares outstanding after this offering		40,190,803 common shares issuable as class A restricted voting shares or class B non-voting shares.

Voting rights		The class A restricted voting shares carry one vote per share. The class B non-voting shares do not carry any vote, except in special circumstances.

Use of proceeds		We will use the proceeds from the exercise of the Warrants 2005 and Warrants 2008 in accordance with the mandatory prepayments provisions set forth in our credit agreements with our secured lenders, if applicable, and for working capital and general corporate purposes. We will not receive any proceeds from the sale of the underlying shares by the selling shareholders.

Listing		Our class A restricted voting shares are listed on the TSX, under the symbol MT.A. Our class B non-voting shares are listed on the TSX under the symbol MT.B. The Warrants are also listed on the TSX, with the Warrants 2005 listed under the symbol MT.WT.A and the Warrants 2008 listed under the symbol MT.WT.B.

SUMMARY FINANCIAL INFORMATION AND OPERATING DATA

Our selected consolidated financial data set forth below as of June 30, 2004 and 2003, and for the three and six months ended June 30, 2004, the two months ended June 30, 2003, and the one and four months ended April 30, 2003 have been derived from our unaudited interim consolidated financial statements as of and for the three and six months ended June 30, 2004. Our selected consolidated financial data set forth below for the fiscal years ended December 31, 2003, 2002, 2001, 2000 and 1999 have been derived from our consolidated financial statements, which have been audited by Ernst & Young LLP. The information set forth below should be read in conjunction with our unaudited interim and audited annual consolidated financial statements, and the notes thereto, included elsewhere in this document. Our consolidated financial statements have been prepared in accordance with Canadian GAAP. For a discussion of the principal differences between Canadian GAAP and U.S. GAAP, see Note 18 to our consolidated financial statements which are included elsewhere in this document.

As a result of “fresh start” accounting, certain financial results have been presented on a pre- and post-reorganization basis, where appropriate. Our financial results for the periods indicated herein are not necessarily indicative of our future operating results given the context in which we operated before the reorganization. With respect to our year-to-date 2003 results presentation, the eight-month period ended December 31, 2003 represents the post-reorganization results, while the four-month period ended April 30, 2003 represents the pre-reorganization results.



									Pre-reorganization

	Six months			Two months		Eight months			Four months
	ended			ended		ended			ended			Years ended December 31
	June 30			June 30		December 31			April 30
	2004			2003		2003			2003			2002			2001			2000			1999


	(in thousands of dollars, except for the data relating to shares)
Statement of Income (Loss) Data:
Revenues		306,690			95,491		393,093			177,694			591,062			541,490			405,986			260,466
Operating income (loss)		5,299			12,331		1,250			(20,832	)		(382,297	)		(193,019	)		(243,636	)		(270,426	)
Net income (loss)		(25,945	)		14,957		4,959			45,517			(570,501	)		(498,485	)		(268,427	)		(393,637	)
Net loss applicable to Class A and Class B non-voting shares		(31,129	)		10,689		(12,146	)		n.a.			n.a.			n.a.			n.a.			n.a.
Basic earnings (loss) per share	$	(2.14	)	$	2.92	$	(3.22	)	$	0.19		$	(2.37	)	$	(4.56	)	$	(2.79	)	$	(4.78	)
Diluted earnings (loss) per share	$	(2.14	)	$	0.66	$	(3.22	)	$	0.19		$	(2.37	)	$	(4.56	)	$	(2.79	)	$	(4.78	)
Revenues (U.S. GAAP)		306,690			95,491		393,093			177,694			591,062			541,490			405,986			260,466
Operating income (loss) (U.S. GAAP)		5,299			12,331		1,250			(20,832	)		(401,482	)		(196,999	)		(246,242	)		(270,426	)
Net income (loss) (U.S. GAAP)		(25,945	)		14,957		4,959			1,298,677			(584,914	)		(498,167	)		(250,116	)		(396,166	)
Comprehensive income (loss) (U.S. GAAP)		(25,945	)		14,957		4,959			1,298,532			(586,766	)		(495,270	)		(251,016	)		(396,166	)
Net income (loss) applicable to Class A and Class B non-voting shares (U.S. GAAP)		(31,129	)		10,689		(12,146	)		n.a.			n.a.			n.a.			n.a.			n.a.
Basic earnings (loss) per share (U.S. GAAP)	$	(2.14	)	$	2.92	$	(3.22	)	$	5.40		$	(2.43	)	$	(4.56	)	$	(2.60	)	$	(4.81	)
Diluted earnings (loss) per share (U.S. GAAP)	$	(2.14	)	$	0.66	$	(3.22	)	$	5.40		$	(2.43	)	$	(4.56	)	$	(2.60	)	$	(4.81	)



											Pre-reorganization


	As at			As at		As at			As at		As at December 31
	June 30			June 30		December 31			May 1
	2004			2003		2003			2003		2002			2001			2000			1999


	(in thousands of dollars, except for the data relating to shares)
Balance Sheet Data:
Total assets		1,058,652			792,654		808,706			788,208		912,854			1,395,259			1,209,226			817,850
Long-term debt (including current portion)		396,940			334,102		324,462			350,000		2,040,178			1,903,571			1,680,699			1,499,456
Shareholders’ equity (deficiency)		469,656			353,932		343,934			338,975		(1,297,226	)		(726,725	)		(667,561	)		(796,037	)
Share capital		479,137			325,317		338,154			321,049		1,167,678			1,167,371			728,050			327,599
Warrants		29,202			17,926		17,926			17,926		1,770			2,077			2,077			5,625
Contributed surplus		5,919			—		—			—		—			—			—			—
Retained earnings (deficit)		(44,602	)		10,689		(12,146	)		—		(2,466,674	)		(1,896,173	)		(1,397,688	)		(1,129,261	)
Total assets (U.S. GAAP)		1,058,652			792,654		808,706			788,208		911,548			1,410,696			1,220,970			812,183
Long-term debt (U.S. GAAP)		396,940			334,102		324,462			350,000		2,040,178			1,903,571			1,680,699			1,499,456
Preferred shares (U.S. GAAP)		—			286,695		296,912			284,506		—			—			—			—
Shareholders’ equity (deficiency) (U.S. GAAP)		469,656			67,237		47,022			54,469		(1,298,677	)		(713,763	)		(654,917	)		(801,704	)
Share capital (U.S. GAAP)		461,807			38,622		29,096			36,543		1,228,401			1,228,094			788,773			388,322
Warrants (U.S. GAAP)		29,202			17,926		17,926			17,926		1,770			2,077			2,077			5,625
Contributed surplus (U.S. GAAP)		4,592			—		—			—		—			—			—			—
Retained earnings (deficit) (U.S. GAAP)		(25,945	)		10,689		—			—		(2,528,848	)		(1,943,934	)		(1,445,767	)		(1,195,651	)
Accumulated other comprehensive income (loss), end of period (U.S. GAAP)		—			—		—			—		145			1,997			(900	)		—
Other Data:
Class A restricted voting shares		183,340			35,665		30,038			30,000		—			—			—			—
Class B non-voting shares		29,131,974			3,734,109		3,906,336			3,601,145		—			—			—			—
First preferred voting shares		—			476,627		252,296			544,828		—			—			—			—
First preferred non-voting shares		—			11,242,673		11,415,204			11,221,839		—			—			—			—
Second preferred voting shares		—			92,282		14,782			106,400		—			—			—			—
Second preferred non-voting shares		—			7,016,828		6,979,528			7,093,972		—			—			—			—
Common Shares		—			—		—			—		27,631,537			27,631,537			31,665,275			32,780,071
Class A Non-Voting Shares		—			—		—			—		9,590,000			9,590,000			9,590,000			—
Class B Non-Voting Shares		—			—		—			—		202,994,911			202,951,539			24,160,642			22,141,195
Number of shares outstanding at the end of the period		29,315,314			22,598,184		22,598,184			22,598,184		240,216,448			240,173,076			65,415,917			54,921,266

An investment in the class A restricted voting shares and class B non-voting shares offered by this prospectus is speculative and involves a high degree of risk. In addition to the other information contained in this prospectus, you should carefully consider the following factors in evaluating us and our business before making an investment in the class A restricted voting shares and class B non-voting shares.

Note: All dollar amounts set forth in this prospectus are expressed in Canadian dollars, and all references to “$” refer to Canadian dollars, except where otherwise indicated. On October 21, 2004, the inverse of the noon buying rate as reported by the Federal Reserve Bank of New York equaled U.S.$0.8048 per Cdn.$1.00.

Although there are outstanding tender offers for our shares and warrants, this may not result in a sale of Microcell.

As part of the strategic review process initiated by our board of directors following the TELUS offers, we, along with our legal advisors and financial advisors engaged in discussions, and we entered into confidentiality agreements, with interested parties, including RCI and Rogers. On July 14, 2004, we entered into a confidentiality and standstill agreement with RCI and RWCI.

After consideration by a special committee of our board of directors established as part of the strategic review process, and receipt of a fairness opinion from our financial advisors, our board of directors concluded that the Rogers offers are fair to the holders of our class A shares and class B shares and in the best interests of our company and approved the entering into of a support agreement in connection with the Rogers offers. We entered into a support agreement with Rogers late on September 19, 2004 in respect of the Rogers offers, and announced the support agreement on September 20, 2004 jointly with RWCI and RCI.

The terms of the support agreement do not prohibit the board of directors from fulfilling its fiduciary duties to consider and, in certain circumstances, to approve or recommend a superior proposal. The board of directors may, under certain circumstances, withdraw or modify in a manner adverse to Rogers its approval or recommendation of Rogers’ offers for our class A shares and class B shares or accept, approve, recommend or enter into any agreement in respect of an acquisition proposal on the basis that such an acquisition proposal would constitute a superior proposal. In such circumstances, among others, Microcell has agreed to pay to Rogers a termination fee of $45 million.

Despite the support agreement with Rogers, there can be no assurance that the process we have initiated, or the Rogers offers themselves, will lead to any transaction. This process is subject to numerous uncertainties, including:


	•	Rogers may choose to withdraw its offers or change them;

	•	the conditions to closing the Rogers offers may not be satisfied; and

	•	the sale or investment may be delayed or prevented by the need to obtain approvals from regulatory authorities, including the Canadian Competition Bureau.

Therefore, although the Rogers offers were made at a premium to the trading prices of our equity securities immediately before the offers were announced, you should not assume that you will receive this premium or that any transaction involving us will occur with a third party. If a transaction does not occur, the trading prices of our equity securities may decline, and we may continue to be subject to any or all of the risks described elsewhere in this section, including the competitiveness of our markets, the availability of future funding, the effects of technological change, the restrictions on our business activities as a result of covenants contained in our credit agreements and our ability to attract and retain key personnel and adequately staff our operations.

Although we have completed our restructuring plan, our business still faces challenges going forward.

On May 1, 2003, we completed a plan of reorganization that eliminated approximately $1.6 billion of long-term debt and $140 million to $180 million of annual interest expense from our balance sheet. While this significantly reduced the approximately $2.0 billion we owed with respect to our high yield notes and our bank credit facilities at the end of 2002, we still face a challenging business climate going forward. Our restructuring plan did not eliminate the risks inherent in our business, including those described elsewhere in this section.

If we need to obtain additional financing, that could increase our operating risk due to increased leverage.

In the event that our actual results vary from our projections or if the assumptions underlying our projections were to change, we may need additional funds.

Sources of funding for our further financing requirements may include additional bank financing, vendor financing, public offerings or private placements of equity or debt securities, capital contributions from shareholders and disposition of assets.

There can be no assurance that additional financing will be available to us or, if available, that we will be able to obtain it on a timely basis and on terms acceptable to us and within the limitations contained in our credit facilities. Failure to do so could result in the delay or modification of our network level of services or in the delay or failure to meet license conditions, which could result in a loss of the Personal Communication Services, or PCS, license and/or the Multipoint Communications Systems, or MCS, licenses. Any of these events could impair our ability to meet our debt service requirements and could have a material effect on our business, including our ability to continue as a going concern.

Failure to comply with our bank covenants could affect our financial flexibility or could result in default under our credit agreements.

Our credit facilities contain restrictive covenants which affect, and in some cases significantly limit or prohibit, among other things, our ability to:


	•	incur indebtedness;

	•	make prepayments of certain indebtedness;

	•	create liens;

	•	sell assets;

	•	make capital expenditures; and

	•	engage in acquisitions, mergers, amalgamations and consolidations.

In addition, our credit facilities require us to maintain certain financial ratios, which include levels of operating income excluding certain specified items, average revenue per subscriber, or ARPU, liquidity levels, subscribers and maximum levels of capital expenditures. If we fail to comply with the various covenants of our indebtedness, we will be in default under the terms of that indebtedness, which would permit holders of the indebtedness to accelerate the maturity of that indebtedness and could cause defaults under other indebtedness or agreements. In these circumstances, the lenders under our credit facilities could foreclose upon all or substantially all of our assets and those of our subsidiaries, excluding Inukshuk.

Our current debt level may limit our financial flexibility and make us vulnerable to economic downturns.

As of June 30, 2004, our indebtedness totaled $396.9 million, including a current portion of $12 million. The level of our indebtedness could have consequences, such as:


	(1) our ability to obtain additional financing in the future for capital expenditures, working capital, operating losses, debt service requirements or other purposes;

	(2) our flexibility in planning for, or reacting to, changes to our business and market conditions;

	(3) our ability to compete; and

	(4) our vulnerability in the event of a downturn in our business.

We may not be able to maintain our operations if the sources of funding on which we are relying become unavailable.

Our ability to meet our near term funding requirements is dependent upon a number of factors, including the revenue generated by Solutions, our existing cash balances, the continued availability of, and our ability to obtain and to draw upon our credit facilities or any alternative financing.

The construction of an MCS network requires significant capital investment. The capital market conditions for telecommunications companies in a start-up mode with nominal capital resources are challenging. This has made fund-raising difficult, and as a result Inukshuk has suspended building the MCS network on its own. Our credit facilities limit the amount that we can invest in Inukshuk, and Inukshuk’s cash requirements may exceed such limits. There is no assurance that Inukshuk will be able to obtain the financing necessary to build an MCS network and/or fund its operations. If Inukshuk is not successful, we may lose our entire investment in Inukshuk. Although Inukshuk announced arrangements with third parties for the build-out of an MCS network on November 19, 2003, there can be no certainty any such arrangements will be successfully concluded.

We may incur operating losses in the future, which may limit our ability to service our debt.

We may experience growth-related capital requirements arising from the funding of network capacity and maintenance and the cost of acquiring new PCS customers. The ability to generate positive net income and cash flow from operations in the future will be dependent upon various factors, including the level of market acceptance of our services, the degree of competition we encounter, the cost of acquiring new customers, technology risks and general economic conditions and regulatory requirements. There can be no assurance that we will achieve or sustain operating profitability or positive cash flow from operating activities. If we cannot achieve operating profitability or positive cash flow from operating activities, we may not be able to meet our debt service or working capital requirements or obtain additional capital required to meet all of our cash requirements. In addition, we are required to make interest and principal payments under our credit facilities.

Our future performance will depend on our ability to succeed in intensely competitive markets.

Competition in the Canadian wireless communications industry is intense. The success of our PCS business depends upon our ability to compete with other wireless telecommunications service providers in Canada with respect to new products and services, features and devices offered, the technical quality of the wireless system, customer service, system coverage, capacity and price. Microcell competes with other cellular, enhanced specialized mobile radio and PCS providers, such as Rogers and its affiliated entities, TELUS Corporation and its affiliated entities, known as TELUS, and Bell Mobility Inc. and its former Mobility Canada Partners (excluding TELUS), known as Bell Mobility or the Bell Mobility Partners. These competitors currently have greater financial resources than we do. In addition, the number of competitors could increase through the licensing to new competitors of additional spectrum, through reselling or wholesaling of services and products, such as what we offer, or through a relaxation on the restrictions to foreign participation in the Canadian telecommunications sector.

There can be no assurance that we will be able to compete successfully in this environment, or that our new products and services, which we expect will differentiate us in the marketplace, will be widely accepted by consumers, or that other technologies and products that are more commercially effective than our technologies and products will not be developed.

Our financial information will not be comparable to the historical financial information of Old Microcell.

As a result of the consummation of the plan of reorganization, we operate under a new capital structure and have adopted fresh start accounting rules. In accordance with fresh start accounting rules, all our assets and liabilities were revalued at estimated fair values and our deficit was eliminated. In addition, due to the decrease of our debt as a result of the consumption of our plan of reorganization, our interest expense has also significantly decreased. We determined that our enterprise value was $689 million as at May 1, 2003, of which $350 million has been allocated to our long-term debt and $339 million to equity. A comprehensive revaluation of our assets and liabilities has been done based on this enterprise value. Accordingly, our financial condition and results of operations after May 1, 2003 will not be comparable to our financial condition or results of operations reflected in our historical financial statements, including those included elsewhere in this

Our future results may be not be comparable to our results during our capital restructuring period.

During our capital restructuring, we focused on cash preservation and careful management of our costs, resulting in a reduction of some variable and discretionary costs such as cost of acquisition. For example, our costs and operating expenses, excluding restructuring charges, depreciation and amortization, decreased by $51.2 million in 2002 when compared to 2001, and decreased a further $15.8 million in 2003 when compared to 2002. Since resuming subscriber growth, our cost of operations has begun to increase and will therefore not be completely comparable with costs incurred during our capital restructuring period.

Our broadband access subsidiary may not be able to compete successfully against larger competitors.

Competition in the broadband access sector in Canada is also intense. The incumbent local exchange carriers and licensed cable operators are currently the dominant players in the provision of broadband access to the Internet in Canada. There can be no assurance that Inukshuk, working alone or with its partners, with its current and planned MCS services, will be able to compete successfully in this environment or that other technologies and products that are more commercially effective than MCS technologies and products will not be developed.

The choice of technology for our MCS network presents certain technological and market risks.

Industry Canada has not mandated any technology protocols for MCS operators, leaving each licensee free to select among several competing technologies.

The MCS technology and equipment suppliers have been selected for Inukshuk’s MCS network deployment. However, MCS technologies are still in an early stage of development, which poses certain technological and market risks with respect to MCS deployment, performance and ongoing availability.

Rapid technology changes in our business could make our networks or equipment obsolete or less profitable.

The wireless telecommunications industry is experiencing significant technological change. There are evolving industry standards, improvements in digital technology, shorter development cycles for new products and changes in end-user preferences. These changes make it difficult to predict the extent of future competition with cellular, PCS, broadband wireless, paging and other services. As a result, there can be no assurance that existing, proposed or as yet undeveloped technologies will not become dominant in the future and render PCS or MCS less profitable or even obsolete.

We may be required to make more capital expenditures than currently expected if suppliers fail to meet anticipated schedules, if a technology performance falls short of expectations, or if commercial success is not achieved.

Actual or perceived health risks of wireless technology could have a material adverse effect on our business.

Reports have suggested that certain radio frequency emissions from wireless transmitters, customer equipment and handsets may be linked to certain medical conditions, including cancer. Scientific research continues to review whether radio emissions from equipment used in connection with wireless technologies pose health concerns. There can be no assurance that the findings from such studies will not have a material adverse effect on our business or will not lead to changes in government regulation. The actual or perceived health risks of wireless communications devices could adversely affect wireless communications service providers, including us, through reduced subscriber growth, reduced network usage per subscriber, product liability lawsuits or reduced availability of financing to the wireless communications industry.

We are subject to government regulation, and this can increase our operating costs and affect our ownership structure.

The assignment and use of radio spectrum is regulated by Industry Canada pursuant to the Radiocommunication Act (Canada). Radio and spectrum licenses are issued for a term. They are renewed at Industry Canada’s discretion. Licenses may be suspended or revoked for cause, including failure to comply with the conditions of license. License revocation is rare, and there is a high expectation of license renewal at the end of a license term. Industry Canada regulation and license fees can materially affect our costs and operations.

As a PCS network operator, Solutions is a “Canadian carrier” under the Telecommunications Act (Canada), and subject to regulation by the Canadian Radio-television and Telecommunications Commission, which is also known as the CRTC. Where Inukshuk, either alone or with its partners, is an MCS network operator, it is also a Canadian carrier. CRTC regulation can materially affect our services and activities.

Solutions and Inukshuk are required to comply with Canadian ownership and control rules set out in the Telecommunications Act and the Radiocommunication Act. Microcell, as the parent corporation of Solutions and Inukshuk, must also comply with the Canadian ownership and control provisions, and failure to do so may affect the ability of Solutions and Inukshuk to operate as Canadian carriers and to hold and renew the PCS license and the MCS licenses.

The Canadian government is currently reviewing the Canadian ownership and control provisions. Although there are yet no conclusions from the review, if greater foreign participation is allowed in the Canadian telecommunications sector, this could lead to the opportunity for further foreign investment in us, as well as more and stronger competitors entering the market with us.

Future decisions and policies of the CRTC, Industry Canada and other governmental departments and agencies may have an influence on our strategies, and may have a material impact on us, including on our costs of operations and our capital structure.

Our PCS license may be modified or revoked if we do not pay license fees and comply with conditions of operation. The PCS license may not be renewed at the end of its term.

Our PCS license term runs to March 31, 2011. At the end of this term, our PCS license conditions provide that we have a “...high expectation of renewal for a ten-year term unless a breach of license condition has occurred, a fundamental reallocation of spectrum to a new service is required, or an overriding policy need arises” but our PCS license does not renew automatically.

Industry Canada has the authority to modify the terms and conditions of a license, but such power is to be exercised on an exceptional basis and only after full consultation. Industry Canada also has the authority to suspend or revoke a license if the license holder has contravened the Radiocommunication Act or terms and conditions of its license, but only after giving the holder of the license a reasonable opportunity to make representations. A public consultation regarding the renewal of a PCS license is to occur no later than two years prior to the end of a PCS license term if Industry Canada foresees the possibility of not renewing the license. In order to operate our PCS network we have to maintain our PCS license, and any failure by us to pay our license fees or to comply with its conditions could result in the revocation of our PCS license or in its non-renewal at the end of its term.

If Inukshuk does not meet the conditions of the MCS licenses, there could be penalties, including the modification or revocation of the MCS licenses.

The Inukshuk MCS licenses have terms that run to March 31, 2011 for each of the twelve MCS license service areas. At the end of this term, Industry Canada’s MCS Policy provides that the MCS licenses are to have a “high expectancy of renewal” for a subsequent ten-year term unless:


	•	a breach of license conditions has occurred,

	•	a fundamental reallocation of spectrum to a new service is required,

Inukshuk must obtain prior approval from Industry Canada for any application to transfer or assign the MCS licenses that would have a material effect on the ownership or control in fact of the licensee. The transactions described in the plan of reorganization, which have led to a change of control of Inukshuk, received interim approval by Industry Canada on April 7, 2003. Industry Canada’s final approval is subject to completion of a review demonstrating compliance with the Canadian ownership and control provisions. We believe Inukshuk is in compliance with the Canadian ownership and control provisions.

Industry Canada has the authority to suspend or revoke a license if the license holder has contravened the Radiocommunication Act or the terms and conditions of its license, after giving the licensee a reasonable opportunity to make representations.

The buildout of Inukshuk’s network will require significant capital, and we could lose our entire investment in Inukshuk.

Inukshuk has commenced the deployment of an MCS network across Canada with its partners in northern and southern Canada. The building of this network will require significant capital investment. Inukshuk is a start-up operation with nominal capital resources. The credit facilities limit the amount that Microcell can invest in Inukshuk. The cash requirements of Inukshuk may exceed such limits. In such an event, Inukshuk may not be able to raise sufficient capital to fund its operations. There can be no assurance that Inukshuk will be successful in building the data network or that Inukshuk will be profitable. If Inukshuk is not successful, we may lose our entire investment in Inukshuk.

We may not be able to retain a significant portion of our existing customer base, which could impair our future performance.

Our future success will depend, in large part, on our ability to retain a significant portion of our existing customer base, expand the business relationships with these customers, and attract and retain new customers. During our capital restructuring, we focused on cash preservation and careful management of our costs, which resulted, among other things, in a loss of subscribers. There can be no assurance that we will be able to maintain a significant portion of the current customer base, increase the amount of business done with some or all these customers, or grow the existing customer base. Our failure to maintain a significant portion of our existing customer base and to grow that base would have a material adverse effect on our business given that these elements are the main drivers of a wireless operator in Canada.

If we cannot limit customer churn, we would be forced to incur additional expenses to recruit new customers.

We have experienced rapid growth and development in a relatively short period. One of our biggest challenges, as we have grown and more recently, has been to limit customer churn. The results of operations of telecommunications service providers can be significantly affected by subscriber cancellations. The sales and marketing costs associated with attracting new subscribers are substantial relative to the costs of providing service to existing customers. Because the telecommunications business is characterized by high fixed costs, disconnections directly and adversely affect operating income. An increase in the subscriber cancellation rate could have a material adverse effect on us.

Factors contributing to the increase in customer churn experienced during 2002 and 2003 included the negative publicity surrounding us and our financial condition, the decision to disconnect some of our delinquent customers and our limited advertising in order to preserve cash during the restructuring process. The successful implementation of our business plan depends, among other things, upon a reduction in our rate of customer churn. There can be no assurance, however, that we will successfully accomplish this or that churn will not increase. Churn has a direct impact on our revenues and earnings. Therefore, if we are not able to limit the increase of the churn, this could have a material adverse effect on our revenues and earnings.

We are subject to currency exchange risks, which may negatively impact our financial results and may increase our costs to repay our debts.

As most of our revenues are expected to be received in Canadian dollars, we are exposed to foreign exchange risk on payments of interest and repayment of principal under any U.S. dollar denominated portion of our indebtedness.

Although we may enter into transactions to hedge, up to a certain limit, the exchange rate risk with respect to our other U.S. dollar-denominated debt and transactions, there can be no assurance that we will engage in such transactions or, if we decide to engage in any such transaction, that we will be successful and that changes in exchange rates will not have a material adverse effect on our ability to make payments in respect of its U.S. dollar-denominated debt. Such transactions may require that we provide cash or other collateral to secure our obligations.

For the purposes of financial reporting, any change in the value of the Canadian dollar against the U.S. dollar during a given financial reporting period would result in a foreign exchange loss or gain on the translation of any U.S. cash and cash equivalents or U.S. dollar-denominated debt into Canadian currency. Such foreign exchange gain or loss on the translation of U.S. dollar-denominated long-term debt is included in income as it arises. Consequently, our reported earnings could fluctuate materially as a result of foreign exchange translation gains or losses. Changes in the exchange rate may have a material adverse effect on us or on our ability to make payments in respect of our U.S. dollar-denominated debt.

Our holding company structure may make it difficult to access cash flow from the operating companies and subordinates our shareholders’ rights to our assets to the claims of our subsidiaries’ creditors.

We are a holding company with no material external sources of income. Substantially all of our operations are conducted through Solutions. Our cash flow and, consequently, our ability to meet our dividend payment obligations or interest payment obligations, as the case may be, are dependent upon the cash flow of Solutions and the payment of funds by Solutions to us in the form of payment of management fees, reimbursement of loans, interest, dividends, advances or otherwise. Our subsidiaries, including Solutions, are separate and distinct legal entities and have no obligation, contingent or otherwise, to make any funds available to us, whether in the form of loans, dividends or otherwise except for their obligation to pay for the services we render, and to reimburse the loans made to them by us, if any, and the interest thereon. Any right we may have to receive assets of our subsidiaries upon their liquidation or reorganization will be structurally subordinated to the claims of such subsidiaries’ creditors (including tax authorities, trade creditors and lenders).

We may not be able to attract and retain key personnel and adequately staff our operations, which could impair the execution of our business plan.

The successful execution of our business plan is dependent in part on our ability to retain and motivate our executive officers and key personnel. We may not be able to retain or employ qualified management and technical personnel. Although we have entered into employment agreements with certain members of our senior management, should any of these persons be unable or unwilling to continue their employment with us, aspects of our business could be materially and adversely affected by the lack of human resources to implement our business plan and manage our business.

Any development or growth on our part could increase our indebtedness and our expenses.

We expect to experience growth and development under the new business strategy described under the heading “PCS Business Strategy” elsewhere in this prospectus. Any future growth of our business would require, among other things


	•	the development and introduction of new products,

	•	control of expenses related to the expansion of our telecommunication network and customer base, and


	•	the management of additional demands on our customer support, sales and marketing, administrative resources and network infrastructure.

If we are unable to satisfy these requirements, or if we are otherwise unable to manage growth effectively, our revenues and operating results could be materially and adversely affected and as a result we may need to obtain additional financing and there is no assurance that such additional financing will be available.

If the companies in which we hold a minority interest require additional financing, the value of our investment in these companies could be reduced or our ownership interest could be diluted.

We have minority or non-controlling investments in certain entities. Some of these investee companies may require substantial amounts of additional capital, and their ability to obtain that financing will depend, in part, on their ability to access the capital or lending markets, which will be subject not only to the performance of their business and prospects, but to conditions in the capital markets generally. If such capital is not available or is not forthcoming on acceptable terms, the value of our investments in those companies could decrease. Further, if such companies were to issue additional equity securities, it is likely that we will not be able to participate in such issuance, which could lead to substantial dilution of the value of our investments.

We are subject to change of control provisions which could limit our ability to enter into transactions which could benefit our shareholders.

Certain provisions of our credit facilities, that require repayment or give the lenders or holders thereunder the option to require repayment upon certain change of control transactions, could have the effect of delaying or preventing transactions involving a change of control of our company and our subsidiaries, including transactions in which shareholders might otherwise receive a substantial premium for their shares over the then current market prices, and may limit the ability of our shareholders to approve transactions that they may deem to be in their best interest.

Our articles of incorporation contain provisions to reflect restrictions which may have the effect of preventing or making transactions involving a change of control of our company more difficult. Our articles of incorporation also contain provisions to reflect the powers of our company to ensure that we and our subsidiaries remain compliant with the Canadian ownership and control provisions.

Our shareholder rights plan implemented pursuant to the plan may have a significant anti-takeover effect. The shareholder rights plan has the potential to significantly dilute the ownership interests of an acquiror of our shares, and therefore may have the effect of delaying, deterring or preventing a change in control of our company.

The class A restricted voting shares and class B non-voting shares may be diluted by further issuances.

The issuance of additional shares of class A restricted voting shares and class B non-voting shares upon exercise of the Warrants will dilute the holders of our current outstanding class A restricted voting shares and class B non-voting shares as well as holders of our equity as a whole. In addition, issuance of class A restricted voting shares or class B non-voting shares to our management and employees and those of our subsidiaries pursuant to the stock option plan and equity issuances under the employee stock purchase plan will result in further dilution to holders of our equity.

We will use the proceeds from the exercise of the Warrants 2005 and Warrants 2008 in accordance with the mandatory payments provisions, set forth in our credit agreements with our secured lenders, if applicable, and for working capital and general corporate purposes. We will not receive any proceeds from the sale of the underlying shares by the selling shareholders.

Microcell has been a public company since October 1997. Our old class B non-voting shares were listed for trading on the TSX under the symbol “MTI.B” from October 7, 1997 to April 30, 2003, as well as on The Nasdaq Stock Market Inc., or Nasdaq, under the symbol “MICTF” from October 7, 1997 to July 10, 2002 and on the OTC Bulletin Board from July 11, 2002 to April 30, 2003. On May 1, 2003, we completed our recapitalization process, which resulted in a new capital structure being established and, as a result, new securities being issued. Consequently, our old class B non-voting shares represented by the CUSIP number 59501T304 were delisted on April 30, 2003 and there are no longer any holders of our Class B non-voting shares. The following table sets forth, for the years, calendar quarters and months indicated, the range of high and low closing sale prices for the class B non-voting shares as reported on the TSX and the Nasdaq and OTC Bulletin Board.

The new shares and Warrants issued by us upon the effective implementation of our plan of reorganization on May 1, 2003 consisted of: first preferred voting shares (represented by the CUSIP number 59501T502), first preferred non-voting shares (represented by the CUSIP number 59501T601), second preferred voting shares (represented by the CUSIP number 59501T700), second preferred non-voting shares (represented by the CUSIP number 59501T809), Class A restricted voting shares (represented by the CUSIP number 59501T882), and class B non-voting shares (represented by the CUSIP number 59501T874), as well as the Warrants 2005 (represented by CUSIP number 59501T163) and the Warrants 2008 (represented by CUSIP number 59501T171). The issue price of all the new shares was Cdn.$15 per share.

Shareholders, at the close of business on April 30, 2003, received, on May 1, 2003, one new Microcell class B non-voting share in exchange for every 10,630 Old Microcell shares, as well as one Warrant 2005 in exchange for every 90 Old Microcell shares and one Warrant 2008 in exchange for every 54 Old Microcell shares. Fractional securities were not issued, nor any compensation paid for any such fraction. Where the exchange resulted in less than one new security being otherwise issuable, no new security was issued.

In addition, pursuant to a final prospectus dated March 24, 2004, we distributed to the holders of our class A restricted voting shares, class B non-voting shares, first preferred voting shares, first preferred non-voting shares, second preferred voting shares and second preferred non-voting shares, rights to subscribe for an aggregate of 4,519,636 class B non-voting shares. Each five rights entitled the holder thereof to purchase one class B non-voting share at a subscription price of $22 per share. In connection with the rights offering we entered into a standby purchase agreement with COM Canada, LLC pursuant to which it agreed to purchase, at the rights subscription price, all class B non-voting shares not otherwise purchased pursuant to the rights offering. The closing of the rights offering occurred on April 30, 2004. The rights offering resulted in the issuance of 4,519,636 class B non-voting shares. COM purchased concurrently, at a price of $22.00 per share, 2,272,727 class B non-voting shares. Furthermore, we granted COM 3,977,272 warrants to acquire, at a price of $22.00 per share, additional class B non-voting shares for exercise at a later date.

Each whole Warrant 2005 entitles its holder to purchase either one class A restricted voting share or one class B non-voting share at a price of Cdn.$19.91, subject to adjustment, until May 1, 2005. Similarly, each whole Warrant 2008 entitles its holder to purchase either one class A restricted voting share or one class B non-voting share at a price of Cdn.$20.69, subject to adjustment, until May 1, 2008. In accordance with the warrant indentures governing the Warrants 2005 and the Warrants 2008, as a result of our rights offering described above, the number of shares issuable upon the exercise of the Warrants 2005 and the Warrants 2008 have been adjusted from 1.0 to 1.02 class A restricted voting shares or class B non-voting shares, as the case may be, for each warrant.

Non-voting shares are exchangeable, at the option of the holder, at any time, into voting shares of the same class upon provision by the holder of a residency declaration in prescribed form to our transfer agent, Computershare Trust Company of Canada, certifying that the holder is Canadian.

The new shares of Microcell and the Warrants have been listed for trading on the TSX since May 1, 2003. There is no comparable listing on any recognized U.S.-based exchange. The following table indicates the trading symbol for each of the new equity-based securities, as well as the total number of shares or Warrants issued and outstanding as of June 30, 2004, as well as the closing price for the class A restricted

The following table sets forth for the month indicated the range of high and low closing sale prices for each new class of Microcell shares and Warrants as reported on the TSX.

In June 1996, we issued 14% Senior Discount Notes due June 1, 2006, which we refer to as the 2006 Notes, with a nominal value of U.S.$418 million. In October 1997, we issued 11.125% senior discount notes, which we refer to as the 2007 Notes, with a nominal value of $429 million. In May 1999, we issued 12% senior discount notes, which we refer to as the 2009 Notes, with a nominal value of U.S.$270 million (the 2006 Notes, the 2007 Notes and the 2009 Notes are referred to collectively as the Notes). All the Notes were unsecured and were due June 1, 2006, October 15, 2007, and June 1, 2009, respectively, with cash interest payable in arrears semi-annually commencing June 1, 2002, April 15, 2003, and December 1, 2004. Pursuant to the plan of reorganization, the Notes were tendered by a nominee for The Depository Trust Company, or DTC, and CDS & Co. (the record holders), and cancelled by us in exchange for equity in Microcell. On May 1, 2003, holders of the Notes received their pro rata distribution (based on the principal or accreted amount of the outstanding unsecured notes plus any accrued interest as of April 30, 2003) of second preferred shares, in an aggregate amount of $54.0 million, and common equity, in an aggregate amount of $54.1 million, as well as their pro rata distribution of 1,329,312 Warrants 2005 and 2,215,521 Warrants 2008, subject to certain conditions. The following table sets forth the conversion rates per $1,000 principal amount at maturity of the Notes into the equity-based securities of Microcell:

We have never declared or paid any cash dividends on our shares and do not expect to do so in the foreseeable future. We currently intend to retain any earnings to make payments in accordance with the mandatory payments provisions set forth in our credit agreements with our secured lenders, if applicable, and to finance the expansion and development of our business. In addition, certain covenants under the terms of our credit agreements limit our ability to declare or pay dividends.

On January 22, 2004, we announced that we would begin holding lenders’ meetings with a view to voluntarily refinancing, on more favorable terms, our senior credit facilities for an aggregate amount of up to $450 million of secured debt. We announced on March 17, 2004 the successful closing of amended and restated senior secured credit facilities in an aggregate principal amount equivalent to $450 million for our wholly-owned subsidiary, Solutions, with a syndicate of lenders. The proceeds have been used mainly to refinance our previous senior secured credit facilities in an aggregate amount of approximately $334 million. Our amended and restated credit facilities provide us with greater financial flexibility by adding approximately $80 million of incremental cash availability, which will be used to fund capital expenditures as well as for general corporate purposes.

Our facilities consist of an undrawn six-year $50 million first lien revolving credit facility, of a seven-year first lien term loan, and of a seven-and-a-half-year second lien term loan, each in an amount equivalent to $200 million. The revolving credit facility is denominated in Canadian dollars and both term loans are denominated in U.S. dollars. We have the ability, subject to certain conditions, to increase, at a later date, our first lien term loan facility or revolving credit facility by an aggregate additional $25 million, and our second lien term loan facility by an aggregate additional $50 million. Loan pricing is LIBOR plus 4% for the revolving credit facility and the first lien term loan and LIBOR plus 7% for the second lien term loan. The loan pricing for the second lien term loan includes a LIBOR floor of 2%. The credit facilities are guaranteed by Microcell, and are secured by a pledge on substantially all of our assets.

On February 27, 2004, we announced that we filed a preliminary prospectus with the securities authorities in each province of Canada for a rights offering to holders of our class A restricted voting shares, class B non-voting shares, first preferred voting and non-voting shares, and second preferred voting and non-voting shares for minimum gross proceeds to Microcell of approximately $100 million. In addition, we were entitled to receive up to an additional $50 million from COM, a private holding company of Craig O. McCaw, which acted as standby purchaser for the rights offering. On March 24, 2004 we filed a final prospectus in connection with the rights offering with the securities authorities in each province of Canada.

Shareholders received one right for every share held on April 2, 2004. Every five rights entitled the holder to purchase one class B non-voting share at a price of $22.00 per share prior to April 28, 2004. The rights offering was fully subscribed and generated approximately $97 million in net proceeds. We received a further $50 million from the purchase of class B non-voting shares under a standby agreement with COM. As a result of these transactions, we issued 6,792,363 additional class B non-voting shares. Furthermore, pursuant to the standby purchase agreement, we issued 3,977,272 warrants to COM to acquire, at a price of $22.00 per share, additional class B non-voting shares for exercise at a later date. Approximately $1.2 million of the net proceeds from the rights offering and private placement to COM has been used to redeem our preferred shares (as described below), and the balance will be used to fund capital expenditures, including the expansion of our City Fido product in the Toronto area and other Canadian market thereafter, and for general corporate purposes.

On April 7, 2004, we gave a notice of redemption pursuant to which we stated that we would redeem, as of May 1, 2004, all our outstanding preferred shares as at 5:00 p.m. (Montreal time) on April 30, 2004, in accordance with the provisions of our restated articles of incorporation. Such redemption was subject to the right of the holders of preferred shares to convert such shares into class A restricted voting shares or class B non-voting shares prior to their redemption. The redemption price of each preferred share was $16.39 per share, representing the first preferred share redemption price, or FPS Redemption Price, and second preferred share redemption price, or SPS Redemption Price, as the case may be, as computed pursuant to our restated

The following table, based on historical amounts, sets forth the consolidated capitalization of Microcell as at August 31, 2004 (except as noted). The table should be read in conjunction with our Unaudited Interim Consolidated financial statements, and the notes thereto, as at and for the three and six months ended June 30, 2004 prepared in accordance with Canadian GAAP for interim financial information, included in this document. For a discussion of the principal differences between Canadian GAAP and U.S. GAAP, see Note 18 to our consolidated financial statements which are included elsewhere in this document.


(1)	The other debt is composed of two swap transactions we entered into to manage our exposure to foreign exchange rate fluctuations on the U.S.-dollar-denominated Term Loan A and Term Loan B. The Company swapped, in March 2004, the total principal of Term Loan A and Term Loan B in the amount of $400 million [US$299.9 million] at a rate of 1.3340. The Company also swapped the floating interest rate of Libor plus 4% on Term Loan A, payable in US dollars, to a floating interest rate of Libor plus 5.085%, payable in Canadian dollars. The Company also swapped the floating interest rate of Libor plus 7% on Term Loan B, payable in US dollars, to a floating interest rate of Libor plus 8.485%, payable in Canadian dollars. The maturity of the swap transactions corresponds to the maturity of both term loans. These swap transactions are presented at their fair value as derivative instruments on the balance sheet and changes in fair value are recognized in income as foreign exchange gains or losses.

(2)	Does not include 1,391,181 class B non-voting shares issuable as at August 31, 2004 to officers and employees of Microcell pursuant to options granted under Microcell’s stock option plan.

(3)	The preferred shares contain conversion features which result in the Company’s obligation to redeem such shares being conditional. Therefore, under US GAAP, these shares are outside the scope of SFAS 150. In such a case, redeemable preferred shares subject to mandatory redemption requirements that are outside the control of the issuer are excluded from “shareholders’ equity (deficiency)” and presented separately in the issuer’s balance sheet between liabilities and shareholders’ equity


	(deficiency). The related accretions are presented as a charge to retained earnings or, in the absence of retained earnings, by charges against share capital. As a result, as at June 30, 2004, the share capital and the deficit would be lower by $17.3 million under U.S. GAAP.

(4)	Effective January 1, 2004, we adopted the standard set forth in Section 3870 of the CICA Handbook, as described in Note 2 to the unaudited interim consolidated financial statements as at and for the three and six months ended June 30, 2004 included elsewhere in this document. Under U.S. GAAP, since we have selected the modified prospective method as permitted by SFAS 148, the adjustment to opening deficit in the amount of $1.3 million would not be recorded.

The following tables show, for the periods and dates indicated, certain information regarding the U.S. dollar/ Canadian dollar exchange rate. The information is based on the inverse of the noon buying rate in the City of New York for cable transfers in Canadian dollars as certified for United States customs purposes by the Federal Reserve Bank of New York. On October 21, 2004, the exchange rate was U.S.$0.8048 per Cdn.$1.00.


(1)	The average rate is calculated as the average of the noon buying rate on the last day of each month during the period.

The reader is cautioned that terms defined in this section of the prospectus may have been defined otherwise elsewhere in this prospectus.

This management’s discussion and analysis, contains “forward-looking” statements, within the meaning of the securities laws, which are based on expectations and estimates. Forward-looking statements may be identified by the use of forward-looking terminology such as “believe”, “intend”, “may”, “will”, “expect”, “estimate”, “anticipate”, “continue”, “consider”, or similar terms, variations of those terms or the negative of those terms. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements contain potential risks and uncertainties, and actual results may therefore differ materially. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

Important factors that may affect these expectations include, but are not limited to: changes in the Canadian economy and in Canadian and U.S. capital markets; changes in competition in our market; advances in telecommunications technology; changes in the telecommunications regulatory environment; future litigation; availability of future financing; unanticipated changes in expected growth of the number of subscribers; radio frequency emission concerns; and exchange rate fluctuations. You should evaluate any statements in light of these important factors.

The following is a discussion of the consolidated financial condition of Microcell and its subsidiaries as at December 31, 2003 and June 30, 2004 and results of operations for years ended December 31, 2003, 2002 and 2001 and the three and six months ended June 30, 2004. You should read it in conjunction with our consolidated financial statements as of and for the twelve-month period ended December 31, 2003 and as of and for the three and six months ended June 30, 2004. Such Consolidated financial statements, and the notes thereto, have been prepared in accordance with Canadian GAAP, which differ in certain material respects from U.S. GAAP and have been reconciled with U.S. GAAP in note 18 to the audited Consolidated financial statements as at December 31, 2003 which are included elsewhere in this document. All amounts are in Canadian dollars except otherwise indicated.

On May 1, 2003, Old Microcell, and certain subsidiaries of Old Microcell, emerged from a restructuring plan under the CCAA and CBCA. As a result, at that date, we have accounted for our financial reorganization by using the principles of fresh start accounting. Accordingly, all assets and liabilities were comprehensively revalued at estimated fair values and our deficit of $2.4 billion was eliminated and long-term debt obligations decreased by approximately $1.6 billion. We determined that our enterprise value was $689 million, of which $350 million were allocated to long-term debt and $339 million to equity. This enterprise value was determined based on several traditional valuation methodologies, utilizing projections developed by management including discounted cash flow analysis and comparable company trading analysis. A comprehensive revaluation of our assets and liabilities has been done based on this enterprise value. This resulted in a reduction of current assets [mainly consisting of the deferred charges incurred during the recapitalization process], property, plant and equipment, long-term investments and accrued liabilities. We also assigned a value, calculated at management’s best estimate of fair value, to our intangible assets, which are the PCS license at $188 million, determined using the replacement cost based on comparable transactions, the Fido brand name at $28.5 million, determined using the replacement cost method, and the customer list at $24.7 million, determined using the discounted future cash flows method.

Comparative financial information for periods prior to May 1, 2003 has been presented pursuant to regulatory requirements. In reviewing this comparative financial information, readers should remember that prior period results of operations do not reflect the effects of the plan of reorganization and the application of fresh start accounting.

We may continue to experience growth-related capital requirements arising from the need to fund network capacity improvements and ongoing maintenance and to fund the cost of acquiring new PCS customers. Our ability to generate positive net income and cash flow in the future is dependent upon various factors, including the level of market acceptance of our services, the degree of competition encountered by the Company, the cost of acquiring new customers, technology risks, general economic conditions and regulatory requirements.

As at June 30, 2004, we conducted our wireless communications business through two wholly-owned subsidiaries, which were: Solutions and Inukshuk. Up to May 1, 2003, we conducted our wireless communications business through five wholly-owned subsidiaries, which were: Microcell Capital II Inc., Microcell Connexions Inc., Microcell Labs Inc., Solutions and Inukshuk.

Up to December 31, 2002, we carried out our operations through three strategic business segments: PCS, wireless Internet and investments. As a result of the restructuring process, the Company realigned its cash flows to concentrate on the PCS activities. Consequently, the Company has determined that it operates in one segment since January 1, 2003, as the wireless Internet and investments operations were no longer significant.

The preparation of our Consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The critical accounting policies and estimates used in the preparation of our financial statements include the following:

Monthly access charges are billed in advance and recognized when the services are provided and collection is reasonably assured. Airtime charges are recognized as revenue when provided. City Fido’s activation fees and related incremental direct costs are deferred and recognized as revenue and expenses over the estimated life of a subscriber. Sales of products such as handsets and related equipment are recognized when goods are delivered, wireless service is activated and collection is reasonably assured. Prepaid service revenues are deferred and recognized when services are provided. When prepaid airtime vouchers are sold to retailers, the revenue for airtime is measured at the amount paid by the subscriber and is recorded when services are provided to the subscriber. Commissions paid on prepaid airtime vouchers to third-party retailers are classified within cost of products and cost of services.

We maintain allowances for doubtful accounts for estimated losses resulting from our inability to collect balances due from our customers. We base our estimates on the aging of our accounts receivable balances and historical write-off experience, net of recoveries. If collections are lower or more customers elect to terminate their service than expected, actual write-offs may be different than that expected.

Our property, plant and equipment is recorded at cost [except for the opening balance as at May 1, 2003, which was determined under the rules of fresh start accounting]. The PCS network includes direct costs such as equipment, materials, labor, engineering, site development, interest incurred during the network buildout, and overhead costs. The costs of PCS network construction in progress are transferred to the PCS network in service as construction projects are completed and put into commercial service.

Our intangible assets consist of our PCS license issued by Industry Canada, our Fido brand name and our customer list. The customer list is amortized over 30 months. The PCS license and the Fido brand name were

Radio and spectrum licenses are issued for a term and may be renewed at Industry Canada’s discretion. Revocation is rare and licenses have a high expectation of renewal unless a breach of a license condition has occurred, a fundamental reallocation of spectrum to a new service is required, or an overriding policy need arises. We intend to renew the PCS license indefinitely, and expect to be able to do so. The technology used in wireless telecommunications is not expected to be replaced by another technology in the foreseeable future. In December of 2003, Industry Canada issued its Spectrum Licensing Policy for Cellular and Incumbent Personal Communications Services, in which it announced the results of its review of the PCS terms, fees and conditions, as well as its intention to renew our PCS license up to March 31, 2011. Industry Canada also announced its intention to renew the PCS license every 10 years instead of every 5 years. Therefore, we anticipate generating sales and cash flows under our PCS license for an indefinite period of time and as a result, have classified the PCS license under this basis.

When events or changes in circumstances indicate the carrying amount of a long-lived asset or group of assets held for use, including property, plant and equipment and intangible assets subject to amortization, may not be recoverable, an impairment loss is recognized when the carrying amount of those assets exceeds the sum of the undiscounted future cash flows related to them. The impairment loss is included in our statement of operations and the carrying value of the asset or group of assets is reduced to its fair value as determined by the sum of the discounted future cash flows related to those assets.

Intangible assets that are not subject to amortization are tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the assets might be impaired. The impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. When the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

Impairment charge, if any, is presented within depreciation and amortization expense of the related long-lived assets in the statement of income (loss).

Derivative financial instruments are accounted for at fair value with changes in fair value affecting income unless designated as effective hedges in which case the gains (losses) on these instruments are recognized in the income statement when the hedged item affects earnings. As at June 30, 2004, we have not designated our financial instruments as hedges.

During the first quarter of 2004, the Company introduced two specific customer retention programs. Firstly, the Company allowed its postpaid customers to enter into a 24-month agreement for airtime services and, in exchange, the Company granted additional discounts or credits for the purchase of handsets. Since the related handset is bundled with airtime, the Company considers this arrangement as a revenue arrangement with multiple deliverables. Accordingly, the arrangement consideration is allocated among the separate units of accounting based on their relative fair values. However, because the handset is provided in the arrangement and the customer has no obligation to the Company if airtime service is not provided, the amount allocated to the handset is limited to the amount initially received. The direct incremental cost related to this retention program, consisting of the incremental loss on the sale of the handset, is deferred and amortized in cost of products over the term of the agreement.

Secondly, we launched “Fido Rewards”, which allows our postpaid customers to accumulate “FidoDollars” based on their spending. Each FidoDollar allows its holder to obtain a discount of $1 on the suggested retail price of a future purchase of a handset. Since this handset will generate future service revenues after its acquisition, we account for the cost of this reward program, consisting primarily of the subsidy on the handset, when such FidoDollars are redeemed. At that date, we recognize as equipment revenue the amount received from our customers, net of applicable FidoDollars, as well as the cost of the related handset. We accrue for our estimated obligation as awards are earned by our customers which are registered with the program. As at June 30, 2004, 5.6 million FidoDollars were issued to approximately 382,000 registered customers and, as a result, an amount of $5.6 million is included in our balance sheet within deferred charges and accounts payable and accrued liabilities.

The CICA recently amended Section 3870, Stock-based compensation and other stock-based payments, to require the expensing of all stock-based compensation awards for fiscal years beginning on or after January 1, 2004. As permitted by this amendment, we chose to apply this new standard retroactively, without restatement, beginning January 1, 2004, for all options granted under the new stock option plan since May 1, 2003. Consequently, our opening deficit as at January 1, 2004 has been adjusted to reflect an expense of $1.3 million relating to options granted since May 1, 2003. For the three- and six-month periods ended June 30, 2004, an amount of $0.7 million and $1.4 million related to regular vesting is included within general and administrative expenses. The Company has adopted rules governing the options granted since May 2003 whereby options are subject to accelerated vesting if the company’s shares perform well on the market. This resulted in an acceleration of a compensation expense of $3.2 million accounted for during the second quarter of 2004 as special charges that the Company would have otherwise recognized over the remaining initial vesting period.

In March 2004, we received a comment letter from the SEC in connection with its review of our registration statement filed on March 3, 2004 for the registration of our class A restricted voting shares and class B non-voting shares issuable upon exercise of the Warrants 2005 and the Warrants 2008. We responded to the SEC’s March letter and filed an amended registration statement on June 29, 2004. We received a letter to our response on August 9, 2004. SEC staff, among other things, have questioned whether our Fido brand name has an indefinite useful life and, consequently, whether it should be subject to periodic amortization. We believe such brand name should be considered to have an indefinite life. However, were such periodic amortization to be applied, assuming hypothetically a useful life of ten years, this would increase our net loss by $0.7 million and $1.4 million, increase basic and diluted loss per share by $0.03 and $0.10 but would have no effect on cash flows for the three-and six-month periods ended June 30, 2004. In addition, our opening deficit as at January 1, 2004 would be increased by $1.9 million.

We are a provider of wireless telecommunications services in Canada. We offer a wide range of voice and high-speed data communications products and services to over 1.2 million customers. We operate a GSM network across Canada and market our PCS and GPRS under the Fido brand name. Moreover, we are the only wireless competitive local exchange carrier in Canada, which provides us with the ability to transfer telephone numbers from the incumbent local service providers to our wireless PCS service. PCS consists of wireless telecommunications services that use advanced and secure digital technology. We provide retail PCS to end-users under our PCS license, which was renewed for a second five-year term commencing on April 1, 2001.

On December 12, 2003, Industry Canada issued Gazette Notice DGRB-006-03 announcing that the license terms of existing cellular and PCS licensees, including us, will be extended to March 31, 2011. The terms and conditions for the renewal of the PCS license are briefly described in note 15 of our audited Consolidated financial statements for the year ended December 31, 2003. In addition to offering access to our PCS network to third-party telecommunications providers on a wholesale basis, we provide data and other wireless Internet services to our end-users based on the GPRS technology.

Our wholly-owned subsidiary, Inukshuk, was awarded MCS licenses to deploy a high-speed Internet Protocol-based data network using MCS technology in the 2500 MHz range. Inukshuk entered into a venture with two partners to build an MCS network in order to offer high-speed Internet, IP-based voice and local networking services to selected markets across Canada. Inukshuk’s commitment to the venture are to transfer its MCS Licenses to the venture, to permit the utilization of its MCS Licenses by the venture pending Industry Canada’s approval of the transfer and to make cash contribution of up to $6.0 million.

As at June 30, 2004, we offered PCS in most census metropolitan areas in Canada. In addition, we have deployed our GSM network in smaller communities and along major highway corridors. We estimate that our PCS network reaches some 19 million people or 61% of the Canadian population. Beyond this network footprint, we provide analog cellular roaming capabilities on the networks of other carriers, which effectively increase our service area to 94% of the total Canadian population. In addition, we have initiated seamless voice and text message roaming services with all the major GSM operators in the United States, covering more than 6,000 cities and towns in 46 states. We also have operational roaming agreements with 293 international GSM operators in 152 countries, covering most of Europe as well as a number of countries in the Pacific Rim, the Middle East, Africa and Australia.

Additional information relating to our company, including our Annual Information Form, is available on SEDAR at www.sedar.com.


	•	On May 17, TELUS made unsolicited all-cash offers to purchase all of Microcell’s outstanding publicly traded shares and warrants. After careful review and analysis of the TELUS offers, performed with the assistance of its legal and financial advisors, our Board recommended that securityholders not tender into the TELUS offers. The TELUS were subsequently extended to October 12, 2004. On that date, TELUS announced that it would not extend its offer and, as a result, the TELUS offers expired on that day.

On September 20, 2004, we announced jointly with Rogers Wireless Communications Inc. and Rogers Commmunications Inc. (collectively, “Rogers”) the signing of a support agreement under which Rogers agreed to make offers to purchase our class A restricted voting shares and class B non-voting shares for $35.00 per share, and our warrants 2005 for $15.79 and warrants 2008 for $15.01. The members of our board of directors have agreed that the Rogers offers are fair to our shareholders and in the best interests of Microcell. The board of directors of Microcell recommended to our shareholders to support the Rogers offers. The board of directors received opinions from our financial advisors, JP Morgan Securities Inc. and Rothschild, that the Rogers offers are fair, from a financial point of view, to our shareholders. The offers are subject to receipt of certain regulatory approvals and other customary conditions, and are open for acceptance until 5:00 p.m., Eastern Standard Time, on November 5, 2004. The directors’ circular relating to the Rogers offers was sent to our securityholders on September 30, 2004.

This may result in negotiations regarding a sale of Microcell to Rogers or another party, an equity investment in Microcell by a strategic or financial investor, the separation of certain assets of Microcell, or some combination of these alternatives. There can be no assurance that the process we initiated, or the Rogers offers will lead to any transaction.


	•	Our liquidity position as at June 30, 2004 was strengthened as a result of an equity rights offering and related private placement that generated $148.3 million of net proceeds. Following the successful closing of these transactions, we used $1.2 million of the net proceeds received from the equity issue to redeem on May 1, 2004 all of our outstanding preferred shares as at April 30, 2004.

	•	We commercially launched City Fido^TM in the Toronto region. This service, which is positioned as an alternative to traditional wireline telephone service, provides unlimited anytime local calling in the Greater Toronto Area. Many customers will have the option of transferring their existing home or


		single-line business phone number to their City Fido service and keeping their white pages directory listing. We are the first and currently the only wireless company in Canada to offer local number portability.

	•	We commercially launched Picture Messaging, allowing customers with camera phones to take pictures and instantly send them to other Fido® customers with compatible handsets by simply using their Fido phone number. This new service, referred to in the industry as Multimedia Messaging Service (MMS), complements the ability our customers have had for the past year and a half to take pictures and send them wirelessly to e-mail addresses worldwide.

	•	During the first half of the year, we expanded our device portfolio with the introduction of five new handsets, including the Sony Ericsson Z200, T237, Z600 and P900 handsets and the MotorolaV400.

	•	We introduced a new customer loyalty program, whereby our customers can accumulate reward points based on spending that can be redeemed toward the purchase of a handset of their choice.

	•	We introduced an optional two-year contract for our postpaid customers.

	•	We commercially introduced iFido^TM wireless high-speed Internet access in Richmond, B.C. and Cumberland, Ontario. The new service, positioned as an alternative to digital subscriber line, or DSL, and cable Internet services, was launched on an MCS network, using the 2500 MHz frequency range. The network is being deployed by a venture composed of Allstream Inc., Inukshuk, and NR Communications, LLC. The venture also announced that AOL Canada Inc. and Call-Net Enterprises/ Sprint Canada have commenced trials on the new wireless high-speed access technology in Toronto.

	•	We signed an inter-carrier agreement with the other three national wireless carriers that establishes common standards for roaming and interoperability of the public WiFi® hotspots being operated.


	•	During the first half of the year, we self-imposed a growth slowdown in order to preserve cash as we focused on completing our financial reorganization. On May 1, 2003, we successfully emerged from this process.

	•	We launched Canada’s first home and mobile service in the Greater Vancouver area under the name City Fido^TM. This service, which is positioned as an alternative to traditional wireline telephone service, includes unlimited local calling throughout the entire lower mainland of British Columbia, which covers a larger local calling area than that of the incumbent telephone company. Many customers will have the option of transferring their existing home or single-line business phone number to their City Fido service and keeping their white pages directory listing. Microcell is the first and currently the only wireless company in Canada to offer local number portability.

	•	During the year, we introduced 11 new handsets, bringing the total number of wireless devices offered to 16 as at the end of 2003.

	•	We launched mobile Internet services for prepaid customers.

	•	We introduced a new airtime package that offers unlimited local calls, text messages and chatting between Fido customers.

	•	We launched international GPRS roaming with seven GSM operators covering four countries, including the United States, for Fido customers who want to access fast mobile Internet services while traveling abroad. Subsequent to the end of the year, this number has grown to 46 carriers in 31 countries.

	•	With AOL Canada Inc., we commercially introduced AOL Instant Messenger^TM [AIM^TM] and ICQ® [I Seek You] services on the Fido wireless network, allowing Fido customers to chat with friends and contacts around the world using AIM and ICQ services on their wireless handset or Personal Digital Assistant.


	•	Pursuant to an agreement between Microcell and Sprint Canada Inc., Sprint Canada began offering a residential wireline-long distance-wireless bundled service that combines Sprint Canada’s home phone service with Microcell’s Fido brand wireless service.

	•	We launched a brand new on-line store for our customers. This new element in our integrated distribution strategy ensures optimal diversification of our channels and better access to our products.

	•	Inukshuk announced the creation of a new venture with Allstream Inc. and NR Communications, LLC. The new company plans to build an MCS network to offer high-speed Internet, IP-based voice and local networking services using broadband wireless access technology. Each party owns one-third of the new company, which will operate as an independent entity. Inukshuk will contribute the use of its MCS spectrum. The first commercial service launches were in early 2004. Inukshuk’s commitments to the venture are to transfer its MCS Licenses to the venture, to permit the utilization of its MCS Licenses by the venture pending Industry Canada’s approval of the transfer and to make cash contributions of up to $6.0 million.

	•	We implemented a handset replacement and upgrade program through a telemarketing and direct mail campaign targeted at our high-value subscribers.

The following are not measures or indicators that are governed or defined by generally accepted accounting principles [“GAAP”]. These non-GAAP measures may not be identical to similarly titled measures reported by other companies. We believe these measures are useful to investors because they include the same meaningful information that is used by our management to assess the company’s performance as well as our success in acquiring, retaining and servicing customers. We believe these measures reflect our ability to generate and grow revenues while providing a high level of customer service in a cost-effective manner. We also use these measures as a method of comparing our performance with the other players in the wireless industry. In addition, our short-term and long-term incentive compensation offers bonuses tied to our financial performance and the achievement of strategic corporate and business unit objectives established on a yearly and cumulative basis. Our financial performance is mainly measured by the level of our revenues and our OIBDA. Our strategic corporate business objective consists of ARPU levels, churn levels and COA levels [all these terms are defined below]. Finally, we are committed to respect certain covenants under our credit agreements, which include certain of these measures. For instance, we are committed to maintain, on a quarterly basis, a certain level of OIBDA [labeled as EBITDA in our credit agreement] at each reporting date. As of June 30, 2004 and December 31, 2003, these OIBDA covenant levels were $32 million and $60 million respectively. We also use these non-GAAP measures for planning purposes, in presentations to our board of directors and in our undiscounted and discounted cash flow models.


	•	“Gross activations” refers to the number of new subscribers that we activate either on a postpaid or prepaid service plan during a given period, before taking into account customer churn for the same period;

	•	Cancellation of service [“churn” or “blended churn”], is expressed on a percentage basis for a given period and is calculated as the aggregate of the postpaid churn and the prepaid churn;

	•	Postpaid churn is expressed on a percentage basis for a given period and is calculated as the number of deactivated postpaid subscribers divided by the average number of postpaid subscribers during such period;

	•	Prepaid churn is expressed on a percentage basis for a given period and is calculated as the number of deactivated prepaid subscribers divided by the average number of prepaid subscribers during such period;

	•	Average revenue per user for a given period is referred to as “ARPU”;

	•	Average revenue per user for a given period, is calculated as the aggregate of the Postpaid ARPU and the Prepaid ARPU [“Blended ARPU”];


	•	Postpaid ARPU for a given period is calculated as the postpaid service revenues plus the roaming-in revenues (roaming-in revenues are wireless service revenues generated by foreign GSM customers; using their wireless phone on Microcell’s GSM network while roaming in Canada), plus or minus the effect of promotions, deferred revenues, and any retroactive adjustments accounted for in the period, divided by the average number of postpaid subscribers during such period. By retroactive adjustments, we mean any correction of service revenues of a prior quarter or year that is made in the current period;

	•	Prepaid ARPU for a given period, is calculated as the prepaid service revenues plus the effect of promotions, and plus or minus any retroactive adjustments accounted for in the period, divided by the average number of prepaid subscribers during such period. By retroactive adjustments, we mean any correction of service revenues of a prior quarter or year that is made in the current period;

	•	The cost of acquisition [“COA”] of a retail subscriber for a given period is calculated as the handset subsidy and selling and marketing expenses related to the acquisition of subscribers divided by the number of gross retail subscriber additions during such period. The handset subsidy of a retail subscriber for a given period is calculated as the product sales presented in the financial statements [excluding non-retail sales and retention sales] minus the cost of products presented in the financial statements but excluding non-retail costs of products, equipment costs related to retention sales and voucher costs, and plus or minus adjustments for equipment cost devaluation, as well as any other retroactive adjustments accounted for in the period. The selling and marketing expenses for a given period are calculated based on the selling and marketing expenses presented in the financial statements and include promotion expenses from service revenues and expenses of the activation department, but exclude non-retail related costs, retention expenses for programs and departmental activities, and after sales service expenses;

	•	Operating income before depreciation and amortization [“OIBDA”] is defined as operating income (loss) calculated in accordance with GAAP except that it excludes depreciation and amortization expenses. OIBDA differs from EBITDA in that the non-GAAP measures’ calculation starts with the GAAP measure operating income (loss) for OIBDA, while the non-GAAP measures’ calculation starts with the GAAP measure net income (loss), in the case of EBITDA. Similarly to EBITDA, OIBDA excludes expenses such as tax, interest and depreciation and amortization. Our OIBDA also excludes foreign exchange gain (loss), share of net loss in investees and gain (loss) in investments, marketable securities and other assets. We exclude foreign exchange gain (loss) since this gain or loss results mainly from our long-term financing arrangements which are stated in U.S. dollars and as a result, should be viewed as an adjustment to our financial charges. We exclude gain (loss) on investments including marketable securities and other assets because such a gain or loss is similar to interest income or expense. Our share of net loss in investees is excluded because those investments in which we have significant influence are not directly related to our wireless operations. In addition, the covenant OIBDA which we are committed to maintain under our credit agreements exclude all such kinds of expenses. OIBDA provides useful information to telecommunication industry investors because it is an indication of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures and other investments and our ability to incur and service debt.

	•	You are cautioned that our non-GAAP measure labelled OIBDA may not be identical to similarly titled measures reported by other companies. Furthermore it should not be considered in isolation or as an alternative measurement of our net income (loss) since it excludes charges that materially impact our financial performance. We compensate for the limitations associated with the use of OIBDA by not giving more prominence to this non-GAAP measure than to its directly comparable GAAP measure and by providing reconciliation of OIBDA to our net income (loss).

	•	OIBDA margin is defined as OIBDA divided by total revenues.


[1]	Beginning with the second quarter of 2003, we adjusted our calculation of COA to include shrinkage and obsolescence. All comparative figures were adjusted accordingly.

[2]	Calculation excludes provision for 50,000 inactive prepaid service customers accounted for in Q2-2002. In Q1-2004, we decided to eliminate this provision.

Operating results for our interim periods are not necessarily indicative of the results that may be expected for the full year. Specifically, during the fourth quarter, our operations are subject to certain seasonal factors associated with subscriber acquisition during the holiday period, which historically is the largest acquisition period of the year for the wireless industry. As a result, operating and net income during this period will be affected by the cost of acquiring a proportionately higher number of subscribers compared with each of the other three quarters of the year.

During the second quarter of 2004, we had 141,856 gross activations, an increase of 61% compared with the 87,873 activated during the same three-month period in 2003. The significant year-over-year improvement in quarterly gross activations was brought about by a substantial increase in postpaid subscriber additions. This result reflects our status as a fully active competitor, compared with the second quarter of 2003 when we self-imposed a subscriber acquisition slowdown in order to preserve cash during the capital reorganization process. Although this process effectively ended on May 1, 2003, we only began to experience a gradual resumption in subscriber growth towards the end of the quarter due to the time that was required for new promotional campaigns, sales channel re-stimulation, and other marketing tactics to have an impact. In addition, the year-over-year increase in second-quarter gross activations can be explained by the positive consumer response to our expanded array of new devices and our City Fido service in the Greater Vancouver and Toronto Areas. As a result, postpaid customers represented 93,657 of the total gross activations for the second quarter of 2004, an approximate three-fold increase compared with the 30,926 achieved for the same three-month period last year, while prepaid customers accounted for the remaining 48,199 gross activations, down from 56,947 in the second quarter of 2003. The postpaid-to-prepaid split of 66% to 34% for the second quarter of 2004 represents a complete reversal from the 35% to 65% split achieved in the same quarter one year earlier, reflecting the success of our postpaid subscriber acquisition strategy.

On a year-to-date basis for 2004, gross activations were 261,220 (made up of 64% postpaid and 36% prepaid), compared with 166,900 in 2003 (consisting of 35% postpaid and 65% prepaid). Our objective for 2004 is to achieve a postpaid-to-prepaid split of approximately 60% to 40%. The total number of new subscribers acquired during the first half of 2004 represents approximately 44% of the total expected gross activations for 2004, which is on track with our plan for the year.

The blended churn for the three and six months ended June 30, 2004 was 3.5% and 3.2% respectively, compared with 3.3% for the same periods in 2003, due mainly to higher postpaid churn.

Our postpaid churn for both the three and six months ended June 30, 2004 increased to 2.6% from 1.9% and 2.2%, respectively, for the same periods in 2003. This was due in part to our competitors’ retaliatory marketing practices and aggressive limited-time promotions launched mainly in response to the introduction of our City Fido service in Toronto and Vancouver. We believe that our postpaid churn should improve during

Although our second-quarter prepaid churn remained unchanged at 4.5%, year-over-year, we experienced an increase in this rate compared with the previous quarter’s mark of 2.9%. The higher prepaid churn, quarter-over-quarter, was due partly to the seasonal impact of customers who received phones as gifts during the fourth quarter of 2003, and who subsequently deactivated their service or did not refill their accounts with additional airtime. In addition, the increase in prepaid churn was brought about by an increase in inactive accounts due to the impact of sustained and aggressive competitive offers targeting Fido customers, as well as our increased focus on acquiring higher-value postpaid subscribers, resulting in a reduced number of new activations with which to replenish the prepaid subscriber base. For the first six months of 2004, our prepaid churn was 3.6% compared with 4.2% for the same period in 2003. For the balance of 2004, as a result of an increase in account inactivity and a continuing de-emphasis on prepaid subscriber acquisition, we expect the prepaid churn to stabilize around 4%.

At the beginning of the second quarter, we removed 74,843 inactive prepaid customers from our retail subscriber base. The increase in the number of inactive accounts was due primarily to the combined impact of continuing aggressive actions by the competition to attract our customers, a reduction in the validity period of certain airtime vouchers, and the brief success of some of our prepaid retention activities in 2003 that temporarily revived a number of dormant prepaid accounts. The adjustment to the prepaid customer base was not reflected in the calculation of our prepaid and blended churn rates or in net additions for the second quarter, as these operating statistics are presented net of such adjustments.

Excluding adjustments to our subscriber base as described above, we recorded a net loss of 29,271 and 30,263 prepaid customers for the second quarter and first half of 2004, respectively, compared with losses of 17,765 and 26,623 prepaid subscribers for the same periods in 2003. This was due to the combined impact of continuing high prepaid churn and lower gross activations. The net subscriber losses for the three and six months ended June 30, 2004 were more than offset by the net addition of 45,923 and 59,281 postpaid customers, respectively. As a result, we added 16,652 new retail customers in the second quarter of 2004 and 29,018 for the first half of 2004, compared with losses of 28,153 and 68,088 retail customers for the same respective periods in 2003. Accordingly, as at June 30, 2004, we provided wireless service to 1,199,321 retail PCS customers, 651,461 of which were on postpaid and 547,860 on prepaid, compared with a retail customer base of 1,096,432 at the end of the second quarter of 2003, which was composed of 503,596 postpaid subscribers and 592,836 prepaid subscribers.

As at June 30, 2004, we also provided PCS network access to 44,121 wholesale subscribers, compared with 37,377 at the first quarter of 2004 and 19,616 at the end of the second quarter of 2003. The increases were due mainly to Sprint Canada’s new combined home, long-distance and Fido wireless bundled service offering introduced commercially in September 2003. In addition, we had 427 subscribers on our iFido residential high-speed Internet service at the end of the second quarter of 2004. This service, which was commercially introduced in mid-March 2004, is currently available in Richmond, British Columbia and Cumberland, Ontario. We expect to offer iFido in our other markets as the MCS network is deployed by the venture overseeing the development of MCS broadband wireless access in Canada.


[1]	The lower basic and diluted loss per share for Q2 2004 compared with Q1 2004 was due to the higher weighted-average number of Class A and Class B shares outstanding following the conversion and redemption of all outstanding preferred shares during the first half of 2004.

Our revenues consist primarily of retail PCS subscriber services revenue, which is generated from monthly billings for access fees, incremental airtime charges, prepaid time consumed or expired, roaming, fees for value-added services, and revenues from equipment sales, as well as revenues from wholesale service providers.

Service revenues increased by 14% year-over-year to $147.4 million for the second quarter of 2004 and by 9% year-over-year to $282.3 million for the six months ended June 30, 2004. The $17.7 million year-over-year improvement in second-quarter service revenues was composed of a $22.7 million increase in postpaid revenues, which was due primarily to a higher average number of postpaid subscribers driven by a 29% increase in the total number of postpaid subscribers over the past twelve months and to higher roaming revenues, as well as $0.5 million increase in wholesale revenues. This was partially offset by a $5.5 million decrease in prepaid revenues resulting mainly from the combination of lower prepaid ARPU and a reduced prepaid subscriber base. The proportion of service revenues derived from postpaid services increased to 77% for the second quarter of 2004, compared with 70% for the same quarter one year earlier. This result reflects the success of our postpaid business strategy that is being built around our City Fido service offering. Similarly, the $24.4 million increase in service revenues for the first half of 2004 compared with 2003 was

Equipment sales were $14.0 million and $24.4 million for the second quarter and first six months of 2004, respectively, compared with $10.0 million and $15.3 million for the same periods in 2003. Despite higher acquisition discounts from handset rebates on limited-time promotions and an increase in customer retention-related discounts, equipment sales improved year-over-year due primarily to a higher number of handsets sold, resulting directly from a significant increase in the number of gross activations.

Postpaid ARPU for the three and six months ended June 30, 2004 increased to $62.48 and $60.20, respectively, from $60.11 and $59.04 for the comparable periods in 2003. The improvements were attributable mainly to increased value-added service revenue per user from a higher penetration of enhanced voice services, increased data-related revenue per user from the growth of wireless data usage, the introduction of migration and management fees as a result of the launch of City Fido, and higher roaming revenues per user from a relatively greater level of both inbound and outbound traffic. This was offset partially by lower extra airtime revenue per user due to lower over-bundle usage stemming from the migration of high-usage customers towards unlimited usage options and plans such as Fido-to-Fido and City Fido, and decreased long-distance usage per user. Average monthly usage by our postpaid subscribers for the second quarter and year-to-date 2004 were 537 and 503 minutes, respectively, compared with 365 and 353 minutes for the same periods in 2003. The increases are primarily the direct result of our new City Fido service in Vancouver and Toronto that offers unlimited local usage for a fixed price of $45 per month.

Although ARPU for our prepaid service increased to $18.84 from $15.75 for the first quarter of 2004, due primarily to higher average minutes of usage and a lower average number of subscribers, it decreased year-over-year when compared to $20.49 for the second quarter of 2003. The decrease was due primarily to the impact of lower billable minutes of usage in combination with the effect on airtime revenues from the introduction of a new lower price point in August 2003 that offers a $0.05 per-minute rate for evenings and weekends. Similarly, on a year-to-date basis, prepaid ARPU decreased to $17.17 from $19.55 in 2003. Average monthly usage by our prepaid customers for the three-and six-month periods ended June 30, 2004 was 63 and 58 minutes, respectively, compared with 65 and 63 minutes in 2003.

As a result of higher postpaid ARPU, our blended ARPU for the three and six months ended June 30, 2004 increased to $41.82 and $38.78, respectively, compared with $38.63 and $37.68 for the same periods last year due mainly to the proportionately higher number postpaid subscribers in our customer base year-over-year.

Costs and operating expenses [excluding depreciation and amortization] for the three- and six-month periods ended June 30, 2004 increased by 27% and 25%, respectively, to $135.7 million and $263.6 million from $106.9 million and $211.0 million in 2003. Starting in the third quarter of 2003, we resumed full commercial operations and growth in accordance with our post-recapitalization business plan. As a result, higher costs and operating expenses for the second quarter and first half of 2004 reflected the greater level of subscriber acquisition, increased spending on retention and customer service initiatives, as well as incremental costs associated with an increased volume of roaming and long-distance minutes, compared with the same periods one year ago that were characterized by a self-imposed growth slowdown and careful cash management in order to preserve liquidity during the recapitalization process. Accordingly, the year-over-year increase of $28.8 million in second-quarter costs and operating expenses was composed of higher cost of services of $5.4 million, higher cost of products of $7.7 million, higher selling and marketing expenses of $8.6 million, higher general and administrative expenses [“G&A”] of $1.7 million and higher special charges of $5.4 million. Similarly, the $52.6 million increase in year-to-date costs and operating expenses was due to higher cost of services of $11.0 million, higher cost of products of $18.0 million, higher selling and marketing expenses of $17.8 million, higher G&A of $0.4 million and higher special charges of $5.4 million.

Our cost of services for the second quarter increased to $50.4 million in 2004 from $45.0 million in 2003. The $5.4 million variance was composed of a $3.3 million increase in customer care, training and billing costs and a $2.3 million increase in network operating costs, which was compensated for, in part, by a $0.2 million reduction in contribution charges paid to the Canadian Radio-television and Telecommunications Commission [“CRTC”]. Similarly, on a year-to-date basis, cost of services for the first half of 2004 increased to $99.6 million from $88.6 million in 2003, due to a $7.1 million increase in customer care, training and billing costs and a $4.1 million increase in network operating costs, offset partially by $0.2 million of savings from lower contribution charges paid to the CRTC.

Our cost of products for the second quarter of 2004 was $29.1 million, up from $21.4 million for the second quarter of 2003. The $7.7 million year-over-year increase was due primarily to: a higher volume of handsets and accessories sold, resulting in an incremental expense of $13.3 million; increased per-unit handset costs for an aggregate amount of $2.8 million, attributable to a higher cost mix of handsets sold; and greater obsolescence and inventory devaluation for $2.8 million. These cost increases were partially offset by a decrease in prepaid voucher production costs of $2.1 million, and an expense deferral of $9.1 million, associated with our loyalty agreement handset discounts and City Fido activation fee. For the six-month period ended June 30, 2004, our cost of products increased to $56.7 million from $38.7 million in 2003. The $18.0 million variance can be explained by: a higher volume of handsets and accessories sold, resulting in an incremental expense of $26.4 million; increased per-unit handset costs for an aggregate amount of $3.9 million, attributable to a higher cost mix of handsets sold; increased assembly, refurbishing and packaging costs of $1.4 million; and greater obsolescence and inventory devaluation for $3.4 million. These cost increases were partially offset by a decrease in prepaid voucher production costs of $3.7 million, and an expense deferral of $13.4 million, associated with our loyalty agreement handset discounts and City Fido activation fee.

For the three and six months ended June 30, 2004, selling and marketing expenses increased to $28.1 million and $56.2 million, respectively, from $19.5 and $38.4 million for the same periods in 2003. The higher costs recorded reflected increased spending on marketing activities, promotions and sales incentives, compared with 2003 when we reduced our customer-acquisition related promotions, decreased sales commissions and advertising expenses, as well as downsized our direct sales force as part of the capital restructuring process. Accordingly, as a result of our return to normal operations, we have experienced an increase in retail partner compensation due to a higher level of sales (particularly a higher percentage of postpaid gross activations), a higher volume of promotional discounts, costs associated with the launch of City Fido Toronto and the on-going support of City Fido Vancouver, as well as additional expenses related to our new customer loyalty program and on-going retention initiatives.

As a result of a higher number of gross activations, and despite a greater percentage of postpaid gross additions and higher variable costs related to channel compensation and promotions, our COA decreased to $253 per gross addition for the second quarter of 2004 and to $269 per gross addition for the first half of 2004, compared with $261 and $275 per gross addition for the same respective periods in 2003.

We recorded G&A expenses of $22.7 million and $45.7 million for the three and six months ended June 30, 2004, respectively, up from $21.0 million and $45.3 million for the same periods in 2003. The increases were due primarily to higher bad debt expense brought about by an expansion in accounts receivable and an increase in write-offs associated with our GSM roaming partners, offset partially by lower rental, insurance and maintenance costs.

In conjunction with the TELUS Offers and the Rogers Offers, we incurred special charges in the amount of $2.2 million. This consisted of fees for legal and consulting services. In addition, the consequential impact of the Offers on our share price led to an accelerated vesting of shares under our employee stock option plan, resulting in an acceleration of a compensation expense of $3.2 million during the quarter that we would have otherwise recognized over the remaining initial vesting period. As a result, we estimate that the aggregate incremental costs that arose either directly or indirectly from the unsolicited public takeover offer amounted to approximately $5.4 million during the second quarter.

Due to the realignment of our equity interest and capital structure under our recapitalization plan, we were required to perform as at May 1, 2003 a comprehensive revaluation of our balance sheet referred to as “fresh start accounting,” which included an adjustment to the historical carrying value of our assets and liabilities to their fair values. As a result, and in order not to surpass the fair value of the enterprise as a whole, the carrying value of our property, plant and equipment was reduced from $602.1 million to $289.7 million as at May 1, 2003. Accordingly, despite a notable increase in capital expenditures over the past twelve months, depreciation and amortization was lower at $18.8 million and $37.8 million for the three and six months ended June 30, 2004, respectively, compared with $25.9 million and $70.6 million for the same periods in 2003.

Despite higher costs and expenses incurred from financing the acquisition of approximately 54,000 additional subscribers during the second quarter of 2004 compared with the same period in 2003, operating income remained unchanged at $6.9 million. On a year-to-date basis, we produced $5.3 million of operating income, compared with an operating loss of $8.5 million for the first six months of 2003. The improvement can be explained primarily by the significant decrease in depreciation and amortization expense following the reduction in property, plant and equipment associated with fresh start accounting.

OIBDA for the three and six months ended June 30, 2004 was $25.7 million and $43.1 million, respectively, compared with $32.8 million and $62.1 million for the same periods in 2003. The decreases resulted primarily from the impact on operating costs and expenses from the acquisition of approximately 54,000 additional subscribers during the second quarter of 2004 and approximately 94,000 additional subscribers during the first half of this year. Accordingly, on a year-over-year basis, total costs and expenses before depreciation and amortization increased by 27% and 25%, respectively, for the second quarter and first half of 2004, offset partially by increases in total revenues of 16% and 12% for the same comparable periods.

For the second quarter of 2004, net interest expense and financing charges were $8.9 million, compared with $20.2 million for the same quarter in 2003. Similarly, for the first six months of 2004, net interest expense and financing charges were $14.3 million, down from $72.1 million for the same six-month period in 2003. The year-over-year decreases were primarily the direct result of the reduction in long-term debt following the implementation of our recapitalization plan on May 1, 2003, and the appreciation of the Canadian dollar relative to the U.S. dollar. Cash interest payments of $8.9 million and debt principal repayments of $3.0 million were made during the second quarter of 2004.

We incurred foreign exchange losses of $7.8 million and $15.1 million, respectively, for the second quarter and first six months of 2004 [of which $8.3 million and $16.4 million respectively, were unrealized loss], compared with foreign exchange gains of $47.1 million and $150.2 million for the same three-month period in 2003 [of which $44.5 million and $143.3 million respectively, were unrealized gain]. The large foreign exchange gains in 2003 were due to the relatively greater positive impact of a favorable change in the U.S./Canadian foreign exchange rate on a substantially higher level of U.S.-dollar denominated long-term debt outstanding. Prior to the successful completion of our capital reorganization, we had approximately $1.9 billion of U.S.-dollar denominated long-term debt outstanding as at April 30, 2003 compared with $396.9 million as at June 30, 2004.

During the first quarter of 2004, we entered into swap transactions to manage our exposure to foreign exchange rate fluctuations on the U.S.-dollar-denominated Term Loan A and Term Loan B. We swapped, in March 2004, the total principal of Term Loan A and Term Loan B in the amount of $400 million [US$299.9 million] at a rate of 1.3340. We also swapped the floating interest rate of LIBOR plus 4% on Term Loan A, payable in US dollars, to a floating interest rate of LIBOR plus 5.085%, payable in Canadian dollars. We also swapped the floating interest rate of LIBOR plus 7% on Term Loan B, payable in US dollars, to a floating interest rate of LIBOR plus 8.485%, payable in Canadian dollars. The maturity of the swap transactions corresponds to the maturity of both term loans. These swap transactions, which have not been designated as hedging instruments, are presented at their fair value as derivative instruments on the balance sheet and changes in fair value are recognized in income as foreign exchange gains or losses. The Company’s

Lower income tax expense of $8.4 million and $8.5 million for the three-and six-month periods ended June 30, 2004 are mainly due to a taxable loss incurred during the first half of 2004 compared with a pre-tax income during the same period in 2003. Tax benefits related to tax losses are not recognized until it is more likely than not that the tax benefits will be realized.

We posted a consolidated net loss and a consolidated net loss applicable to Class A and Class B Shares [when considering the accretion on the redemption price of the preferred shares for the month of April] of $11.2 million for the second quarter of 2004. As a result, basic and diluted loss per share for the three months ended June 30, 2004 was $0.46. This compared to consolidated net income of $25.2 million for the second quarter of 2003 (composed of $10.2 million for the one-month pre-reorganization period and $15.0 million for the two-month post-reorganization period), as well as basic and diluted earnings per share of $0.04 for the month of April 2003 and $2.92 and $0.66, respectively, for the last two months of the second quarter of 2003. For the six months ended June 30, 2004, we recorded a consolidated net loss of $25.9 million and a consolidated net loss applicable to Class A and Class B Shares of $31.1 million [when considering the accretion on the redemption price of the preferred shares for the first four months of the year]. Conversely, for the same six-month period in 2003, we recorded consolidated net income of $60.5 million (composed of $45.5 million for the four-month pre-reorganization period and $15.0 million for the two-month post-reorganization period). The net income we generated in 2003 was mainly on account of a substantial foreign exchange gain recorded on a relatively higher level of outstanding U.S.-dollar denominated debt, which was offset partially by higher interest expense and higher depreciation and amortization.


[1]	Beginning with the second quarter of 2003, we adjusted our calculation of COA to include shrinkage and obsolescence. All comparative figures were adjusted accordingly.

[2]	Calculation excludes 50,000 inactive prepaid service customers.

[3]	Calculation excludes 40,000 inactive prepaid service customers, who were deactivated during 2002 following the termination of a customer retention program.

Our operating and financial results for the periods described herein are not necessarily indicative of our future operating results given the context in which we operated during the first four months of 2003. With respect to the presentation of our 2003 results, the eight-month period ended December 31, 2003 represents our post-reorganization results, while the four-month period ended April 30, 2003 represents our pre-reorganization results.

In 2003, gross activations were 529,466, compared with 548,079 in 2002. The decrease in yearly gross activations can be attributed primarily to our self-imposed growth slowdown throughout most of the first half of 2003. During this time we limited our advertising, as well as the introduction of new sales initiatives, handsets and services in order to preserve cash both as a contingency to any delay in the completion of our

Our blended churn improved to 3.2% for 2003 from 3.4% in the previous year, and was the result of lower postpaid churn. Postpaid churn was 2.3% in 2003 compared with 3.0% in 2002. The significant improvement to our postpaid churn rate was brought about by a reduction in the number of Company-initiated deactivations for non-payment. The relatively lower number of Company-initiated deactivations for non-payment in 2003 resulted mainly from the termination of certain programs and policies, in particular, a special plan that had been devised to provide customers with low credit ratings access to a postpaid plan. In addition, the improvement to postpaid churn resulted from the positive effects of certain customer lifecycle initiatives. Among these lifecycle management initiatives is a “Welcome Program” for all our new customers to help familiarize them with all aspects of our wireless service [such as billing and handset functionality], and a handset upgrade and replacement program for our high-value postpaid customers. Although our prepaid churn rate remained unchanged at 3.8% for 2003, this rate was notably higher in the first half of the year at 4.2%, compared with 3.5% for the last two quarters of 2003. The higher prepaid churn in the first six months of 2003 was due mainly to seasonal factors arising from customers who received phones as gifts during the holiday season, but who subsequently abandoned their service voluntarily or failed to purchase additional airtime, which resulted in their accounts being deactivated. Prepaid churn for the first two quarters was also higher due to increased deactivation among occasional, security-type users, brought about by certain changes to our pricing late in the third quarter of 2002 that shortened the expiry period and increased the price per minute on certain airtime vouchers, and to a higher level of prepaid account inactivity. We pursued several programs during the second half of 2003 to address account inactivity, which included an initiative to educate customers about the basic business rules of our prepaid service.

For 2003, despite a decrease in the number of new gross activations, we acquired 80,625 new net retail customers [consisting of 47,118 postpaid and 33,507 prepaid subscribers], compared with 45,311 for 2002 [composed of the loss of 92,636 postpaid subscribers and the addition of 137,947 new prepaid customers], due primarily to a substantially lower postpaid churn rate. Accordingly, as at December 31, 2003, we provided wireless service to 1,245,146 retail PCS customers, 592,180 of which were postpaid and 652,966 prepaid, compared with a retail customer base of 1,164,521 at the end of 2002 consisting of 545,062 postpaid subscribers and 619,459 prepaid customers. In addition, as at December 31, 2003, we provided PCS network access to 33,042 wholesale subscribers, compared with 22,712 at the end of the third quarter of 2003 and 20,845 at the end of 2002. The increases were due mainly to Sprint Canada’s new combined home, long distance and Fido wireless bundled service offering introduced commercially on September 10, 2003.

Our revenues consist primarily of retail PCS subscriber service revenues, which are generated from monthly billings for access fees, incremental airtime charges, prepaid time consumed or expired, roaming, fees for value-added services, and revenues from equipment sales.

Service revenues for the year ended December 31, 2003 decreased to $527.7 million from $566.7 million for 2002. The decrease was composed of a $53.7 million decrease in postpaid revenues brought about by a lower average number of subscribers in our postpaid customer base [particularly during the first nine months of 2003], compared with the prior year, despite comparatively higher postpaid ARPU, and a $1.1 million reduction in roaming revenues, resulting primarily from reduced international travel. This was offset partially by a $15.5 million increase in prepaid revenues generated by both a higher average volume of prepaid customers and a higher prepaid ARPU, as well as by a $0.3 million year-over-year improvement in wholesale revenues.

Despite a lower number of handsets sold due to fewer new gross activations, equipment sales almost doubled in 2003 to $43.1 million from $24.4 million in 2002. The increase was mainly the result of higher handset prices in the first three quarters of 2003 and a reduced volume of retention and satisfaction discounts.

Postpaid ARPU improved 3% in 2003 to $60.63 from $59.12 in 2002. The increase was attributable primarily to higher roaming revenues per user, greater long distance usage per user, and increased value-added service and data-related revenues per user, offset slightly by a reduction in extra airtime revenue per user as a result of greater in-bucket usage. Average monthly usage by our postpaid subscribers was higher at 372 minutes for the year, compared with 361 minutes for 2002, due mainly to the proliferation of price plan packages offering bigger minute buckets particularly during off-peak periods. Our prepaid ARPU also increased in 2003 to $19.32 from $18.64 in 2002. The improvement was due primarily to higher expired

Our Fido postpaid and prepaid customers sent approximately 58.9 million text messages in 2003, representing an increase of 39% compared with the previous year. The higher number was due primarily to a number of initiatives launched in 2003, including inter-carrier short-code and text messaging capabilities, our partnership with AOL to provide our Fido customers with instant messaging services through AIM and ICQ, the bundling of PCS voice and text messaging services into a single monthly service package, and, on the GPRS side, our launch of mobile Internet for prepaid. Moreover, most of our newest wireless devices are data-capable with features such as enhanced text messaging and mobile chat, which we believe appeals largely to the youth and young adults — two key market segments for data.

During the first half of 2003, we closely tracked expenses in order to preserve liquidity and grow operating income, while we worked on completing our financial reorganization. Following the successful completion of this reorganization on May 1, 2003, cash management and profitability continued to be a priority for us, despite increased costs associated with the launch of our post-restructuring marketing program and a resumption of subscriber acquisition. Costs and operating expenses [excluding restructuring charges, depreciation and amortization] for the year ended December 31, 2003 decreased by 3% to $484.2 million from $500.0 million in 2002. The improvement was realized mainly from decreased general and administrative expenses [“G&A”], lower cost of services and reduced selling and marketing expenses, offset partially by an increase in the cost of products.

Cost of services consists of site-related expenses, transmission costs, spectrum license fees, contribution revenue taxes, customer care costs, and other direct costs related to network operations. We decreased cost of services by 3% in 2003 to $182.1 million from $187.0 million in 2002. The $4.9 million improvement was composed of: $1.3 million in network operating cost savings that resulted primarily from reduced interconnection, long distance and maintenance costs; a $2.2 million decrease in customer care, training and billing expenses, due mainly to a reduced volume of calls at our call center and a lower subscriber base for most of the year; and a $1.4 million reduction in the contribution revenue charges paid to the Canadian Radio-television and Telecommunications Commission [“CRTC”] because of lower service revenues and a lower contribution rate. During the fourth quarter of 2003, the CRTC finalized the 2003 contribution rate at 1.1% of eligible revenues, retroactive to January 1, 2003, which compared favorably to the rate of 1.3% for 2002.

Our cost of products for 2003 was $117.0 million, up $14.9 million from $102.1 million for 2002. The cost of products for 2002 was affected positively by the reversal of a $13.8 million handset subsidy tax provision

Selling and marketing costs include compensation expenses and other distribution channel costs, as well as advertising expenses. Despite increased spending on new advertising campaigns and promotional incentives during the second half of 2003 in order to re-establish our market presence and improve our competitiveness, as well as higher costs associated with customer retention programs, our selling and marketing expenses for 2003 decreased 6% to $97.8 million from $104.0 million for 2002. The lower costs reflected a decrease in retail partner compensation as a result of fewer new gross customer activations, a reduction in promotional discounts and advertising expenses during the financial restructuring process, and lower salaries and benefits due to a reduced direct sales force.

Our COA in 2003 decreased 11% to $255 per gross addition, compared with $287 per gross addition in 2002, despite both a lower number of new gross additions and a higher proportion of postpaid activations. The improvement can be explained mainly by reduced spending on advertising and promotions, higher handset prices and lower channel compensation during our financial restructuring process.

G&A consist of employee compensation and benefits, client services, bad debt and various other expenses. G&A expenses were $87.3 million for 2003, compared with $106.9 million one year earlier. The improvement of $19.6 million was due primarily to lower bad debt expense stemming from the relatively higher credit worthiness of our customer base in 2003, and to reduced salaries and benefits as a result of a decrease in the average number of full-time equivalent employees during the year.

Due to the realignment of our equity interest and capital structure under our recapitalization plan, we were required to perform as at May 1, 2003 a comprehensive revaluation of our balance sheet referred to as “fresh start accounting”, which included an adjustment to the historical carrying value of our assets and liabilities to their fair values. As a result, and in order not to surpass the fair value of the enterprise as a whole, the carrying value of our property, plant and equipment was reduced from $602.1 million to $289.7 million as at May 1, 2003. Accordingly, depreciation and amortization decreased to $106.2 million for the year ended December 31, 2003 from $242.4 million for the same periods in 2002 [excluding an impairment charge of $223.4 million].

Our operating loss for the four-month pre-reorganization period ended April 30, 2003 was $20.8 million. This, when combined with operating income of $1.2 million for the eight-month post-reorganization period ended December 31, 2003, resulted in a total operating loss of $19.6 million for 2003, compared with $382.3 million for 2002. The decrease in operating loss, year-over-year, was mainly due to a decrease in depreciation and amortization expense of $359.6 million due to the reduction in property, plant and equipment as a result of fresh start accounting [$136.2 million] and to an impairment charge [$223.4 million] recognized in 2002 in order to write down the value of our MCS licenses to nil. An impairment test was required due to the uncertain likelihood, at that time, of finding potential business partners to secure financing for our MCS project to be carried out by Inukshuk. Subsequent to this event, in November 2003, we announced the creation of a new venture with Allstream Inc. and NR Communications, LLC to build an MCS network using wireless access technology.

OIBDA for the four-month pre-reorganization period ended April 30, 2003 was $38.6 million. This, when combined with OIBDA of $48.0 million for the eight-month post-reorganization period ended December 31, 2003, resulted in OIBDA of $86.6 million for 2003, compared with $83.5 million for 2002. The increase was brought about by a $23.3 million improvement in total operating costs and expenses before depreciation and amortization, offset partially by a $20.3 million decline in total revenues. While slower customer growth, and therefore lower selling and marketing expenses, can explain part of the reduction in costs, the decline was also related to improved operating cost efficiencies and restructuring charges of $7.5 million recorded in 2002 which related primarily to severance payments made to approximately 350 employees to adjust our workforce

For 2003, interest expense and financing charges [net of interest income] were $80.9 million, compared with $221.4 million for 2002. The decrease was the direct result of the reduction in long-term debt following the implementation of our recapitalization plan on May 1, 2003, the appreciation of the Canadian dollar relative to the U.S. dollar, and the absence of amortizable deferred financing costs in 2003 following their complete write-off at the end of 2002 due to the impending financial reorganization. Interest expense for the first four months of 2003 consisted primarily of accreted and accrued interest on approximately $2.0 billion of secured and unsecured debt, while interest expense for the last eight months of 2003 consisted of interest charges on the Company’s post-recapitalization $350 million face amount of bank debt. Cash interest of $12.7 million and debt principal repayments of $7.3 million were paid during 2003.

For 2003, we recorded a foreign exchange gain of $150.5 million, compared with a gain of only $0.9 million in 2002. This substantial increase was due primarily to the impact on the value of our pre-reorganization long-term U.S. dollar-denominated debt from the greater appreciation of the Canadian dollar relative to the U.S. dollar during the first four months of 2003. As a result of certain swap transactions that we entered into post-recapitalization on approximately half of our total U.S. dollar-denominated debt [approximately $100 million [$72.2 million U.S.] of the total Tranche B Debt], we are less vulnerable to foreign exchange fluctuations. Currently, the U.S. dollar-denominated portion of debt represents two-thirds of the total, or approximately $200 million of the $300 million of face amount Tranche B Debt.

Given the recapitalization process in which we were engaged, we decided to terminate all our hedging agreements in 2002. These terminations, as well as the de-designation of the cross-currency swap on the principal balance of the 2009 Senior Discount Notes due in 2009 we had before the recapitalization process, created a net gain in the amount of $6.6 million in 2002. In addition, at the end of 2002, we wrote down $18.9 million of deferred financing costs, a $17.7 million deferred loss on financial instruments, and a $19.7 million deferred gain on financial instruments for a net total loss of $16.9 million, all which related to the long-term debt in default as at December 31, 2002.

For 2003, we posted a gain in value of investments, marketable securities and other assets of $2.9 million compared with a loss of $16.1 million in 2002. This was mainly due to the gain we made on the sale of our investment in Saraide Inc. at the end of 2003 compared with the fact that many of our investments were

The share of loss in investees for the year ended December 31, 2003 was nil, compared with $13.2 million for 2002. The loss in 2002 was due primarily to the recognition of our share of the loss sustained by GSM Capital Limited Partnership [“GSM Capital”], brought about mainly by the general decline in market conditions for high-technology companies during 2002, which were the main components of GSM Capital’s portfolio.

The $2.4 million of income tax expense for 2003 is composed exclusively of large corporation tax. In 2002, we recorded an income tax benefit of $71.9 million as a result of the write-down in the value of the MCS licenses to nil. Accordingly, this led to the reversal of the cost of future income tax related to these licenses, which arose from the difference between the carrying value and the tax basis of the acquired licenses.

For the twelve months ended December 31, 2003, we recorded net income of $33.4 million [composed of net income of $45.5 million for the four-month pre-reorganization period and a net loss applicable to the Class A and class B non-voting shares of $12.1 million for the eight-month post-reorganization period], as well as basic and diluted earnings per share of $0.19 for the first four months of 2003 and a basic and diluted loss per share of $3.22 for the following eight months. This compared with a net loss of $570.5 million and a basic and diluted loss per share of $2.37 for 2002. The net loss figures for 2002 included a $150.5 million non-cash net charge to account for the impairment in the value of the MCS licenses. This non-cash charge represented a $223.4 million write-down in the value of the MCS licenses net of related income tax benefits of $72.9 million arising from the difference between the carrying value of the licenses and the tax basis of the intangible assets acquired.

During 2003, we reserved approximately 2 million shares for issuance under our new stock option plan. The use of equity-based compensation provides additional performance-based incentives and assists in the retention of qualified management employees. Our board of Directors approved the granting of stock options to purchase a total of 1.7 million Class B Non-Voting Shares in 2003. As all the options granted under the old stock option plan were cancelled with the implementation of the plan of reorganization, our Board of Directors approved such grant of options as an employee retention tool and in order to provide an opportunity, through options, for our executive officers and selected employees to participate in our future growth and development.

During 2003, we closely tracked expenses in order to preserve liquidity and grow operating income, while we worked on completing our financial reorganization. As a result, research and development expenses amounted to approximately $3.3 million in 2003 compared with $5.6 million in 2002. Our research and development activities are focused on planned investigation undertaken with the hope of gaining new scientific or technical knowledge in the field of wireless telecommunication. They are also oriented on the translation of knowledge into a plan or design for new or substantially improved material, devices, products, processes, systems or services related to PCS.

As a condition of our PCS license, we are to invest at least 2% of our adjusted gross revenues derived from our 2 GHz PCS operations, on PCS-related research and development averaged over the current PCS license term, which Industry Canada recently announced will run for ten years until March 31, 2011. As at December 31, 2003, 2% of our adjusted gross revenues represented a cumulative amount of $26.7 million and up to December 31, 2003, we spent approximately $15.9 million. We expect to meet the condition of our PCS license in term of investment on PCS-related research and development at the end of the current PCS license term, in March 2011.


(1)	Beginning with the second quarter of 2003, we adjusted our calculation of COA to include shrinkage and obsolescence. All comparative figures were adjusted accordingly.

(2)	Calculation excludes 50,000 inactive prepaid service customers accounted for in Q2-2002.

During the fourth quarter of 2003, we activated 230,045 new gross retail customers, more than double the 110,347 we acquired during the same quarter in 2002. The significant year-over-year improvement in quarterly gross activations reflects an increase in both postpaid and prepaid subscriber additions. This result reflects our return to the wireless market as a fully active competitor, compared with the fourth quarter of the previous year when we consciously decided to restrict subscriber acquisition in order to preserve cash while we continued pursuing our financial restructuring activities. Despite the highly competitive market conditions within the Canadian wireless industry, we believe our estimated market share of industry gross additions for the fourth quarter of 2003 in regions where Fido service is offered exceeded 22%, compared with 13% for the same quarter in 2002. This result continues the positive trend towards our return to historic market share levels for new industry gross additions. Although the fourth quarter is a period when prepaid activations are traditionally higher due to the commitment-free, gift-giving nature of the product, our postpaid additions were higher, which demonstrates the impact on consumers from our competitive promotions, high-profile advertising campaigns, and new City Fido service in Vancouver. Accordingly, postpaid subscriber additions represented 135,540, or 59%, of the total gross activations for the fourth quarter of 2003, up significantly from 25,690, or 23%, in the same quarter last year, while prepaid accounted for the remaining 94,505, or 41%, gross customer additions, compared with 84,657, or 77% for the fourth quarter of 2002.

Our blended monthly churn rate for the three-month period ended December 31, 2003 improved to 3.3% from 3.8% for the same three months in 2002. The year-over-year decrease was due to both lower postpaid churn and lower prepaid churn. Although our fourth-quarter postpaid churn rate decreased slightly from 3.0% in 2002 to 2.9% in 2003, we experienced an increase in this rate compared with the previous quarter. We believe that the sequential quarterly increase was due largely to the effect of the attacks launched by our competitors directly at our customers in central and eastern Canada in response to our new City Fido service in Vancouver. We are addressing this issue pro-actively by designing retention programs aimed at increasing our customers’ level of satisfaction and loyalty, which should make us less vulnerable to our competitors’ attacks in future quarters. As a result, we accelerated a handset replacement and upgrade program via a telemarketing and direct mail campaign targeted at our high-value subscribers. We also recently launched a loyalty program, whereby our customers can accumulate reward points based on spending that can be redeemed toward the purchase of a handset of their choice. In addition, we introduced optional loyalty agreements for our postpaid customers starting in February 2004.

Our prepaid churn rate decreased to 3.7% in the fourth quarter of 2003 from 4.5% in the same quarter one year earlier. The year-over-year improvement can be attributed primarily to the success of our marketing program to reduce the number of inactive prepaid accounts and to stimulate usage among occasional, security-type wireless customers both by offering a differentiated rate structure, that includes a low-cost weekend and evening rate to better address their lifestyle and usage patterns, and by educating them on our business rules regarding voucher expiry, airtime account replenishment and deactivation.

Due to the combined effects of a significantly larger number of new gross activations and lower customer churn, we added 107,422 new net retail customers in the fourth quarter of 2003, 75,116, or 70%, of which were on higher-value postpaid platforms. This result compared with the reduction of 30,212 customers, including the loss of 59,789 postpaid subscribers, for the same quarter in 2002.

Service revenues for the three-month period ended December 31, 2003 decreased by $6.2 million to $134.6 million from $140.8 million for the fourth quarter of 2002. The year-over-year difference was composed of: a $3.1 million decrease in prepaid revenues resulting mainly from lower prepaid ARPU, despite a higher average number of prepaid subscribers in the customer base; a $2.8 million decrease in postpaid revenues due primarily to a lower average number of postpaid subscribers, offset partially by higher postpaid ARPU; and lower wholesale revenues for $0.3 million.

Equipment sales were $16.8 million for the fourth quarter of 2003, compared with $10.0 million for the same quarter in 2002. Despite lower average handset prices as a result of holiday season promotional offers, fourth-quarter equipment sales improved year-over-year due primarily to a higher number of handsets sold, resulting directly from a significant increase in the number of gross activations.

Postpaid ARPU increased by 3% to $60.61 for the fourth quarter of 2003 from $59.01 for the same three-month period in 2002. The improvement was due largely to an increase in the recurring portion of monthly revenues per user resulting from the positive impact of City Fido on our price plan mix, increased value-added service and data-related revenues per user, greater long distance usage per user. This was partially offset by a reduction in extra airtime revenues per user as a result of greater in-bucket usage. Average monthly usage by our postpaid subscribers for the fourth quarter of 2003 was 421 minutes, compared with 365 minutes for the same quarter one year earlier. The increase can be attributed mainly to our new City Fido service in Vancouver that offers unlimited local usage for a fixed price of $40 per month. The ARPU for our retail prepaid service decreased in the fourth quarter of 2003 to $18.33 from $20.86 in 2002, primarily as a result of decreased minutes of usage. Average monthly usage by our prepaid customers in the fourth quarter was 61 minutes, compared with 67 minutes in 2002. Despite higher postpaid ARPU compared to one year ago, on a blended basis, our combined postpaid and prepaid ARPU for the three months ended December 31, 2003 decreased to $37.99 from $39.42 for the same period in 2002, due to the combination of a proportionately greater number of prepaid subscribers in our customer base and lower prepaid ARPU.

We continued to exercise careful cost control and showed financial discipline in the fourth quarter of 2003, despite increased expenses due primarily to a greater level of subscriber acquisition activity during the most important retail period of the year for wireless operators. Costs and operating expenses (excluding depreciation and amortization) for the three-month period ended December 31, 2003 were $153.1 million, compared with $129.7 million for the same quarter in 2002. The year-over-year increase was attributable to higher cost of products and services and higher selling and marketing expenses, offset partly by lower general and administrative expenses.

Fourth-quarter cost of services increased to $47.9 million in 2003 from $45.9 million in 2002. The $2.0 million variance was composed of a $2.4 million increase in customer care, training and billing costs and a $0.2 million increase in network operating costs, which was compensated for, in part, by a $0.6 million reduction in contribution charges paid to the CRTC.

Our cost of products for the fourth quarter of 2003 was $49.2 million, up from $29.2 million for the fourth quarter of 2002. The $20.0 million year-over-year increase was due primarily to: a higher volume of handsets and accessories sold, resulting in an incremental expense of $19.0 million; increased per-unit handset costs for an aggregate amount of $2.9 million, attributable to a higher-cost mix of handsets sold; and higher assembly, refurbishing and packaging costs of $0.6 million. These cost increases were partially offset by a decrease in prepaid voucher production costs of $1.6 million, and lower obsolescence and inventory devaluation of $0.9 million.

For the three months ended December 31, 2003, selling and marketing expenses increased to $34.6 million from $24.0 million for the same period in 2002. The comparatively lower spending in the fourth quarter of 2002 can be explained by our focus on cash preservation at that time, as we continued to concentrate on our financial reorganization, which had a direct impact on our ability to remain competitive. By the fourth quarter of 2003, we had fully re-established our market presence and resumed normal spending levels for subscriber acquisition. Accordingly, the higher selling and marketing costs in the fourth quarter of 2003 reflect an increase in retail partner compensation due to a greater overall level of sales in combination with a higher proportion of postpaid gross activations, an increase in promotional discounts and advertising expenses as a result of the step-up in our holiday season marketing campaign and the launch of City Fido in Vancouver, and continued spending on customer retention.

Despite a higher mix of postpaid versus prepaid gross additions and increased spending on promotions and advertising, our COA decreased 19% to $241 per gross addition for the fourth quarter of 2003 from $297 per gross addition for the same quarter in the previous year, due directly to the substantially greater number of quarterly gross additions, year-over-year.

G&A expenses decreased to $21.4 million for the last three months of 2003 from $26.9 million for the same period in 2002. The 20% improvement was on account of lower bad debt expense stemming from the

Our operating loss for the three months ended December 31, 2003 was $19.7 million, compared with an operating loss of $52.2 million for the same period in 2002. The improvement was mainly due to the decrease in depreciation and amortization expense of $55.3 million following the reduction in property, plant and equipment as a result of fresh start accounting. OIBDA for the three months ended December 31, 2003 was negative $1.7 million, compared with OIBDA of $21.1 million for the same period in 2002. The decrease resulted primarily from an increase in the costs associated with financing the acquisition of approximately 120,000 additional subscribers in the fourth quarter of 2003, compared with the fourth quarter of 2002. Accordingly, total operating costs and expenses before depreciation and amortization increased by 18%, year-over-year.

For the fourth quarter of 2003, interest expense and financing charges (net of interest income) were $4.2 million, compared with $54.6 million for the same period one year earlier. The decrease was the direct result of the reduction in long-term debt following the implementation of our recapitalization plan on May 1, 2003, the appreciation of the Canadian dollar relative to the U.S. dollar, and the absence of amortizable deferred financing costs in 2003 following their complete write-off at the end of 2002 due to the impending financial reorganization. Cash interest of $4.7 million and debt principal repayments of $2.6 million were paid during the fourth quarter of 2003.

The foreign exchange gain for the fourth quarter of 2003 decreased to $1.7 million from $7.5 million for the same three-month period in 2002. The decline was due to the greater positive impact in the fourth quarter of 2002 of a favorable change in the U.S./ Canadian foreign exchange rate on a relatively higher level of U.S. dollar-denominated long-term debt outstanding. We had approximately $1.4 billion of U.S. dollar long-term debt outstanding and unhedged in the fourth quarter of 2002.

Given the recapitalization process in which we were engaged, we decided to terminate all our hedging agreements in 2002. These terminations, as well as the de-designation of the cross-currency swap on the principal balance of the 2009 Senior Discount Notes due in 2009 we had before the recapitalization process, created a net loss on financial instruments of $2.2 million for the three-month period ended December 31, 2002. In addition, at the end of 2002, we wrote down $18.9 million of deferred financing costs, a $17.7 million deferred loss on financial instruments, and a $19.7 million deferred gain on financial instruments for a net total loss of $16.9 million, all which related to the long-term debt in default as at December 31, 2002.

During the fourth quarter of 2003, we posted a gain in value of investments, marketable securities and other assets of $2.5 million compared with a loss of $4.7 million during the same period in 2002. This was

On May 1, 2003, the Company’s tax losses and net deductible temporary differences were not included in the “fresh start accounting” adjustments since a valuation allowance was provided for the entire amount of the related net tax benefit. Accordingly, if and when it is more likely than not that the tax benefits related to both the unrecognized tax losses carried forward and the net deductible temporary differences will be realized, they will first be applied to reduce the unamortized amount of intangible assets that were recorded as at May 1, 2003. As at December 31, 2003, the Company’s tax losses and net deductible temporary differences were approximately $1.9 billion. The income tax benefit for the fourth quarter of 2003 was mainly due to a recovery in 2003 income tax expense following a fourth quarter where we posted a loss before income taxes of $19.6 million.

We posted a consolidated net loss of $11.2 million and a consolidated net loss applicable to the Class A and Class B Shares of $17.8 million (when considering the accretion of the redemption price on the Preferred Shares) for the fourth quarter of 2003. As a result, basic and diluted loss per share for the three months ended December 31, 2003 was $4.42. This compared with a consolidated net loss of $123.7 million and a basic and diluted loss per share of $0.51 for the same quarter in 2002. The year-over-year improvement in fourth-quarter net loss was due primarily to lower interest expense arising from the reduction of debt related to the financial reorganization and decreased depreciation and amortization resulting from the revaluation of property, plant and equipment under the “fresh start accounting”.

Our financial results for the periods described herein are not necessarily indicative of our future operating results given the risks and uncertainties associated with our operations and the Canadian wireless industry in general.

As at December 31, 2002, we offered PCS in twenty-one census metropolitan areas in Canada. In addition, we have deployed our GSM network in smaller communities and along major highway corridors. We estimate that our PCS network reaches some 19 million people or 61% of the Canadian population. Beyond this network footprint, we provide analog cellular roaming capabilities on the networks of other carriers, which increase our service area to 94% of the total Canadian population.

During 2002, we had 548,079 gross activations, down 11% from 612,883 in 2001. The decline in gross activations was the result of a decrease in postpaid gross activations, particularly in the second half of 2002, reflecting continuing competitive market conditions within the Canadian wireless industry, as well as our prudent approach toward customer acquisition given our uncertain financial situation and recapitalization process. Accordingly, postpaid subscribers accounted for 45% of the total gross activations in 2002, compared with 51% in 2001.

As at December 31, 2002, we provided wireless service to 1,164,521 retail PCS customers, 545,062 of which were on postpaid plans and 619,459 on prepaid plans. We added 137,947 new net prepaid additions for full-year 2002, compared with 116,803 in the previous year. However, our postpaid subscriber base decreased by 92,636 in 2002, compared with an increase of 169,880 in 2001, due primarily to substantially higher involuntary churn to disconnect non-paying customers, increased migration of postpaid customers to prepaid service, a reduction in marketing-related promotions in light of our financial condition, and a pronounced emphasis on postpaid customer acquisition by the competition.

In addition, as at December 31, 2002, we provided PCS network access to 20,845 wholesale subscribers, compared with 20,631 at the end of 2001. This result is consistent with our strategy of discontinuing active solicitation of the wholesale business, while continuing to support our existing third-party service providers.

The blended churn increased to 3.4% for full-year 2002 from 2.6% in the previous year, and was the result of higher both postpaid churn and prepaid churn. Postpaid churn was 3.0% in 2002, compared with 2.0% in 2001, while prepaid churn increased to 3.8% from 3.2% for the same period. The year-over-year increases were

However, our revenues, which consist primarily of subscriber service revenues generated from monthly billings for access fees, incremental airtime charges, prepaid time consumed or expired, roaming, fees for value-added services, and revenues from equipment sales, increased compared to the previous year.

Service revenues grew by 11% to $566.7 million for the year ended December 31, 2002, from $509.1 million for the previous year. The increase reflects a higher average number of active subscribers. This was partially offset by lower blended ARPU and softer wholesale revenues. Equipment sales were $24.4 million for full-year 2002, compared with $32.4 million one year earlier. The decrease in equipment sales was due primarily to fewer gross activations, lower handset prices in the first three quarters of 2002 as a result of promotional offers on several new models, a greater volume of retention and satisfaction discounts, as well as decreased accessory sales.

Our postpaid ARPU was $59.12 for 2002, compared with $60.56 for 2001. The decrease reflects a decline in airtime revenues. This decline resulted mainly from lower billable minutes due to greater in-bucket usage stemming from the high take-up of promotional plans that offered free bundled weeknight and weekend usage, from bundling value-added service options, such as voice mail and caller ID, in the basic monthly service packages, as well as from higher customer satisfaction and retention-related credits. Average monthly postpaid minutes of usage for 2002 was higher at 361 minutes compared with 319 minutes in 2001 due primarily to greater off-peak usage arising from promotional plans that offered free weeknight and weekend airtime.

Our prepaid ARPU for 2002 decreased to $18.64 from $20.99 in 2001 mainly as a result of lower minutes of usage. The reduction in prepaid minutes of usage stemmed from the migration of high-usage prepaid customers to postpaid monthly plans. Average monthly prepaid minutes of usage for 2002 was 57 minutes compared with 62 minutes for the previous year. Our blended ARPU decreased to $39.73 in 2002 from $41.14 for 2001. Fido prepaid and postpaid customers sent approximately 42.4 million text messages in 2002 up 91% from 2001.

The calculation of both prepaid and blended ARPU for 2002 includes an adjustment made during the second quarter of 2002 to remove 90,000 inactive prepaid customers from our retail customer base. We define inactive prepaid service customers as those who have not made or received a call for a period of more than 30 days. Of these 90,000 inactive prepaid service customers, 40,000 customers were deactivated following the termination of a customer retention program. The 90,000 figure represents approximately the average monthly number of inactive accounts in our prepaid customer base in the twelve months preceding the second quarter of 2002. By excluding these inactive accounts from the reported customer base, we believe that we are

In keeping with our focus on cash preservation, we carefully managed costs during 2002. Costs and operating expenses, excluding impairment of intangible assets, restructuring charges, depreciation and amortization, decreased by $51.2 million when compared to 2001. Expenses for 2002 included a clarification of provincial sales tax legislation related to handset subsidies, which resulted in the reversal of a previously accounted for provision of $13.8 million. Excluding this reduction in expenses, costs and operating expenses for 2002 decreased by $37.4 million.

The $6.6 million year-over-year improvement in cost of services for 2002 resulted from a $14.1 million reduction in contribution charges paid to the CRTC and from the reduced activities in our wholly-owned subsidiary Microcell i5 Inc [$4.1 million]. During the fourth quarter, the CRTC finalized the 2002 contribution rate at 1.3% of eligible revenues, retroactive to January 1, 2002, which compares favorably to the interim rate of 1.4% for 2002 and to the 2001 rate of 4.5%. This cost reduction was offset partially by a $3.5 million increase in customer care expenses, as well as by a $8.1 million increase in network operating costs that can be explained by the receipt of certain non-recurring credits for maintenance costs and license fees in 2001. Adjusted for these non-recurring credits, network operating costs for 2002 were flat, year-over-year.

The $41.1 million, or 29%, improvement in cost of products for 2002, was composed of the aforementioned $13.8 million sales tax provision reversal; a reduced volume of handset sales and lower per-unit cost for handsets sold resulting in savings of $22.5 million; lower assembly, packaging and prepaid voucher production costs of $2.5 million; a lower cost of accessory sales of $1.1 million; and reduced shrinkage, obsolescence and devaluation of inventories of $1.2 million.

In an effort to preserve cash as we continued pursuing our financial restructuring activities, we reduced the scale of our holiday marketing campaign and promotions during the fourth quarter of 2002. We believe this had a direct impact on our ability to remain competitive during the busiest acquisition period of the year for wireless operators. The improved cost performance also reflects lower salaries and benefits resulting from a reduced sales force, and reduced retail partner compensation attributable to lower overall sales and a higher proportion of prepaid gross activations. Consequently, selling and marketing expenses decreased by $12.7 million, year-over-year, in 2002, despite increased spending on retention initiatives associated with our customer life cycle program and higher retail partner compensation rates.

The COA improved 12% to $287 per gross addition for full-year 2002, compared with $325 per gross addition for the previous year, despite 11% fewer new gross customer activations. The year-over-year improvement was due to tight controls over spending on advertising and promotions, reduced handset subsidies resulting from a lower-cost mix of PCS handsets negotiated by us, the higher mix of prepaid versus postpaid gross additions, as well as lower channel compensation costs.

General and administrative expenses were $108 million for 2002, compared to $98.9 million in 2001. The increase was due primarily to higher bad debt expense, which can be attributed to a larger number of lower-credit customers in the subscriber base as a result of past marketing programs and policies implemented to optimize postpaid customer acquisition. As a percentage of service revenue, however, general and administrative expenses remained virtually unchanged, year-over-year, reflecting our ability to control overhead costs and achieve additional operating efficiency.

The restructuring charges of $7.5 million for 2002 compared with $5.2 million in 2001, related primarily to severance payments made to approximately 350 employees who were laid-off during 2002 compared with approximately 200 employees laid-off in 2001. These measures were taken in order to adjust our workforce to the requirements of our operating plan and were the result of increased productivity from the consolidation of certain administrative and operating support services, and the suspension of certain projects due to difficult financial market conditions.

Depreciation and amortization increased by $287.8 million in 2002 mainly due to an impairment charge in the amount of $223.4 million, which was accounted for to write down the value of the Company’s MCS licenses to nil. For a period of time during 2002, we had been pursuing negotiations with potential business partners to secure financing for our MCS project to be carried out by Inukshuk. During 2002, the likelihood of concluding such an agreement became uncertain. Given this fact, and considering the difficult financial market conditions that the telecommunications industry was facing, we wrote down the value of our MCS licenses. In addition, we wrote down certain of our property, plant and equipment to their net recoverable value for an amount of $37.3 million. The remaining of the variance is mainly due to network enhancement since December 2001. The cost of future income tax related to the MCS licenses, resulting from the difference between the carrying value and the tax basis of the assets acquired, which was capitalized to the MCS licenses, was reversed, resulting in an income tax benefit in the amount of $72.9 million.

As a result of the above, we posted an operating loss of $382.3 million in 2002 compared with an operating loss of $193.0 million in 2001. OIBDA for 2002 increased by $98.5 million to $83.5 million from negative $15.0 million in 2001. Despite high churn, this result was achieved because of a 10% year-over-year increase in service revenues, as well as an 9% reduction in costs and operating expenses [before depreciation and amortization] attributable to lower contribution fees, lower handset costs and tight controls over selling and marketing expenses. The OIBDA margin expanded to 14% for the year ended December 31, 2002 from negative 3% one year earlier. While part of the margin improvement, year-over-year, relates to slow customer growth and hence lower marketing expenses, it also relates to improved operating cost efficiencies, as well as to the favorable impact from the reversal of a cumulative handset sales tax provision in the second quarter. Excluding the favorable $13.8 million provincial sales tax clarification on handset subsidies, OIBDA for 2002 was $69.7 million.

The net interest expenses and financing charges in 2002 are consistent with 2001 with a slight increase of $3.7 million.

The decrease in foreign exchange loss of $52 million in 2002 was mainly due to the improvement of the exchange rate of the Canadian dollar relative to the U.S. dollar, especially on our long-term U.S. dollar-denominated debt.

Given the recapitalization process in which we were engaged in 2002, we decided to terminate all our hedging agreements. These terminations, as well as the de-designation of the cross-currency swap on the principal balance of the 2009 Senior Discount Notes due in 2009, created a net gain in the amount of $6.6 million for the whole year.

We wrote down $18.9 million of deferred financing costs, $17.7 million of deferred loss on financial instruments and $19.7 million deferred gain on financial instruments for a net total of $16.9 million, all of which related to the long-term debt in default.

The decrease of $17.0 million in the loss in value of investments, marketable securities and other assets for 2002 was mainly due to a lower number of investments and marketable securities in our portfolio during 2002. The $7.9 million increase in the share of net loss in investees for 2002 was the result of a general decline in market conditions for high-technology companies in 2002, which were the main component of GSM Capital’s portfolio.

As a result, we posted consolidated net losses of $570.5 million for the year ended December 31, 2002 compared with $498.5 million for 2001. Basic and diluted losses per share decreased from $4.56 in 2001 to $2.37 in 2002. This was mainly due to the increase in the weighted-average number of shares following the December 2001 rights issue.

Research and development expenses amounted to approximately $5.6 million in 2002 compared with $7.0 million in 2001. This slight decrease was due to a lower number of projects following our financial reorganization which started in 2002 and ended in April 2003. Our research and development activities are focused on planned investigation undertaken with the hope of gaining new scientific or technical knowledge in the field of wireless telecommunication. They are also oriented on the translation of knowledge into a plan or design for new or substantially improved material, devices, products, processes, systems or services related to PCS.

As a condition of our PCS license, we are to invest at least 2% of our adjusted gross revenues derived from our 2 GHz PCS operations, on PCS-related research and development averaged over the current PCS license term, which Industry Canada recently announced will run for ten years until March 31, 2011. As at December 31, 2002, 2% of our adjusted gross revenues represented a cumulative amount of $17.8 million and up to December 31, 2002, we spent approximately $12.6 million. We expect to meet the condition of our PCS license in term of investment on PCS-related research and development at the end of the current PCS license term, in March 2011.

As at June 30, 2004, we had cash and cash equivalents of $167.7 million and short-term investments of $10.0 million compared with $43.1 million and $60.9 million respectively, as at December 31, 2003. Our cash and cash equivalents as at June 30, 2004 were composed of $163.0 million in Canadian dollars and $4.7 million in U.S. dollars. In addition, we had access to a revolving bank credit facility in the amount of $34 million [after $16 million credit reduction following the swap transactions entered into as described in note 5 to the unaudited interim consolidated financial statements], of which no amount was drawn on June 30, 2004. As at June 30, 2004, we had outstanding letters of guarantee for an aggregate amount of $0.3 million.

As at June 30, 2004, we had outstanding amounts of $197.5 million as Term Loan A [US$148.1 million] and $199.5 million as Term Loan B [US$149.6 million] for total borrowings of $396.9 million [including a

current portion of $12.0 million]. Without taking into consideration the swap transactions described above, Term Loan A bears interest at LIBOR plus 4%, which is payable on a quarterly basis. The principal is payable in quarterly installments, which started in June 2004 and will mature in March 2011. Term Loan B bears interest at LIBOR plus 7% [including a LIBOR floor of 2%], which is payable on a quarterly basis. The principal is also payable in quarterly installments, which started in June 2004 and will mature in September 2011. We have the right to increase, at a later date, up to an additional $25 million under the Revolving Facility or Term Loan A and up to an additional $50 million under Term Loan B. The credit facilities are guaranteed by Microcell, and are secured by a pledge on substantially all of our assets. In March 2004 we entered into swap transactions to manage our exposure to foreign exchange rate fluctuations on the U.S.-dollar denominated Term Loan A and Term Loan B, as described in the results of operations section.

These swap agreements included a recouponing provision which allowed both parties to enter into an amendment of the economic variables when the fair market value of the swaps exceed a threshold of $16 million, in such manner that the market value is reduced to an amount no greater than $16 million. As of September 30, 2004, an amendment occurred between the parties to revise the limit of $16 million to $24.8 million. Consequently, the economic variables were amended to reduce the market value of the swaps from $34.4 million payable to $24.7 million, generating a payment by us to the counterparties of $9.7 million on October 3, 2004. Under this amendment, the floating interest rates of our swap agreements relating to our Term Loan A and Term Loan B were reduced to LIBOR plus 4.616% and LIBOR plus 8.006% respectively. The maturity of the swap transactions corresponds to the maturity of both term loans. These swap transactions, which have not been designated as hedging instruments, are presented at their fair value as derivative instruments on the balance sheet and changes in fair value are recognized in income as foreign exchange gains or losses.

Pursuant to a final prospectus dated March 24, 2004, the Company distributed to the holders of its Class A Shares, Class B Shares, First Preferred Voting Shares, First Preferred Non-Voting Shares, Second Preferred Voting Shares and Second Preferred Non-Voting Shares, rights to subscribe for an aggregate of 4,519,636 Class B Shares. Each five rights entitled the holder thereof to purchase one Class B Share at a subscription price of $22 per share. In connection with the rights offering, the Company entered into a standby purchase agreement with COM pursuant to which it agreed to purchase, at a price of $22.00, all Class B Shares not otherwise purchased pursuant to the rights offering. In addition, to the extent COM purchased less than $50 million of such shares, it committed to purchase, at a price of $22.00, additional Class B Shares having an aggregate subscription price equal to the deficiency.

The closing of the rights offering occurred on April 30, 2004. The rights offering resulted in the issuance by Microcell of 4,519,636 Class B Shares. On May 3, 2004, COM purchased, at a price of $22.00 per share, 2,272,727 Class B Shares. Furthermore, Microcell issued to COM, 3,977,272 warrants to acquire, at a price of $22.00 per share, additional Class B Shares for exercise at a later date. The net proceeds from the rights offering and private placement to COM amounted to $148.3 million [net of approximately $1.1 million of issuance fees] and have been used by Microcell to redeem on May 1, 2004 75,233 preferred shares, at a price of $16.39 per share, for a total of $1.2 million. The remaining balance of $147.1 million will be used to fund capital expenditures and for general corporate purposes.

As a result of this rights offering and following the redemption of our preferred shares, our share capital as at June 30, 2004, was composed of the following: 183,340 Class A Shares; 29,131,974 Class B Shares; 3,998,302 Warrants 2005; 6,663,943 Warrants 2008; and, 3,977,272 new warrants issued pursuant to the private placement. In addition, there were 1,789,185 outstanding stock options for Class B Non-Voting Shares.

Our working capital, or current assets less current liabilities, was $176.9 million as at June 30, 2004 compared with $102.4 million as at December 31, 2003 for an increase of $74.5 million mainly due to the net proceeds generated by the rights offering described above.

Capital expenditures for the second quarter and first half of 2004 were $84.6 million and $159.6 million, respectively, compared with spending of $12.7 million and $16.0 million for the comparable periods in 2003. The year-over-year increases in capital expenditures reflected an increase in spending for network access and

The following table summarizes our future contractual cash obligations, excluding interest, as at June 30, 2004. The contractual obligations under the operating leases related to sites, switch rooms, offices and stores:

We believe that cash flows from operations, our current cash position and our access to a revolving bank credit facility will allow us to meet our business requirements, including debt service and capital expenditures, for the foreseeable future.

We generated $12.6 million in cash from our operating activities in the three-month period ended June 30, 2004, compared with $15.6 million for the same period in 2003. The $3.0 million decrease resulted mainly from a lower operating income of $7.1 million [net of depreciation and amortization] and lower cash provided by operating assets and liabilities of $6.1 million partially offset by lower cash expenses of

Cash used in investing activities was $87.6 million during the three-month period ended June 30, 2004, compared with cash provided by investing activities of $27.3 million for the same period in 2003. This was mainly attributable to higher additions to property, plant and equipment of $71.9 million in the second quarter of 2004 [resulting from higher cash investments in the PCS network] and to lower proceeds from the sale of short-term investments and marketable securities of $43.0 million. The significant reduction in capital spending for 2003 was due to our self-imposed growth slowdown during the financial restructuring process in order to preserve cash.

Cash provided by financing activities was $143.8 million for the second quarter of 2004 compared with cash used totalling $2.4 million for the same period of 2003. This was due to the successful closing of our rights offering and private placement which generated net proceeds of $148.3 million. We used $1.2 million of these net proceeds to redeem all of our outstanding preferred shares as at April 30, 2004 and reimbursed $3.0 million of our long-term debt (compared with a reimbursement of $2.4 million in the second quarter of 2003).

We generated $36.3 million in cash from our operating activities in the six-month period ended June 30, 2004, compared with $23.7 million for the same period in 2003. The $12.6 million improvement resulted mainly from lower cash expenses of $44.5 million, consisting mainly of reduced cash interest expense payable [mainly due to the new capital structure] partially offset by a lower operating income of $19.0 million [net of depreciation and amortization] and lower cash provided by operating assets and liabilities of $12.9 million.

Cash used in investing activities was $108.7 million during the six-month period ended June 30, 2004, compared with cash provided by investing activities of $69.7 million for the same period in 2003. This was mainly attributable to higher additions to property, plant and equipment which amounted to $159.6 million in the first half of 2004 compared with spending of $16.0 million for the same period in 2003 and to lower proceeds from the sale of long-term investment, short-term investments and marketable securities of $34.8 million. The year-over-year increases in capital expenditures reflected an increase in spending for network access and capacity expansion, as well as the additional costs associated with our on-going support of City Fido in Vancouver and the launch of City Fido service in Toronto. The increase in capacity-related expenditures was the result of the timing of upgrades to our switching and radio infrastructure and the initial set-up costs associated with the expansion of City Fido beyond Vancouver. Network spending represented $142.2 million of total capital expenditures for year-to-date. The remaining amounts were related primarily to information technology initiatives and operational support systems. Comparatively, the lower level of capital spending during the first half of 2003 was due to our self-imposed growth slowdown during the capital restructuring process as a means of preserving liquidity.

On March 17, 2004, we announced the successful closing of an amended and restated senior secured bank financing in an aggregate principal amount equivalent to $450 million (including undrawn revolving credit facilities of $50 million) for our wholly-owned subsidiary, Solutions. The proceeds have been used mainly to refinance borrowings under our previous senior secured credit facilities in the amount of $330.3 million and to terminate related swap transactions in the amount of $4.2 million. With respect to the amended and restated credit facilities, we spent $12.5 million in financing costs, which are deferred and amortized over the terms of the loans. In addition, the rights offering, which was fully subscribed, generated net proceeds of $148.3 million, excluding the use of $1.2 million to redeem all of our outstanding preferred shares as at April 30, 2004. This was partially offset by higher repayment of long-term debt in 2004 of $0.7 million. As a result of the above, financing activities provided $197.0 million of cash during the six-month period ended June 30, 2004.

As at December 31, 2003, we had cash and cash equivalents of $43.1 million and short-term investments of $60.9 million compared with $111.8 million and $9.9 million respectively, as at May 1, 2003. Our cash and cash equivalents as at December 31, 2003 were composed of $42.8 million in Canadian dollars and $0.3 in U.S. dollars. In addition, as at December 31, 2003, we had access to a revolving bank credit facility in the amount of $25 million. Pursuant to the terms of this credit agreement, we are entitled to raise up to an additional $50 million in revolving bank credit facility if necessary. As at December 31, 2003, no amounts were drawn on this facility. As at December 31, 2003, we had outstanding letters of guarantee for an aggregate amount of $0.4 million.

As at December 31, 2003, we had outstanding amounts of $271.8 million as Tranche B Debt and $52.7 million as Tranche C Debt for total borrowings of $324.5 million [including a current portion of $9.3 million]. The Tranche B Debt bears interest at one of the following rates, which is payable on a monthly basis: prime plus 3.0%, base rate plus 3.0% or bankers’ acceptance rate plus 4.0%. The principal is payable in quarterly installments, which started in June 2003 and will mature in December 2008. The Tranche B Debt is collateralized by a second lien on all our assets. The Tranche C Debt bears interest at the rate of 8.0% payable semi-annually at our discretion in cash or by accruing and compounding such interest semi-annually until paid. The principal and the accumulated unpaid interest are payable in April 2013. Tranche B Debt and Tranche C Debt have been refinanced in March 2004 as described above.

We entered into swap transactions with a preferred shareholder, who was also a lender, to manage our exposure to foreign exchange rate fluctuations on a portion of the U.S. dollar-denominated portion of the Tranche B Debt. We swapped $50 million [US$35.5 million] of the principal of the Tranche B Debt at a rate of 1.3986 and $50 million [US$36.7 million] of the principal of the Tranche B Debt at a rate of 1.3548. The swap transactions were renewed on November 28, 2003 for a period of three months. These swap transactions, which have not been designated as hedging instruments, are presented at their fair value as derivative instruments on the balance sheet and changes in fair value are recognized within foreign exchange gain (loss). These swap transactions have been terminated in March 2004.

Our working capital, or current assets less current liabilities, was $102.4 million as at December 31, 2003 compared with $142.9 million as at May 1, 2003 for a decrease of $40.5 million. As our current assets remained the same, it was mainly due to higher accounts payable in our current liabilities following increased capital expenditures during the last two months of the year.

Capital expenditures for the fourth quarter and full-year 2003 were $36.7 million and $72.8 million, respectively, compared with spending of $6.0 million and $124.7 million for the same periods in 2002. The year-over-year increase in fourth-quarter capital expenditures, reflected a return to more normal spending levels for network signal and capacity improvements, as well as the additional costs associated with the launch and on-going support of City Fido in Vancouver. The significant reduction in yearly capital spending for 2003, however, was due to our self-imposed growth slowdown during the financial restructuring process in order to preserve cash.

The following table summarizes our future contractual cash obligations, excluding interest, as at December 31, 2003. The contractual obligations under the operating leases related to sites, switch rooms, offices and stores:

We generated $69.1 million of cash from our operating activities in 2003, compared with cash used of $41.0 million in 2002. The $110.1 million increase in cash provided by operating activities in 2003 as compared to 2002 resulted from a higher operating income of $9.4 million [net of depreciation and amortization and of the reversal of a non-cash sales tax provision of $13.8 million incurred in 2002] and the absence of restructuring charges in 2003 results compared with a charge of $7.5 million in 2002. In addition, lower other cash expenses of $78.9 million, consisting mainly of reduced cash interest expense [mainly due to the new capital structure] and an improvement of $14.2 million in cash provided by operating assets and liabilities contributed to the favorable variance.

We used $41.0 million of cash in operating activities for the year ended December 31, 2002, compared with $122.3 million in 2001, for a decrease of $81.3 million. This favorable variance resulted primarily from an operating income [excluding depreciation, amortization and the reversal of a non-cash sales tax provision of $13.8 million] of $69.7 million for the twelve-month period ended December 31, 2002, compared with an operating loss [excluding depreciation and amortization] of $15.0 million for 2001, and a decrease in cash used in operating assets and liabilities of $82.3 million. These decreases in cash used in operating activities were partially offset by an increase in cash interest expense and other of $85.7 million, mainly due to the interest payable on the senior discount notes due 2006 and 2007.

Cash used for investing activities was $45.6 million in 2003, compared with $20.6 million in 2002. This increase of $25.0 million in cash used in investing activities was mainly attributable to lower proceeds, in 2003, from the sale of short-term investments and marketable securities of $53.2 million and of $31 million from the termination of hedging agreements. This was partially offset by lower additions to property, plant and equipment of $51.9 million, resulting from lower cash investments in the PCS network during our financial reorganization in 2003. It was also offset by higher proceeds from the sale of long-term investments of $3.7 million in 2003 [mainly generated through the distribution of assets by a limited partnership in which we were associated and the sale of our investment in Saraide Inc.] and by a lower level of long-term investments’ acquisition of $3.6 million.

Cash used in investing activities was $20.6 million for the year ended December 31, 2002, compared with $383.9 million during 2001, for a decrease of $363.3 million. This difference was mainly attributable to lower additions to property, plant and equipments of $152.7 million, resulting from lower cash investments in the PCS network, which reflected our continuing focus on cash preservation. It was also due to lower additions to intangible assets of $130.0 million, the amount that was paid by us in 2001 as the final installment for the acquisition of the remaining 50% interest in Inukshuk. In addition, higher proceeds from the sale of short-term investments and marketable securities of $40.3 million in 2002 contributed to the favorable variance. The remaining can be explained by proceeds of $32.0 million received in 2002 mainly from the termination of our hedging agreements and by lower additions to long-term investments and other non-current assets of $8.3 million in 2002.

Cash used in financing activities was $7.3 million in 2003, compared with cash provided by financing activities of $69.5 million in 2002. This year-over-year difference was due to the obtaining, in the first quarter of 2002, of a then new senior secured credit facility of $100 million [the Tranche F]. This was partially offset by the absence of deferred financing costs in 2003 compared with $19.7 million of such costs in 2002 associated with the Tranche F and by lower repayment of long-term debt in 2003 of $3.4 million due to a reduced debt load following the recapitalization process.

Cash provided by financing activities for the twelve-month period ended December 31, 2002 was $69.5 million, compared with $437.7 million for 2001, for a decrease of $368.2 million. This decrease was mainly due to the lower amount of cash provided as a result of the issuance of $439.3 million in shares related to our two equity financing initiatives in 2001 — 174,691,777 Class B Non-Voting Shares issued in 2001 compared with nil in 2002 — partially offset by the closing, in the first quarter of 2002, of a new $100.0 million senior secured credit facility, which we refer to as Tranche F. In addition, higher deferred financing costs of $18.2 million and the repayment of senior secured loans in the amount of $10.7 million contributed to the variance.

Sources of funding for our further financing or refinancing requirements may include, in addition to our existing credit facilities, incremental bank financing, vendor financing, public offerings or private placements of equity or debt securities, and capital contributions from shareholders. However, there can be no assurance that such additional financing will be available to us or, if available, that it can be obtained on a timely basis and on terms acceptable to us. Furthermore, given the complex nature of our capital structure, there is no assurance that the proceeds made available from such financing transactions could be used to fund our on-going business operations or new growth opportunities. Failure to obtain such additional financing, when and if required, could impair our ability to grow our business and meet our bank covenants. This could have a material adverse effect on our business, including, default under our existing credit agreement, the failure to retain customers, and the inability to compete effectively.

Our credit facilities contain restrictive covenants which may affect, and in some cases significantly limit or prohibit, among other things, our ability to incur indebtedness, raise equity, create liens, make capital expenditures above certain threshold and engage in acquisitions, mergers, amalgamations and consolidations. In addition, our credit facilities require us to maintain certain financial ratios. If we fail to comply with the various covenants of our indebtedness, we will be in default under the terms of that indebtedness, which would permit holders of the indebtedness to accelerate the maturity of that indebtedness and could cause defaults under other indebtedness or agreements. In these circumstances, the lenders under our credit facilities could foreclose upon all or substantially all of our assets and our subsidiaries, which are pledged to secure the obligations of the borrowers thereunder.

As most of our revenues are expected to be received in Canadian dollars, we are exposed to foreign exchange risk on repayments at maturity of part of our Term Loan A and Term Loan B denominated in U.S. dollars.

In March 2004, we entered into new swap transactions to manage our exposure to foreign exchange rate fluctuations on the U.S.-dollar-denominated Term Loan A and Term Loan B. We swapped the total principal of Term Loan A and Term Loan B in the amount of $400 million [US$299.9 million] at a rate of 1.3340. We also swapped the floating interest rate of Libor plus 4% on Term Loan A, payable in U.S. dollars, to a floating interest rate of Libor plus 5.085%, payable in Canadian dollars. We also swapped the floating interest rate of Libor plus 7% on Term Loan B, payable in US dollars, to a floating interest rate of Libor plus 8.485%, payable in Canadian dollars. The maturity of the swap transactions corresponds to the maturity of both term loans.

Although we may enter into other such transactions to hedge the exchange rate risk with respect to any other U.S. dollar-denominated debt and transactions, there can be no assurance that we will engage in such transactions or, if we decide to engage in any such transaction, that we will be successful and that changes in exchange rates will not have a material adverse effect on our ability to make payments in respect of its future U.S. dollar-denominated debt. Such transactions may require that we provide cash or other collateral to secure our obligations.

As at June 30, 2004, Term Loan A in the amount of $197.5 million and Term Loan B of $199.5 million have a floating interest rate and we did not hold any interest rate swap agreements related to this exposure. A fluctuation of one percentage point would affect our cash flow by approximately $4.0 million annually.

We may experience growth-related capital requirements arising from the need to fund network capacity improvements and ongoing maintenance and to fund the cost of acquiring new PCS customers. Our ability to generate positive net income and cash flow in the future is dependent upon various factors, including the level of market acceptance of our services, the degree of competition encountered by us, the cost of acquiring new customers, technology risks, the future availability of financing, the results of our equity investments, general economic conditions and regulatory requirements. There can be no assurance that we will achieve or sustain positive cash flow from operating activities. If we cannot maintain positive cash flow from operating activities, we may not be able to meet our debt service or working capital requirements or obtain additional capital required to meet all of our cash requirements. In addition, we will be required to make interest payments under certain financing arrangements and will be required to make payments of principal thereunder.

On April 10, 2002, ASP Wireless Net Inc., or ASP, a former service provider of Solutions, filed a notice of arbitration pursuant to an agreement that ASP had with Solutions. ASP claims in the notice of arbitration that Solutions has breached its agreements with ASP, and ASP therefore suffered damages in the amount of $18.5 million, which ASP is claiming from us. The breach alleged by ASP relates to Microcell’s failure to provide ASP access to Microcell’s PCS network. We consider ASP’s claim frivolous and unfounded in fact and in law and intend to vigorously contest it.

On April 21, 2004, UBS Wireless Services, Inc., an Ontario corporation that manufactures and operates wireless products and services, filed a lawsuit against Microcell, Solutions, Inukshuk and Allstream in the Ontario Superior Court of Justice. In its statement of claim, UBS claims, among other things, for damages in the amount of $160 million from each of Microcell, Solutions and Inukshuk for breach of contract, breach of confidence and breach of fiduciary duty and punitive damages. UBS also claims from Inukshuk, as an alternative to the damages claims, an order for specific performance of a conditional agreement between Inukshuk and UBS with respect to the use of 38 MHz of Inukshuk’ s spectrum by UBS. UBS also claims certain other equitable relief, including disgorgement of profits that UBS alleges would otherwise unjustly enrich Inukshuk, Solutions and Microcell. The action is at a very early stage with no statement of defence yet

On August 9, 2004, a proceeding under the Class Actions Act (Saskatchewan) was brought against Microcell and other providers of wireless telecommunications services in Canada. The proceeding involves allegations of deceit, misrepresentation and false advertising by wireless telecommunications service providers with respect to the monthly system access fees being charged to customers. The plaintiffs seek unquantified damages from the defendant wireless telecommunications service providers, plus costs and pre-judgment and post-judgment interest. Microcell believes it has good defences to the allegations made by the plaintiffs. Further, the proceeding has not been certified as a class action and it is too early to determine whether the proceeding will qualify for certification as a class action.

The Company is involved from time to time in other legal and regulatory proceedings incidental to its business. The Company does not believe that such proceedings will have, individually or in the aggregate, a materially adverse effect on its results.


[1]	This figure does not include the deactivation of 74,843 prepaid customers removed from our retail subscriber base at the beginning of the second quarter.

[2]	In conjunction with the unsolicited public takeover offers, we expect to incur a minimum of $15 million of non-operating expenses in 2004 related to legal and consulting fees, as well as the accelerated vesting of employee stock options.

[3]	The revised guidance reflects $15 million in special charges described in note [2] above.

[4]	This figure includes $5.4 million of special charges arising from the unsolicited public takeover offers.

We are revising certain elements of our 2004 annual guidance that were initially provided on February 12, 2004. Our gross additions guidance for full-year 2004 is revised upward from the range of 580,000 to 610,000 to a range of 640,000 to 680,000, reflecting the accelerated deployment of City Fido following the successful conclusion of our financing activities earlier this year. Accordingly, we are also increasing our services revenue target to a range of $625 to $650 million from a range of $615 to $640 million, due to the higher average number of subscribers resulting primarily from our postpaid-acquisition strategy that is being led by our City Fido offer. Despite higher services revenue guidance, we are decreasing our guidance for both operating income and OIBDA for full-year 2004 by approximately $15 million as a result of special charges in conjunction with the strategic and financial alternatives process that began following the unsolicited public takeover offer for Microcell on May 13, 2004. Consequently, we now expect to generate operating income between $0 and $10 million and OIBDA in the range of $100 to $110 million for full-year 2004. Our capital expenditures guidance is also being increased by $100 million to a range of $270 to $280 million from a range of $170 to $180 million, reflecting the up-front spending in terms of signal improvement and capacity enhancement that is required to prepare our network for the expansion of City Fido beyond Vancouver. Other previously issued guidance for 2004 remains unchanged.

On September 14, 2004, we issued guidance on expected operating and financial performance in order to keep our securityholders informed while we complete our strategic review process. Previously issued guidance on Microcell’s full-year 2004 performance remains unchanged, as we believe we remain on target to meet our 2004 plan.

The following table includes selected operating and financial data, both actual and projected, for the periods indicated.

The following table provides quarterly estimates for certain key indicators supporting the above-mentioned operating metrics for which full-year 2004 guidance has been provided.

As most of our revenues are expected to be received in Canadian dollars, we are exposed to foreign exchange risk on periodic interest payments on Tranche B Term Loan A and Tranche B Term Loan B, which are both denominated in U.S. dollars. We use derivatives such as foreign exchange swap agreements to manage certain elements of our cash flow exposure resulting from foreign exchange fluctuations. We do not hold derivatives for trading purposes.

It is our policy to enter into foreign currency and other hedging transactions to manage financial risk exposures and to protect cash flow from market volatility, while minimizing the costs associated with any hedging program. To date, we have hedged our foreign exchange risk exposure to mitigate the impact of changes in foreign exchange rates on our cash flow resulting from the U.S. dollar denominated Tranche B Term Loan A and Tranche B Term Loan B.

The fair value of Tranche B Term Loan A and Tranche B Term Loan B debt is determined based on current quoted value on the over the counter market at the balance sheet date.

The fair value of the derivative instruments is determined based on market rates prevailing at the balance sheet date obtained from the company’s financial institution for similar derivative instruments.

The Tranche A Exit Facility consists of a Cdn.$50 million line of credit which remains undrawn as at June 30, 2004. Of this Cdn.$50 million, Cdn.$16 million has been carved-out to mitigate the credit exposure due to the Company’s swap transactions. This debt carries a floating interest rate based on Canadian B/ A’s.

The Term Loan A and Term Loan B are both denominated in US dollars at $149.925 million each, for a total of U.S.$299.85 million. The equivalent in Canadian dollars is Cdn.$200 million for Term Loan A and Cdn.$200 million for Term Loan B. As of June 30, 2004, we did not hold any interest rate swap agreements related to our interest rate exposure. A fluctuation of one percentage point in the U.S. Libor rate would affect our cash flow by approximately Cdn.$4 million annually.

As our policy is to hold all cash equivalents and short-term investments to maturity, short-term fluctuations in interest rates would not materially impact the realization value of these investments.

Our objective in managing foreign exchange risk is to protect against cash flow and balance sheet volatility resulting from changes in foreign exchange rates. Long-term debt denominated in U.S. dollars exposes us to changes in foreign exchange rates.

In March 2004, we entered into swap transactions to manage our exposure to foreign exchange rate fluctuations on the U.S.-dollar-denominated Term Loan A and Term Loan B. We swapped the total principal of Term Loan A and Term Loan B in the amount of $400 million [U.S.$299.9 million] at a rate of 1.3340. We also swapped the floating interest rate of Libor plus 4% on Term Loan A, payable in U.S. dollars, to a floating interest rate of Libor plus 5.085%, payable in Canadian dollars. We also swapped the floating interest rate of Libor plus 7% on Term Loan B, payable in U.S. dollars, to a floating interest rate of Libor plus 8.485%, payable in Canadian dollars. The maturity of the swap transactions corresponds to the maturity of both term loans. These swap transactions, which have not been designated as hedging instruments, are presented at their fair value as derivative instruments on the balance sheet and changes in fair value are recognized in income as foreign exchange gains or losses. As of June 30, 2004, fair value of these swaps represented a liability of $13.4 million for us.

The following table provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For long-term debt, the table presents principal repayments and related interest rates by expected maturity dates based on the historical exchange rate of 1.3340.

Microcell Telecommunications Inc. was incorporated in Canada pursuant to the CBCA on April 28, 2003 under the name 4130910 Canada Inc. We changed our name on May 1, 2003 to Microcell Telecommunications Inc./ Microcell Télécommunications Inc. We are the successor corporation of Old Microcell. We were formed as a holding company for Old Microcell pursuant to the plan of reorganization. Old Microcell was incorporated pursuant to the CBCA on October 16, 1992 and liquidated into Microcell as of December 31, 2003.

On May 13, 2004, we were informed that TELUS intends to make an unsolicited all-cash offer to purchase all of our outstanding publicly traded shares and warrants. On May 17, 2004, TELUS filed its offer with the Canadian securities authorities and the SEC. On May 31, 2004, we announced the mailing of our directors’ circular containing the previously announced recommendation of the board of directors that holders of our class A restricted voting shares, class B non-voting shares, Warrants 2005 and Warrants 2008 not tender into the unsolicited offers from TELUS. On June 22, 2004 TELUS announced that it would extend the TELUS offers until July 22, 2004. On June 29, 2004, we issued a press release confirming the recommendation in our directors’ circular. TELUS subsequently extended its offers to expire on October 12, 2004. On that date, TELUS announced that it would not extend its offer and, as a result, the TELUS offers expired on that day.

As part of the strategic review process initiated by our board of directors, we, along with our legal advisors and financial advisors engaged in discussions, and we entered into confidentiality agreements, with interested parties, including RCI and RWCI. On July 14, 2004, we entered into a confidentiality and standstill agreement with RCI and RWCI. Rogers thereafter examined certain of our confidential financial, operating and other relevant information and were given access to our management through formal management presentations. During September 2004, we conducted negotiations with Rogers relating to a possible transaction. On September 16, 2004, Rogers announced that RWCI had made filings with the Canadian Competition Bureau regarding our company and that it had filed a request for an advance ruling certificate and a short-form pre-merger notification with the Canadian commissioner of competition relating to a possible offer to acquire all of our class A shares, class B shares, Warrants 2005 and Warrants 2008. On September 17, 2004, officers of Rogers met in Montreal with our officers to discuss the terms of a possible transaction and advised them that RWCI wished to proceed with an offer for our securities on the basis of a consideration of $35.00 per share, subject to reaching agreement on the terms of a support agreement, which we refer to as the Rogers offers.

The terms of the support agreement do not prohibit our board of directors from fulfilling its fiduciary duties to consider and, in certain circumstances, to approve or recommend a superior proposal. The board of directors may, under certain circumstances, withdraw or modify in a manner adverse to Rogers its approval or

At the time of the release of our second quarter 2002 results on August 9, 2002, we announced that there was significant uncertainty regarding our ability to continue as a going concern, such ability being dependent, among other factors, on our ability to reduce our financing costs and improve our liquidity and operating performance. We also announced on that date that we had retained the services of Rothschild Inc. and NM Rothschild & Sons Canada Limited, which we refer to collectively as Rothschild, as financial advisor, and formed, in August 2002, a special committee of the board of directors of Old Microcell, or the Old Board, composed of three independent directors with a view to evaluating various strategic options in the circumstances. The alternatives considered by the financial advisor and the special committee were a debt restructuring, recapitalization, potential capital infusion, sale of the business and other type of transactions including a court supervised reorganization. The special committee determined that the capital reorganization was the most favourable alternative for all the stakeholders. Three independent directors, Messrs. Michael Cytrynbaum, Noel R. Bambrough and Pierre Laurin, composed the special committee. In light of the going concern uncertainty, the mandate of the special committee was to review and evaluate our alternatives with a view to reducing our financing costs and improving our liquidity. To that end, the special committee obtained the advice and recommendations of Rothschild. The significant uncertainty resulted from the fact that we disclosed that we believed we would be in default of certain covenants in our long-term debt agreements within a twelve-month period, unless we could successfully renegotiate some of these covenants. With such default, the senior secured lenders could have chosen not to provide us with further access to funds under the senior secured revolving credit facility and could also accelerate debt repayment.

On October 31, 2002, we entered into a forbearance and amending agreement with our secured bank lenders in which the lenders agreed to forbear until December 23, 2002, subject to certain conditions, the exercise of any rights with respect to certain possible defaults. The covenants to which the forbearance agreement applied related to the non-payment of interest on the 2006 Notes and the possibility of the non-payment to a supplier under a material contract. On December 2, 2002, we announced that we would not make our interest payment on our 2006 Notes due on that day. Before the end of the forbearance period, we reached an agreement with the supplier on the amount due and settled such amount.

On December 23, 2002 we announced that our secured lenders, holding approximately 74% of the outstanding secured debt, had agreed on the terms of a recapitalization plan. In this regard, our secured lenders agreed to forbear, until January 6, 2003, the exercise of any rights with respect to a default resulting from the non-payment of interest on the 2006 Notes. Old Microcell also continued to have constructive discussions regarding the recapitalization plan with the informal ad hoc committee of noteholders, which we refer to as the AHB Committee, formed to pursue discussions with us regarding our proposed recapitalization.

On January 3, 2003, we announced that we had received signed commitments from certain of our secured lenders and noteholders, representing approximately 75% and 55%, respectively, of the estimated aggregate voting claims that may be represented at the secured creditors’ meeting and the affected unsecured creditors’ meeting. In view of our then current and anticipated financial position, the status of our discussions with financial and strategic investors, the non-payment of U.S.$29.3 million of interest due on the 2006 Notes in December 2002 and the options available to us under the circumstances, we elected to restructure our operations under the protection of the Companies’ Creditors Arrangement Act (Canada). We filed for and received protection under the Companies’ Creditors Arrangement Act (Canada) on January 3, 2003, in the form of an initial order granted January 3, 2003 by the Superior Court of the Province of Québec in the Judicial District of Montreal, which we refer to as the Court, in respect of Old Microcell and certain of our subsidiaries. We refer to this as the Initial Order.

On February 19, 2003, we filed our circular, which included the plan of reorganization, with the Canadian Securities Commissions and the SEC. Subsequently, on March 17, 2003 the plan of reorganization was voted upon and approved by 98% of the secured creditors and 100% of the affected unsecured creditors, representing 93% and 100%, respectively, of the total value of the secured claims and affected unsecured claims that were voted. On March 18, 2003, the Court issued a sanction order sanctioning the plan of reorganization and it became effective on May 1, 2003.

The restructuring of our operation mainly consisted of a reduction of our workforce and of our debt obligations by approximately $1.6 billion and our annual interest payment obligations by a range of $140 to $180 million. The court protection that we received under the Companies’ Creditors Arrangement Act (Canada) ensured that the negotiated plan of reorganization would be implemented in an orderly fashion and for the benefit of all stakeholders.

Our PCS network, based on the GSM technology, represents our main capital expenditure and covers approximately 19 million people, or 61% of the Canadian population. We have designed our PCS network to operate exclusively in the 1900 MHz frequency range. With 30 MHz of contiguous spectrum, we have been able to design our PCS network so that its base station sites are appropriately spaced and located to provide optimal cost-effectiveness and continuous service throughout coverage areas. We believe that this design permits our PCS network to provide high quality service even at cell edges. In addition, we are using mini and micro-base stations, off-air repeaters and in-building distributed repeaters to cost-effectively improve the quality of outdoor and in-building coverage.

In 2001, we upgraded our entire GSM network to offer GPRS technology, an over-the-air system for transmitting data on GSM networks. GPRS is a wireless technology standard that supports data communication through devices that enable “always on” Internet connectivity. GPRS technology converts wireless data into standard Internet packets, enabling interoperability between the Internet and a mobile wireless network. The GPRS method of transporting data optimizes network capacity by using bandwidth only when it is needed. In addition, several data transmissions from different users can share the same channel. The end result is next-generation technology that will allow end-users to cost-effectively remain constantly connected, and to send and receive data much faster.

We invested approximately $73 million, $125 million and $277 million in capital expenditures for the years ended December 31, 2003, 2002 and 2001 respectively and $160 million for the six-month period ended June 30, 2004. In addition, we invested $130 million and $20 million in 2001 and 2000, respectively, for the total acquisition of Inukshuk. The principal asset in Inukshuk is represented by the MCS licenses. The MCS licenses were written down to nil in 2002, as a result of uncertainty regarding financing at that time.

With effective implementation of our capital restructuring plan on May 1, 2003, we have strengthened our financial position. Now that this process is completed, our goal is to re-establish our company as a strong competitor in the Canadian PCS wireless market, providing affordable and innovative PCS services and positioning us as the preferred access network for the mass market. Our strategic direction is to focus primarily on our core PCS operations within the retail consumer and individual business user market segments.

With our network buildout substantially completed, capital expenditures for 2004 are projected to be between $270 and $280 million. The expenditures will be concentrated on maintenance and capacity improvements to allow for continued service quality, subscriber and usage growth, as well as on enhancement of the PCS coverage and signal strength in markets already being served and capacity enhancement that is required to prepare our network for the expansion of City Fido beyond Vancouver.

From our inception, we have been involved in the design and deployment of wireless communications services. In September 1994, we were issued an experimental license from Industry Canada to test PCS technologies operating in the 1900 MHz frequency range. The experimental license was used to deploy a pilot

We offer a wide range of voice and high-speed data communications products and services to over 1.2 million customers. We operate a GSM network across Canada and market PCS and GPRS under the Fido brand name. PCS consists of wireless telecommunications services that use advanced and secure digital technology. We are the only wireless competitive local exchange carrier in Canada, which provides us with the ability to port landline numbers to wireless phones. This enables us to differentiate ourselves in the Canadian wireless industry by allowing us to actively pursue a local wireline substitution strategy. We also offer access to our PCS network to third-party telecommunications providers on a wholesale basis, including Sprint Canada Inc. with whom we have an agreement whereby Sprint Canada offers their home phone and long distance service along with our Fido wireless service.

Since May 1, 2003, we have carried on our operations through two principal wholly-owned subsidiaries:


	•	serves both consumer and corporate customers;

	•	is the holder of our personal communication services license;

	•	owns our personal communication services network;

	•	operates our wholesale personal communication services business; and

	•	operates our retail personal communication services business under the Fido brand name; and


	•	Inukshuk, a company selected to be awarded MCS licenses by Industry Canada in the spring of 2000 that cover some 30 million people in Canada; MCS spectrum allows for the deployment and operation of broadband wireless access networks. On November 19, 2003, Inukshuk announced arrangements for a venture with third parties to build an MCS network to provide for high-speed Internet, IP-based voice and local networking services using broadband wireless technology. Since February 11, 2004 Inukshuk operates as a wholesaler in Yellowknife and works with retailer SSI Micro Ltd. to bring high-speed Internet services to that market.

PCS is a generation of wireless telecommunications services based on advanced, secure, digital technology. We currently offer a range of simply priced, affordable packages of feature-rich PCS, including secure digital voice transmission, prepaid services and enhanced customized value-added data services. Since our inception, we have been pursuing a mass-market strategy to position our company as the customer’s preferred source of access for everyday communications needs.

We commercially launched our PCS services in the greater Montreal area in November 1996 under the Fido brand name. We currently provide PCS coverage in a number of other census metropolitan areas and other communities and regions in Canada, including: St. John’s, Halifax, Québec City, Trois-Rivières, Sherbrooke, Ottawa-Hull, Oshawa, Toronto, Hamilton, St. Catharines-Niagara, Kitchener, London, Windsor, Winnipeg, Regina, Saskatoon, Edmonton, Calgary, Vancouver and Victoria. In addition, our PCS network provides digital network coverage along certain Canadian highway corridors between urban areas and weekend destinations. We estimate that our PCS network covers some 19 million people, or 61% of the Canadian population. We believe that our strong branding, customer segmentation strategy, service innovation and product differentiation has fuelled high rates of customer acceptance and subscriber growth in a relatively short period of time. We had 1,191,321 customers as at June 30, 2004, consisting of 651,461 Fido postpaid service subscribers and 547,860 Fido prepaid service subscribers, compared with a retail customer base of 1,245,146 at the end of 2003 of which 592,180 were postpaid and 652,966 prepaid. This represents an approximate 9% market share of the total number of wireless subscribers in Canada. At the beginning of the

We are using the GSM technology for our PCS network. Having been in successful operation for approximately twelve years, GSM has achieved substantial market acceptance. It is the most widely deployed digital wireless voice and data technology in the world, accounting for 72% of the world’s digital market and 70% of the world’s wireless market. It is currently used by 510 on-air networks in 174 countries and territories, providing commercial service to more than 987 million customers, including over 22 million GSM customers in North America. We also believe that GSM network equipment prices and GSM handset prices benefit from greater economies of scale than other digital technologies. We also benefit when GSM subscribers from other networks roam onto our PCS network. Similarly, our customers enjoy the benefits of global roaming on the networks of our GSM roaming partners around the world. We have operational roaming agreements with almost all of the GSM operators in the United States and with more than 300 GSM operators in 158 countries worldwide.

We have deployed a PCS network in each of our markets that is designed specifically to provide the coverage needs of our targeted market segments and the capacity necessary to satisfy the usage requirements of our subscribers. We were the first wireless operator in Canada to deploy an all-digital data network based on next generation infrastructure. Our PCS license, consisting of 30 MHz of continuous spectrum nationwide, currently allows us to rapidly and cost-effectively add network capacity with minimal cell splitting. We believe that the combination of our network technology, network design and spectrum depth makes us uniquely suited to efficiently serve the usage demands of our subscribers and provides us with a competitive advantage.

Beyond our PCS network coverage, we provide analog roaming capabilities through the networks of other wireless operators in Canada. This increases the effective wireless coverage area available to our customers to approximately 94% of the Canadian population. Access to analog cellular coverage requires the use of dual-mode (analog-GSM) handsets.

In order to strengthen our competitive position in the Canadian wireless market, we underwent a thorough revision of our business plan during 2002 in response to difficult financial market conditions and certain operating realities, primarily the slower-than-expected emergence and adoption of data-related services, and the competitive and operating challenges we faced in acquiring and supporting business accounts. Accordingly, we adjusted our strategic direction to focus primarily on core PCS voice operations and low bandwidth data services within the retail consumer and individual business user market segments. In order to competitively position our wireless service as a preferred means of communication in the mass market, we designed our postpaid service marketing strategy around specific product attributes, such as big-minute bundles, per-second billing, worldwide roaming and competitive long-distance rates, while our prepaid service marketing strategy is centered on product features such as flexibility, spending control, simple and convenient mobile airtime replenishment, postpaid-type per-minute rates and bundled value-added services.

Some key elements of our business strategy, already or in the process of being implemented, include the following:


	(1) focus primarily on the retail consumer and individual business users market segments;

	(2) allocate resources primarily to PCS activities with a high impact on the customer base;

	(3) target mass-market retail consumer segments with the highest growth potential, such as the youth, young adult and urban professional markets, as well as individual/business users/small office/home office business users located in major metropolitan areas using direct-to-consumer distribution channels, including corporate-owned stores, third-party retailers, and a direct sales force;

	(4) offer simple, affordable and relevant PCS products, services and devices that meet the everyday personal and business needs of customers, while minimizing operating costs;


	(5) lead in terms of innovation by designing strongly differentiated products and services for profitable market niches that address the lifestyle and usage habits of the highest-growth market segments;

	(6) spearhead local wireline substitution in Canada;

	(7) adopt a “fast-follower” approach or a “network partner” approach with respect to the emerging data market in order to reduce the costs and business risks associated with new product and service development;

	(8) provide a superior level of customer service, invest in customer retention programs, and ensure customers are matched to the right payment method to optimize satisfaction and foster loyalty;

	(9) focus network improvements primarily on capacity and maintenance;

	(10) increase network capacity on a timely basis to support customer growth requirements resulting from new product launches or existing services and enhance existing network coverage through improvements to signal strength in markets already being served; and

	(11) continue to support existing third-party service providers and considering new wholesale proposals.

Our goal is to remain a leading provider of affordable and innovative PCS services in Canada and to position our company as the preferred access network for the mass market. Key elements of our positioning are:


	•	Build Awareness of PCS and the Fido Brand Name. We are targeting mass-market consumers, individual business users and small- to medium-sized businesses on a segmented basis. We are marketing Fido® as the wireless communications service that provides superior customer value. Our newest product, City Fido, is another avenue that we are taking to raise the profile of wireless telephony in Canada by leading the movement towards wireline displacement through offering a monthly, flat-rate, unlimited local usage package.

	•	Offer Superior Products and Services at Affordable Prices. We offer simple packages of affordable, innovative and value-added PCS products and services that meet the everyday personal and business needs of customers. Through our position as one of the lowest cost providers in the wireless industry, we are able to offer better pricing to consumers. Our services have been made available on a postpaid basis and, for customers seeking an alternative form of payment with added flexibility, on a prepaid basis. We currently offer secure digital voice transmission, two-way e-mail and text messaging, enhanced voice and fax messaging, and a range of call management services. We also offer higher-speed mobile data services based on GPRS technology.

	•	Offer Enhanced and Customized Value-Added Services. We believe that we can improve future revenue growth by offering a wide range of enhanced customized value-added voice-related services and data-related services on any existing or future handheld device, as well as by offering service bundles that will include high-speed Internet.

	•	Differentiate from the Competition. We use the strength of our Fido brand name to attract new customers by distinguishing ourselves from the competition. We intend to continue growing the wireless market in Canada by designing innovative products and services that specifically address the lifestyle and usage habits of our target market segments and that support the key pillars of our marketing strategy: affordability of service, predictability of billing and fair pricing.

	•	Provide Superior Customer Service to Build Loyalty. In order to enhance the level of customer service and to maintain a high level of customer loyalty, we have established our own internal customer service and call center, available seven days a week. Our one point of contact service includes the handling of customer inquiries concerning activation, services, billing and collections, and network performance. We also offer on-line activation and billing to our customers. We use a customer


		segmentation approach at our call center in order to provide an optimal level of service to our highest value customers.

	•	Network Enhancements. We have built our PCS network in a cost-effective manner, which has been purposefully designed to meet the requirements of a mass-market strategy. Our choice of the GSM standard allows us to benefit from a proven technology that is currently commercially available from multiple equipment vendors. We have concentrated our network build-out in Canada’s densely populated urban areas, popular weekend destinations and certain highway corridors between the urban areas to ensure optimal network coverage for our target market segments. Our future capital spending is expected to be concentrated on ongoing maintenance, increasing capacity to support subscriber and usage growth, as well as on improving signal strength in the markets already served.

	•	Wholesale PCS. In order to increase the utilization of our PCS network, we have entered into wholesale service arrangements with non-affiliated companies to use our network to offer bundled wireless services to their customers.

The Canadian wireless industry has enjoyed penetration gains of approximately 4 percentage points per year since 1996. Although there is no assurance that these penetration rates will be similar in the future, based on this trend, we expect that the penetration rate will increase by another 20 percentage points by the end of 2008 from 43% as at the end of 2003 to over 60% by the end of 2008. Also, given the increase in competitive activity and proliferation of new services, particularly since Microcell’s return as a fully active competitor after its recapitalization in 2003, industry subscriber growth has begun to improve, which could push the annual penetration gain beyond the average 4 percentage points per year. Historically, Canada has lagged the U.S. and other developed European countries in terms of wireless penetration by several years. The U.S. penetration rate was approximately 54% at the end of 2003 and it is expected to reach 70% by the end of 2008, while the average European wireless penetration rate is over 80%. As a result, there is still ample room for wireless voice services to grow in Canada, especially given the proliferation of new handsets with high-end features, the introduction of bundled offers, and the launch of new services that encourage the creation of user communities and stimulate wireline displacement. Moreover, in our view, the enterprise market for wireless in Canada is increasingly mature. Accordingly, the greater growth opportunity exists in the retail consumer market, particularly within the youth and young adult market segments, which is consistent with our customer segmentation approach and the wireless industry’s evolution in Canada. Given this context, we intend to focus our marketing efforts on stimulating this incremental growth by distinguishing ourselves from the competition. We believe our market positioning should enable us to acquire our fair share of new subscribers and to maximize our cash flow through focusing on certain higher-growth market segments and leveraging existing network infrastructure to offer enhanced voice and certain short messaging service-based data services.

In keeping with our business strategy of market differentiation and our objective to continue raising the profile of wireless telephony in Canada through product evolution and innovative service design, we commercially introduced the industry’s first home and mobile service in the Greater Vancouver area, branded under the City Fido^TM name, in October 2003. This service, which uniquely embraces the concept of person-to-person communication by integrating the features of traditional wireline service with the benefits of wireless mobility, is being positioned as an alternative to local wireline telephone service. The service allows customers to place unlimited wireless calls within a local calling area and to receive unlimited calls from any area for a flat monthly rate of $45. We also provide roaming and long distance service, caller ID, text messaging and other value-added services for additional fees, which have resulted in ARPU in excess of $50 per City Fido subscriber. Due to the unlimited calling feature of the service, average usage among our City Fido subscribers is currently more than double the average monthly usage of our regular postpaid subscribers at approximately 421 minutes per month (based on fourth quarter 2003 results). Because of our competitive local exchange carrier status in Canada, most customers have the option of transferring their existing home or single-line business phone number to their City Fido plan, while keeping their white pages directory listing.

We believe that we are well-positioned, both operationally and strategically, to spearhead the movement towards wireline displacement. This unique opportunity to establish a differentiated market strategy is supported by the findings of recent studies that indicate a growing trend among consumers, particularly young urban adults, to use a wireless device as their primary means of communication, as well as by the strong customer response to City Fido experienced to date in Vancouver. We believe that City Fido will enable us to grow our subscriber base and service revenues at a significantly faster rate than planned. In May 2004 we launched City Fido in the greater Toronto area. We expect to rollout City Fido progressively over the next three years to additional Canadian cities.

The success of City Fido presents Microcell with a unique value creation opportunity. As of December 31, 2003, the Vancouver rollout of City Fido produced the following results in the fourth quarter of 2003:

We believe that City Fido has many compelling advantages and sustainable competitive strengths that strongly reinforce our overall market positioning and that support our objective of further expanding the wireless market in Canada. We can group these benefits into three broad categories:

Differentiated Service Offering. City Fido enables us to provide our subscribers with unlimited local wireless services at an affordable, fixed price, without the requirement for a long-term contract. We believe that this represents a unique value proposition for our subscribers that differs from offerings of the traditional wireless carriers. We also believe that our ability to attract approximately 72,000 City Fido subscribers in just under three months of service in the Vancouver area alone demonstrates the demand for such a product in Canada.

Creates Competitive Barrier. We believe that City Fido creates a competitive barrier by allowing us to offer customers a strongly differentiated product that the other three national Canadian wireless operators would be reluctant to match given the significant loss of recurring service revenue they would experience from the likely migration of their high-ARPU postpaid subscribers. Moreover, we believe that our competitors would have a high incremental capital spending requirement for network capacity in order to accommodate increased usage from the migration of a large number of postpaid customers. On average, as at the end of 2003, the proportion of postpaid subscribers in our competitors’ customer bases was approximately 75% to 80%, compared with only 48% for us.

Less Vulnerable To Churn. We believe that City Fido’s unique value and service structure, as well as the difficulty that our competitors would face in replicating this product, given the attendant cannibalization costs to them in terms of lost revenues and incremental capital expenditures, makes us less vulnerable to churn.

Attract Switchers. We believe that the differentiated nature of our City Fido product leaves room for us to capture incremental market share by distinctively positioning Fido in what is increasingly becoming a switcher’s market in the Canadian wireless industry. We estimate that over 50% of all new gross industry additions are current wireless subscribers who churn from their existing service providers. Furthermore, based

Rapid, Profitable Growth. The City Fido service adapts particularly well to the needs and lifestyles of single urbanites, young professionals, students, small-office home offices, or SOHOs, and to anyone who wants to add the benefit of mobility and a larger local calling area to their local phone service. As a result, we believe that we could capture a greater market share of the industry’s new gross customer additions. Offering City Fido should increase our overall operating margin faster than without this service, due to the positive impact on customer mix and revenue from having both a larger number of customers and a higher proportion of postpaid subscribers in the subscriber base.

Establish Strong Positioning for a Service Platform. We believe that City Fido will help us to establish a more stable and committed customer base to whom we can market a host of additional wireline-type services through a platform that includes high-speed Internet, long-distance bundles and family plan options.

No Significant Cannibalization of Revenues. Given the absence of a large business user segment or a significant number of corporate accounts in our current customer base, as well as no traditional local wireline franchise to protect, we do not face significant service revenue erosion from the introduction of a service that offers larger buckets of minutes at a fixed price.

Rebalance the Customer Mix. In our view, City Fido should help us to increase the proportion of postpaid customers in our subscriber base and, therefore, improve our blended ARPU (blended ARPU is a non-GAAP measure and is defined in the Management Discussion and Analysis of Financial Conditions and Results of Operations). As a direct result of our City Fido service launch, we increased the proportion of postpaid subscribers in our Vancouver area customer base during the fourth quarter of 2003. On October 1, 2003, our subscriber base in Vancouver was 50% postpaid, compared with approximately 58% at December 31, 2003. Postpaid subscriber additions in the fourth quarter of 2003 represented 78% of our total gross additions in Vancouver (of which 73% were City Fido), compared with an average of 40% for the first nine months of 2003.

Achieve a Lower Cost Structure. Our mass-market operating strategy, network design, concentrated network coverage and spectrum position has allowed us to become one of the lowest cost providers of wireless service in Canada. As a result of our ability to keep costs down, we are able to offer better pricing to consumers. Due to our current suite of products and customer profile, network usage is distributed fairly evenly throughout the day, resulting in very low peak-time usage and substantial off-peak capacity. The cost of network infrastructure and the cost of backhaul have decreased dramatically over the last few years, which has enabled us to reduce our cost per incremental minute. This ability to add network capacity cheaply, as well as the introduction of handset vocoders with better compression ability over the next year, should allow us to address the unlimited local usage market in a profitable and financially sound manner. Moreover, City Fido is a product that is easy to sell and service. Therefore, it brings added simplicity to our operations, which should contribute to further improving our cost structure and result in a higher operating margin over time.

Drive Incremental Penetration. We believe there is substantial demand for larger-bucket wireless services at a fixed, affordable price in Canada and that many prospective customers currently refrain from subscribing to or extensively using wireless communications services due to a lack of perceived value with their traditional wireless calling plans. We also believe that City Fido reduces the gap between existing wireless and wireline pricing, which stimulates wireless usage and encourages wireline substitution. In a recent survey among City Fido users conducted in November 2003, 14% indicated that they would cancel their residential wireline service. The percentage among wireless service newcomers was much higher at 25%. As a result, we believe that products such as City Fido could contribute to driving Canadian penetration rates in our markets to levels comparable to those experienced in the United States, Europe and Asia.

Monthly airtime packages. We offer two types of monthly price plans to customers who choose to subscribe to our postpaid PCS service, with the option of subscribing to a 24-month customer agreement, which provides new subscribers with a significant discount on a wireless device of their choice:


	•	1,000 minutes of airtime during evenings and weekends, 150 weekday minutes of airtime and minute tracker feature, for a flat rate of $30; or

	•	Unlimited minutes of airtime during evenings and weekends, 350 weekday minutes of airtime, 250 minutes of long distance within Canada or the U.S. and minute tracker feature for a flat rate of $45.


	•	300 minutes of airtime, 100 text or e-mail messages, voice messaging and call display features, for a flat rate of $30; or

	•	1,000 weekday minutes of airtime, unlimited airtime during evenings and weekends, minute tracker, voice messaging and call display features, for a flat rate of $100; or

	•	1,000 weekday minutes of airtime, 150 minutes of airtime during evenings and weekends and minute tracker feature, for a flat rate of $50.

City Fido includes unlimited local calling on our digital network throughout the entire Lower Mainland of British Columbia and the Greater Toronto Area, which areas cover a larger local calling area than the incumbent telephone company. Many customers will have the option of transferring their existing home or single-line business phone number to their City Fido service and keeping their white pages directory listing.


	•	make and receive an unlimited number of local calls on our digital network in their designated zone;

	•	use their Fido at home as a traditional phone;

	•	make calls while roaming outside their designated zone.

In line with our objective to make wireless telephony accessible to all Canadians, we offer a payment option that allows more customers to enjoy the benefits of monthly airtime packages by paying for them in advance. This service platform gives wireless customers with little or no credit history access to a postpaid rate plan, but without the working capital risk for us. Customers seeking greater flexibility and control over their wireless spending now have a practical alternative to prepaid service that offers per-second billing and real-time account tracking on-line. Our full control package, referred to as the FCP package, also includes the minute tracker feature that sends customers free text messages to advise them of their airtime usage and inform them of their account balance. Payment can be made through pre-authorized debit of a credit card or bank account, or by telephone or in person at one of our points of sale. When customers activate their Fido FCP service, we deposit $5 in the customer’s account for extras such as long distance, text messages, e-mail


	•	200 minutes of airtime for a flat rate of $20; or

	•	150 weekday minutes, 1,000 evening and weekend minutes for a flat rate of $30.

Beyond the bundled minutes, additional airtime is charged at the rate of $0.20 per minute for all monthly price plans, except for the 1,000 weekday minutes, unlimited evenings and weekend price plan at $100 where additional airtime is charged at a rate of $0.10 per minute. Long distance calls made from Canada to anywhere in Canada and the United States are billed at $0.10 per minute, while overseas rates are priced competitively with those of incumbent wireline telephone and alternative long-distance carriers. We charge a single roaming rate of U.S.$0.20 per minute for our customers roaming in the United States. We regularly bundle our airtime packages with selected service options to deliver superior value to our targeted customer segments.

A fee of $0.25 per month applies to all of the monthly packages for the 911 emergency service. Unless specifically included, a system access fee of $6.95 per month applies to all of the monthly packages. All monthly airtime packages include call waiting, call forwarding, conference call features, and a minute tracker feature upon request, unless specifically included. Pay per usage services are also available: text and instant messaging at $0.15 per message sent to customers with a Canadian or U.S. wireless carrier and at $0.20 per message sent to customers with an international wireless carrier (messages received are free), e-mail messaging at $0.15 per message sent or received, and picture messaging at $0.25 per message sent (messages received are free), as well as information and entertainment messaging and mobile Internet. Other optional services that can be combined with one of our monthly service packages, including City Fido, unless otherwise specifically included, consist of:


	(1) call display for $4 per month;

	(2) voice messaging for $4 per month;

	(3) call display and voice messaging for $6 per month;

	(4) business messaging (includes call display, voice messaging and fax messaging) for $9 per month;

	(5) unlimited local and long-distance calls, text messages (including instant messaging) between Fido customers anywhere in Canada for $10 per month;

	(6) 100 minutes of long distance within Canada and to the U.S. for $5 per month;

	(7) 250 minutes of long distance within Canada and to the U.S. for $10 per month;

	(8) 850 minutes of long distance within Canada and to the U.S. for $25


	(9) up-to 70% discount on the rates on international calls for $4 per month;

	(10) 50 text or e-mail messages for $3 per month;

	(11) 100 text or e-mail messages for $5 per month;

	(12) 1,000 text or e-mail messages for $10 per month.

	(13) 500 kilobytes of mobile Internet access and data transmission for $5 per month (GPRS handset needed);

	(14) 5 megabytes of mobile Internet access and data transmission for $25 per month (GPRS handset needed);


	(15) unlimited mobile Internet access and data transmission for $50 per month (GPRS handset needed); and

	(16) unlimited data for $20 per month (offered only to customers using a hiptop® device).

Per-minute Prepaid PCS Voice Service. In 1998, we introduced a prepaid wireless service whereby customers can purchase in advance of their usage airtime vouchers for a fixed validity period. We currently offer various airtime vouchers:


	•	$15 with a 15 day validity period and a per minute rate of 15 cents;

	•	$20 with a 20 day validity period and a per minute rate of 5 cents during evenings and weekends and 40 cents weekdays;

	•	$30 with a 30 day validity period and a per minute rate of 15 cents;

	•	$10 with a 30 day validity period and a per minute rate of 30 cents;

All prepaid airtime is usable any time of the day or week, and has been charged on a per-minute basis since September 16, 2002. Each month, a $0.25 fee for 911 emergency service is debited from the account balance. Prepaid service includes call waiting, call forwarding, standard voice messaging and call display as well as text and instant messaging at $0.15 per message sent to customers with a Canadian or U.S. wireless carrier and at $0.20 per message sent to customers with an international wireless carrier (received messages are free) and e-mail messaging at $0.15 per message sent and received. Information and entertainment messaging are also available on a pay per use basis. The flexible nature of our prepaid pricing options has been designed to enable the two main prepaid customer target segments, the youth and young adults, to better control their monthly expenditures and benefit from greater perceived value.

Customers can purchase additional prepaid airtime at any of our retail points of purchase by credit card directly through the customer service center, or through most Canadian Imperial Bank of Commerce banking machines. Long-distance calls made by prepaid customers are charged at the same rate as for monthly postpaid price plans.

PCS Data Service. We completed deployment of our GPRS network in 2001. Once fully optimized, according to our GPRS suppliers, the technology is expected to allow for throughput data rates of up to 115 kilobytes per second. As a result, we have defined a host of new services and products that enable customers to gain access to wireless data applications. In September 2001, we became the first Canadian wireless provider to provide the next generation of mobile data services based on GPRS wireless technology, and the first to introduce, in conjunction with T-Mobile USA Inc., data roaming capabilities in the North American market. Our data-capable devices enable mobile access to the Internet, e-mail, and personal information management tools at various speeds. The following data-only GPRS usage plans are currently available:


	•	$50 per month for unlimited usage;

	•	$25 per month for 5 megabytes, with each additional megabyte at $10; and

	•	$5 per month for 500 kilobytes, with each additional kilobyte at $0.03.

A system access fee of $6.95 applies for customers who do not already subscribe to a monthly airtime package. GPRS-based data services are also available on a pay-per-use basis charged at $0.03 per kilobyte. In addition, we have identified a number of market-specific mobile data applications beyond the basic offering of “always on” Internet connectivity. The focus for business users is e-mail access and personal information management tools, while interactive services such as gaming and instant messaging are projected to be attractive to the consumer market.

We believe that, as data transmission technologies develop, a number of additional potential uses for such services will emerge.

GSM Technology Features. Our choice of GSM digital technology enables us to offer the following services and features:


	•	Secure Communications. Sophisticated GSM encryption algorithms that vary with each call provide increased call security to protect users against eavesdropping and significantly reduce the risk of cloning of subscriber information.

	•	Call Management. Our PCS network offers call management services including call display, call waiting, call forwarding, call blocking, caller identification blocking and call conferencing.

	•	Enhanced Battery Performance. GSM handsets consume, on average, less power than analog handsets. In contrast to analog handsets, which transmit at a constant rate of power, GSM handsets are able, for example, to determine the distance between a handset and a cell site and vary the wattage of the handset accordingly. This extends the amount of time a battery can be used on GSM networks without having to be recharged. According to manufacturers, some GSM handsets can deliver up to four hours of talk time and six days of standby time without recharging.

	•	Enhanced Wireless Data Transmission. Digital networks are capable of simultaneous voice and data communications. We currently offer basic enhanced wireless data transmission services, such as two-way alphanumeric short messaging service, GPRS and fax messaging.

	•	Subscriber Identification Module. Our GSM handsets hold a subscriber identification module, or SIM card, that contains a microprocessor which protects against fraudulent use by identifying and authenticating each subscriber. The SIM card can also store details of the user’s services subscribed, telephone number, personalized directory and notifications of voice and data messages received. In addition, the SIM card will enable a subscriber roaming on another GSM network to have access to comparable services. However, certain of these features are not available while customers are roaming on other GSM networks or on an analog cellular network.

	•	Ease of Use. We provide easy to use, intuitive, menu-driven handsets from different manufacturers, such as Sony Ericsson Mobile Communications AB, Nokia Products Limited, Siemens Canada Ltd., Danger, Inc. and Motorola Canada Limited, that enable customers to make full use of the features available on GSM. Microcell also provides over-the-air service activation or subscriber profile management by transmitting changes in a subscriber’s feature package of services, including mobile number assignment, directly to the SIM card in the subscriber’s handset.

	•	Worldwide Roaming. Our subscribers are able to roam on to other GSM networks, operating either at the same 1900 MHz frequency, or on a different frequency through the use of a multi-band GSM handset. This roaming capability gives subscribers access to PCS service when traveling around the world. Access to roaming service requires us to enter into roaming agreements with other GSM operators. We have operational roaming agreements in place with almost all of the GSM operators in the United States and with more than 300 GSM operators in 158 countries worldwide. We also have roaming for GPRS in 64 countries.

Our strong branding, customer segmentation strategy, service innovation and product differentiation has fuelled high rates of customer acceptance and subscriber growth since inception, as reflected by our reaching the one million subscriber mark faster than any other wireless operator in Canada. During our recapitalization process, which began in the third quarter of 2002, we imposed a growth slowdown on our operations in order to preserve liquidity. This resulted in fewer new gross additions, which in combination with higher churn due partly to increased competitive activity, gave rise to subscriber losses. Following the successful completion of our capital reorganization, we returned to the wireless market as a fully active competitor and resumed subscriber growth. As a result, for the third and fourth quarters combined, which were our first two full quarters of operation following completion of our restructuring, we added 148,714 new net subscribers. As at December 31, 2003, we had 1,245,146 retail subscribers, representing an increase of 7% over 2002. In addition, as at December 31, 2003, we provided PCS network access to 33,042 wholesale subscribers.

The chart below provides an annual summary of our PCS subscribers and annual subscriber growth since 1997:


(1)	During the second quarter of 2002, we removed 90,000 inactive prepaid customers from our retail customer base. We define inactive prepaid customers as those who have not made or received a call for a period of more than 30 days. The 90,000 figure represented approximately the average monthly number of inactive accounts in our prepaid customer base in the last twelve months preceding the second quarter of 2002. By excluding these inactive accounts from the reported customer base, we believe that we are providing a more accurate representation of our quarterly prepaid operating statistics for average revenue per user and average monthly usage.

(2)	At the beginning of the second quarter of 2004, we removed 74,843 inactive prepaid customers from our retail subscriber base. The increase in the number of inactive accounts was due primarily to the combined impact of continuing aggressive actions by the competition to attract our customers, a reduction in the validity period of certain airtime vouchers, and the brief success of some of our prepaid retention activities in 2003 that temporarily revived a number of dormant prepaid accounts. The adjustment to the prepaid customer base was not reflected in the calculation of our prepaid and blended churn rates or in net additions for the second quarter, as these operating statistics are presented net of such adjustments.

The guiding principle driving our marketing strategy is that “Fido simplifies life”. We offer an array of innovatively-designed and affordable wireless services that meet the everyday personal and business needs of our customers. The Fido brand plays a key role in product positioning, having differentiated itself in the Canadian wireless market by being perceived as savvy and trendy, yet at the same time trustworthy, customer-friendly, and innovative. We use market-wide research to identify our best potential and most profitable, high-growth market segments, and to understand consumers’ needs and preferences in developing and delivering the right products and services in the most cost efficient manner. We engage in mass-market advertising in order to maintain our brand and support our indirect and direct distribution channels. We advertise primarily through local print media, television and billboards. We also use in-store media, as well as the Internet, to capture the attention of prospective customers.

Products and services that are simple and easy to use reduce the need for customer service and optimize customer satisfaction. As a result, we enjoy a low cost of customer maintenance and a high level of efficiency in our call center operations. We also provide a 15-day satisfaction guarantee, bill our monthly airtime (postpaid) service by the second, and offer big-minute airtime bundles at affordable per-minute rates that can be used anytime and anywhere Fido PCS service is available.

We use a segmented approach in acquiring and servicing customers. This approach is intended to support the growth of our core wireless voice business, as well as our entry into the emerging wireless data market. As wireless penetration increases beyond the current penetration rate, the mass-market retail consumer is expected to make up a higher percentage of new net additions. We believe that Canada’s urban and suburban markets, where more than two-thirds of the Canadian population lives, are likely to be the most receptive markets for PCS going forward. Given this context, we are well positioned with the strength and positioning of

In order to make PCS more affordable, we subsidize the sale of handsets — a practice also used by other Canadian wireless operators. Research has shown that a key driver of customer acquisition is handset selection and style. This factor is taking on greater importance as handset life cycles shorten. The Fido handset and device portfolio includes some leading-edge handsets, some launched as exclusive to Fido. Our current handset and device line-up consists mainly of devices from Sony Ericsson, Nokia, Siemens, Motorola and Danger.

By establishing preferred business relationships with certain handset suppliers, we are able to obtain good pricing and limited-time exclusivity on some of their newest devices. We have positioned our postpaid service among high-value customers as a preferred means of communication, providing them with the added benefits of mobility, personalization of service, and Internet connectivity. We do this in part through an attractive handset line-up with high functionality that is fairly priced. We have positioned our per-minute prepaid service to allow an alternative means of payment with comparable value and services to the monthly plans, yet with greater control over expenditures. By segmenting Fido service in this manner, we expect to better match potential customers to the most appropriate method of payment. We expect this to result in improved customer satisfaction and retention.

With a relatively lower penetration rate of voice-based wireless service in Canada than in many other markets around the world, for example Europe and the United States, we believe there remains good growth potential for wireless services in Canada, including for wireless data services. Data-services revenue in the wireless market has been slow to materialize due to a lack of consumer-oriented applications and devices. We believe that the penetration rate of data-related services will increase concurrently with the increase in the penetration rate of wireless services in Canada as awareness of data-related services grows with the commercial availability of a larger and wider variety of new and affordable devices.

Short messaging services, instant messaging services, gaming applications, and the introduction of feature-rich, highly functional and affordable handsets are all projected to increase the level of wireless data- services traffic and usage.

We recognize that superior customer service is vital in contributing to the long-term success of our business by helping to establish a loyal base of satisfied customers. Accordingly, we have made customer service and satisfaction essential elements of our operating philosophy. Providing timely and accurate information concerning services, network coverage, billing and customer account information, as well as responding to general inquiries and correspondence, are important elements of a comprehensive customer service program that promotes customer goodwill.

We maintain a highly sophisticated monitoring and control system, a staff of customer service personnel and a well-trained technical staff to handle both routine and complex questions as they arise. These resources are available to customers seven days a week. Since 2002, we have offered on-line billing services whereby our customers have access to billing information and have the ability to pay their invoices via the Internet. Our trained staff is located in stores and kiosks to promote our PCS products and services and provide information to customers. Each sales and customer service representative participates in a customized training program.

As the Canadian wireless market reaches maturity, customer retention is becoming increasingly important for wireless service providers. As a result, we are pro-actively addressing this issue by designing retention programs aimed at increasing our customers’ level of satisfaction and loyalty. In February 2004, we launched a loyalty program called Fido Treats, whereby our customers can accumulate reward points based on spending that can be redeemed toward the purchase of a handset of their choice. One of our key objectives

We also implemented a customer lifetime value scoring and segmentation system within our customer service operations, which has permitted us to align the cost of retaining a specific customer with the value that customer has generated over time. This system facilitates the identification of long-time and high-value subscribers, which allows us to implement specific initiatives in order to minimize customer deactivation within these segments. Specifically, in December 2003, we began a handset replacement/ upgrade program through a telemarketing and direct mail campaign targeted at our high-value subscribers. We have found this tool to be useful in our retention efforts, particularly in the wake of the competitive attacks launched by the competition directly at our customers in central and eastern Canada in response to City Fido in Vancouver.

We introduced an optional 24-month customer contract in February 2004. Upon activation, customers who opt for a 24-month agreement will receive a significant discount on any handset in our portfolio of devices. We believe this will allow us not only to leverage our position as the industry’s lowest cost provider of handsets by offering more attractive prices on sought-after, feature-rich devices, but also to become less vulnerable to competitors’ attacks, while addressing the rapidly growing switchers’ market.

We develop and maintain a distribution network that allows us to exert significant influence over the message delivered to our customers in order to set the right expectations for the customer and to control the cost of acquisition. We have more than 5,500 points of sale at the retail level. These points of sale include corporate-owned stores and kiosks as well as third-party outlets. Our retail distribution network is also comprised of voucher-replenishment-only outlets through more than 3,000 automated teller machines of a Schedule I bank under the Bank Act (Canada). In 2003, approximately 50% of our gross subscriber additions were added through our indirect distribution outlets. We believe our mix of indirect and direct distribution provides us with the ability to reach the largest number of potential customers in our markets at a low relative cost.

Our PCS network, based on the GSM technology, covers approximately 19 million people, or 61% of the Canadian population. We have completed the greater part of our digital PCS network deployment plans and, going forward, will analyze, on a case-by-case basis, the merits of further deployment of the network. Future network deployment plans will focus on enhancing capacity and coverage, as well as improving signal strength in the markets already being served in order to support subscriber growth and current service level parameters.

We have already deployed our GSM network along certain Canadian highway corridors between urban areas and weekend destinations. However, due to the high cost of PCS network build-out and the lack of necessary scale economies, we generally do not build our PCS network in sparsely-populated areas or in low-traffic density areas. Analog cellular networks currently serve many of these areas. We have an analog roaming agreement with the former members of Mobility Canada, whose analog cellular networks are estimated to cover approximately 94% of the Canadian population, which permits us to extend coverage to areas outside the PCS network range. We expect that cellular providers will continue to offer analog cellular coverage for the foreseeable future. PCS customers using dual-mode handsets providing both analog and GSM service do not, however, have access to certain of the features and functions of PCS while operating on an analog cellular network.

We have designed our PCS network to operate exclusively in the 1900 MHz frequency range. With 30 MHz of contiguous spectrum, we have been able to design our PCS network so that its base station sites are appropriately spaced and located to provide optimal cost-effectiveness and continuous service throughout coverage areas. We believe that this design permits our PCS network to provide high quality service even at cell edges. In addition, we are using mini- and micro-base stations, off-air repeaters and in building distributed repeaters to cost-effectively improve the quality of outdoor and in-building coverage. Moreover, frequency

Our network consists of switches and cell sites. A switching center serves several purposes, including routing calls, managing call handoffs, managing access to the public telephone network and providing access to voicemail and other value-added services. Currently, the majority of our cell sites are co-located, meaning our equipment is located on leased facilities that are owned by third parties who retain the right to lease these facilities to other carriers as well. We utilize our switching centers’ capabilities for around-the-clock monitoring of our network base stations and switches. Our network connects to the public telephone network through local exchange carriers, which facilitates the origination and termination of traffic between our network and both local exchange and long distance carriers. We have negotiated interconnection agreements with our local exchange carriers. We also use third-party providers for long distance services and for backhaul services. Backhaul services are the telecommunications services that other carriers provide to carry our traffic from our cell sites to our switching facilities.

In 2001, we upgraded our entire GSM network to offer GPRS, an over-the-air system for transmitting data on GSM networks. GPRS is a wireless technology standard that supports data communication through devices that enable “always on” Internet connectivity. GPRS technology converts wireless data into standard Internet packets, enabling interoperability between the Internet and a mobile wireless network. The GPRS method of transporting data optimizes network capacity by using bandwidth only when it is needed. In addition, several data transmissions from different users can share the same channel. The end result is next-generation technology that will allow end-users to cost-effectively remain constantly connected, and to send and receive data much faster.

Network Equipment Vendors. We entered into a supply agreement with Nortel Networks Corporation dated as of December 20, 2001, for the purchase by Solutions of GSM products and eligible services from Nortel. On January 16, 2004 we entered into an amendment to the Nortel agreement whereby Nortel became our exclusive supplier for GSM and UMTS (Universal Mobile Telecommunications System) core wireless network equipment until December 31, 2006. The amendment gives Nortel exclusivity for provisioning us with GSM MSC (Mobile Switching Centre), HLR (Home Location Register) and call server products.

We also entered into an agreement with Ericsson Canada Inc. for the purchase by Solutions of PCS products and services from Ericsson. This Ericsson agreement, containing no purchasing commitment, generally provides for our purchase of hardware, software and services related to our PCS network.

Handset Suppliers. We do not manufacture any of the handsets used in our operations. The high degree of compatibility among different manufacturers’ models of handsets allows us not to be dependent upon any single source of handsets. The handsets used in our operations are available for purchase from multiple sources, and we anticipate that such equipment will continue to be available in the foreseeable future. We are purchasing handsets primarily from Nokia, Siemens, Sony Ericsson, Motorola and Danger.

We have registered Fido®, Microcell Solutions® and Microcell® as trademarks in Canada with the Registrar of Trademarks. We file applications for registration of the trademarks that we intend to use in our business such as City Fido. We intend to take appropriate measures to protect intellectual property that we develop. Under the Trade-Marks Act (Canada), the registration of a trademark takes effect on the date the certificate of registration is issued and continues to be in effect for a period of 15 years; such registration is renewable.

Inukshuk is a wholly owned subsidiary of Solutions. Inukshuk has been issued MCS licenses from Industry Canada in the 2500 MHz frequency range. Our MCS licenses cover some 30 million Canadians, in

The licenses allow Inukshuk to build a unique, “last mile” broadband wireless access, or BWA, network, to offer high speed Internet, IP-based voice and local networking services. A unique feature is self-installed customer premises equipment that allows for portability, giving customers access to BWA service across the MCS network. The portability feature provides an advantage over fixed Internet offerings that limit a customer’s access to service to a single location.

Inukshuk’s MCS license conditions require it, among other things, to meet deployment commitments and to expend annually for each license area the greater of two times license fees (totaling across all license areas approximately $2.8 million), 4% of adjusted gross revenues, or $50,000 on “Learning Plan” commitments, unless otherwise agreed to by the learning community. Inukshuk’s Learning Plan is intended to promote deployment of MCS in outlying areas, and to develop on-line learning content.

Inukshuk’s objective is to become Canada’s premier wholesaler of broadband wireless services. In Canada, high-speed Internet and other broadband services are currently provided by incumbent telephone companies with DSL technology, cable television operators and some new entrant telecommunications companies. Broadband service is principally available in Canada’s urban markets. Approximately 35% of Canadian households received high-speed Internet services in 2003, and the market is projected to continue to grow. Given this context, Inukshuk is projected to provide an attractive and competitive alternative to cable and DSL networks, as well as to extend broadband access to areas not currently served by wireline systems.

We had planned to build the MCS network directly through Inukshuk, but challenging capital market conditions in the telecommunications industry made fund raising difficult. As a result, in 2002 Inukshuk suspended efforts to build the MCS network on its own. However, Inukshuk continued to seek partners to assist in the build-out of the MCS network. In Canada’s north, for example, Inukshuk is working with regional partners, Nunanet Worldwide Communications Ltd. and SSI Micro Ltd. to bring MCS services to the Northwest Territories and Nunavut Territory.

On November 19, 2003, Inukshuk announced the creation of a new venture with Allstream Inc. and NR Communications, LLC. Each party owns one-third of the new venture, which will operate as an independent entity, with its own identity and brand, offering BWA services on a wholesale basis to service providers. Each party will contribute a combination of cash and assets or services to the venture.

Contributions are being made in two phases. During a first phase, which started on November 19, 2003, Allstream Inc. committed to inject $5 million in cash and services, NR Communications committed to contribute the equivalent of $5 million in network equipment, and Inukshuk contributed the use of 60 MHz of its MCS licensed spectrum. During the first phase, MCS network roll out began, initial commercial launches of the new venture took place, we validated technological and commercial acceptance of the service, and completed a detailed business plan.

Inukshuk’s commitments to the second phase are to transfer its MCS Licenses to the venture, to operate the MCS system being deployed by the venture pending Industry Canada’s approval of the licence transfer, and to make cash contribution of up to $6 million.

In two markets, Richmond, B.C. and Cumberland, Ontario, Solutions began retailing “iFido” services in March of 2004. “iFido” is a consumer offering of BWA service delivered from the venture’s MCS network. We believe iFido represents an attractive opportunity to offer our Fido PCS subscribers an integrated package of mobile, local, long distance and broadband services across our network. This provides us access to a broader range of market segments within the Canadian telecommunications industry.

PCS Business. Competition in the wireless communications industry is intense. Competition for subscribers among wireless providers is based principally upon effective branding and marketing, the services and features offered, the technical quality of the wireless system, customer service, system coverage, capacity, handset selection and functionality, and price. The wireless communications industry is experiencing significant technological change, as evidenced by the increasing pace of upgrades of existing wireless networks from analog to digital, evolving industry standards, ongoing improvements in the capacity and quality of digital technology, shorter development cycles for new products and enhancements, and changes in end-user requirements and preferences.

The Canadian wireless industry is comprised effectively of four national players:


	•	Microcell, our PCS licensee, has an approximate 9% market share of the total number of wireless subscribers in Canada;

	•	Rogers, with a national 25 MHz cellular license and national PCS licenses, has an approximate 28% market share of the total number of wireless subscribers in Canada;

	•	the Bell Mobility Partners, with 25 MHz cellular licenses in their incumbent serving territories, covering essentially all of Canada, excluding British Columbia, Alberta and Eastern Québec, and a further 10-30 MHz of PCS licenses nation-wide, has an approximate 37% market share of the total number of wireless subscribers in Canada; and

	•	TELUS, with 25 MHz cellular licenses in its incumbent serving territories, covering essentially British Columbia, Alberta and Eastern Québec, and a further 10-40 MHz of PCS licenses nation-wide. TELUS also currently operates an analog specialized mobile radio wireless communications network and a digital enhanced specialized mobile radio network at 800 MHz, and has an approximate 26% market share of the total number of wireless subscribers in Canada.

Rogers first launched its digital services using time division multiple access technology. It has since completed an overlay of the time division multiple access network with GSM technology. Rogers continues to operate an analog cellular network across Canada.

The Bell Mobility Partners and TELUS are using code division multiple access technologies for their digital cellular and PCS networks. The Bell Mobility Partners and TELUS both also continue to operate analog cellular networks in their incumbent serving territories. On October 17, 2001, TELUS, Bell Mobility and Aliant Telecom Wireless, a Bell Mobility partner in Atlantic Canada, concluded digital roaming arrangements for code division multiple access technologies in their respective licensed service areas.

We believe that our 30 MHz allotment of contiguous PCS spectrum enables us to provide customers with bandwidth-intensive applications, including high-speed data transmission services. We believe that our PCS handsets are competitively priced as compared to digital and dual-mode handsets of comparable size, weight and features. In order to compete effectively with our competitors who subsidize the sale of their analog cellular and digital handsets, we subsidize the sale of our PCS handsets. Our return to the wireless market as a revitalized competitor following our successful capital reorganization, along with our recent introduction of City Fido, has resulted in an intensification of advertising, increased promotional activity and swift competitive reaction by our competitors. Certain of our competitors introduced specific advertisings which were targeting Fido customers only. For example, they offered to our customers free handsets upon signing a long-term contract. Certain of them also used our Fido brand name and/or dogs in their advertising. These actions did have minimal impact on our business. However, this could have an adverse effect on both the cost of acquiring subscribers and pricing, which could put downward pressure on future revenue growth and profit margins for the industry as a whole.

Additional Competition. New spectrum may be licensed, and new technologies may be developed, which could provide additional competition to us. For example, mobile satellite systems, with transmissions from mobile units to satellites, could augment or replace transmissions to land-based stations. Even though

In addition, PCS is increasingly seen as competing with local wireline telephone services for voice and data traffic. Wireline substitution, whereby PCS customers use wireless for their principal or only telephony needs, is becoming increasingly common.

Wireless Internet Business. The incumbent local exchange carriers, through use of DSL technology, and licensed cable operators are currently the dominant players in the provision of broadband access to the Internet in Canada.

As a condition of its PCS license, Solutions is to invest at least 2% of adjusted gross revenues derived from its 2 GHz PCS operations, on PCS-related research and development averaged over the current PCS license term, which Industry Canada recently announced will run for ten years until March 31, 2011. Our research and development activities are focused on planned investigation undertaken with the hope of gaining new scientific or technical knowledge in the field of wireless telecommunication. They are also oriented on the translation of knowledge into a plan or design for new or substantially improved material, devices, products, processes, systems or services related to PCS. As at December 31, 2003, 2% of our adjusted gross revenues represented a cumulative amount of $26.7 million and up to December 31, 2003, we spent approximately $15.9 million (approximately $3.3 million in 2003 and $5.6 million and $7.0 million in 2002 and 2001 respectively). We expect to meet the condition of our PCS license in term of investment on PCS-related research and development at the end of the current PCS license term, in March 2011.

Radiocommunication Act. The use of radio spectrum for our PCS and Inukshuk’s MCS network operations is subject to regulation and licensing by Industry Canada pursuant to the Radiocommunication Act and the ownership and operation of cellular, PCS, MCS and other radiocommunication systems in Canada are subject to ongoing oversight of Industry Canada.

The Radiocommunication Act provides Industry Canada with wide discretion to, among other things, issue spectrum licenses and establish technical standards in relation to radio equipment. Industry Canada also has the discretion to amend the terms and conditions of licenses to ensure the orderly development and efficient operation of radiocommunications in Canada.

Radio and spectrum licenses are issued for a term and may be renewed at Industry Canada’s discretion. They may be suspended or revoked for cause, on notice, where Industry Canada determines the holder has contravened the Radiocommunication Act, the regulations or the terms or conditions of its licenses. Revocation is rare and licensees have a high expectation of renewal unless a breach of a licence condition has occurred, a fundamental reallocation of spectrum to a new service is required, or an overriding policy need arises. Despite this, there can be no guarantee that our PCS license and our MCS licenses will be renewed upon their expiry.

PCS License Conditions and Fees. On April 15, 1996, Solutions was informed of the conditions attached to its PCS license, which had an initial term of five years. On March 29, 2001, Industry Canada renewed our PCS license for a second five-year term, commencing on April 1, 2001. On December 12, 2003, Industry Canada issued Canada Gazette Notice DGRB-006-03 announcing that the license terms of existing cellular and PCS licensees, including Solutions, will be extended to March 31, 2011. Industry Canada also announced that it would make certain changes to the cellular and PCS license conditions, the most significant of which will be to grant licensees the power to divide and transfer their spectrum licenses both by quantity of spectrum and geographic location.

Beyond the ten-year license term and the new power to divide and transfer spectrum licenses, other license conditions detailed in Gazette Notice DGRB-006-03 that apply to Solutions include:


	(1) to comply with applicable spectrum aggregation limits (discussed in more detail below);

	(2) to comply with the Canadian ownership and control provisions (discussed in more detail below);

	(3) to ensure that radio stations are installed and operated in compliance with applicable regulations from Health Canada (electromagnetic field exposure) and Transport Canada (air navigation), and only after meaningful consultations have taken place with applicable local land use authorities;

	(4) to invest a minimum of 2% of adjusted gross revenues resulting from operations in the spectrum, over the term of the license, in eligible research and development activities;

	(5) to provide for and maintain lawful interception activities as authorized by law; and

	(6) to offer PCS resale to other PCS licensees on a non-discriminatory basis.

Also in Canada Gazette Notice DGRB-005-003, Industry Canada announced a new license fee regime for cellular and PCS licenses not won at auction. PCS licenses won in Canada’s 2001 spectrum auction do not carry annual license fees. Under the new regime, license fees will no longer be payable on an infrastructure basis, that is, a site-by-site basis, but instead will be payable on a geographic area basis. In 2011, all cellular and PCS licensees will pay a flat rate of approximately $0.035/ MHz/population/year. Between now and then, all licensees will see their annual fees increase on a straight line basis from their 2004 actual payment amount to the 2011 standard payment amount. For Solutions, this means fees will increase from approximately $24.4 million in 2004 to $31.6 million in 2011.

Industry Canada has the power to make amendments to the existing license conditions and fees. As a result, there can be no assurance that these will remain unchanged for the full duration of Solutions’ existing license term. Furthermore, there can be no assurance that these same license conditions and fees will apply in any future renewal terms.

Spectrum Aggregation Limit. As part of the PCS licensing policy established by Industry Canada in 1995, a spectrum aggregation limit, or “spectrum cap” was put in place, restricting to 40 MHz the amount of mobile spectrum any one licensee and its affiliates could hold in a specific geographic area. In 1999, the mobile spectrum cap was raised to 55 MHz. In 2003, the cap was modified to allow enhanced specialized mobile radio spectrum to count for no more than 10 MHz under the spectrum cap. On August 27, 2004, following a consultation initiated in October of 2003, Industry Canada rescinded the mobile spectrum cap policy, thereby removing with immediate effect, the spectrum aggregation limits.

MCS Licenses Conditions and Fees. In March of 2000, following a comparative selection process, Inukshuk was selected by Industry Canada to be licensed for MCS in twelve license service areas across Canada.

On December 21, 2001, Inukshuk was issued ten-year MCS licenses running to March 31, 2011, for the twelve license service areas. The MCS licenses cover territory that encompasses the provinces of Alberta, British Columbia, Ontario, Québec, Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick and the Nunavut, Yukon and Northwest Territories. MCS license conditions that apply to Inukshuk include:


	(1) to adhere to its deployment plan, as accepted by Industry Canada in a letter dated July 8, 2004;

	(2) to adhere to the learning plan as contained in its detailed application, or as agreed to in writing by the committees made up of representatives of the learning community and Inukshuk;

	(3) to comply with the Canadian ownership and control provisions (discussed in more detail below);


	(4) to ensure that radio apparatus are installed and operated in compliance with applicable regulations from Health Canada (electromagnetic field exposure) and Transport Canada (air navigation), and only after meaningful consultations have taken place with applicable land use authorities; and

	(5) to obtain approval from Industry Canada, following full review by Industry Canada, for any application to transfer or assign the licenses, including any disposition of the rights and obligations of the licenses and any change which would have a material effect on the ownership or control in fact of the licensee.

Annual MCS license fees are $1.30/ MHz per 1,000 households for each licensed service area. For all twelve MCS licenses, Inukshuk paid annual license fees of $1,276,867 in 2003.

In November 2001, Industry Canada announced, consistent with an earlier determination by the Federal Communications Commission of the United States, that Canada would allow both fixed and mobile applications in the MCS spectrum band. Industry Canada is currently conducting a public consultation on licensing considerations arising from this change.

Telecommunications Act. As a telecommunications common carrier operating in Canada, Solutions is a “Canadian carrier” as defined by the Telecommunications Act and is therefore subject to regulation by the CRTC. Inukshuk is also expected to be a Canadian carrier. The CRTC has the authority to regulate, among other things, the rates, terms and conditions of services provided by carriers, the rules of competitive entry into new telecommunications markets, and the exchange of telecommunications traffic between carriers. The CRTC also has the power to exempt classes of carriers from the application of the Telecommunications Act and to forbear (i.e. refrain) from exercising certain regulatory powers with respect to certain classes of services if the CRTC is satisfied that competition is sufficient to protect the interest of users. Exemption or forbearance may be subject to conditions. For example, in most of its forbearance decisions, the CRTC has eliminated the requirement for carriers to file tariffs and inter-carrier agreements for approval, but has retained its powers to rule on complaints of undue preference or anti-competitive behavior.

Under the current rules established by the CRTC, a wireless carrier may carry on business as a wireless service provider, or it may take advantage of the regulatory framework for local service operators by electing to become a competitive local exchange carrier. Certain obligations and benefits are brought about by becoming a competitive local exchange carrier including “co-carrier” status with the incumbent local exchange carriers. It is also possible for a wireless carrier to operate as a wireless service provider in some areas and as a competitive local exchange carrier in others, as Solutions is currently doing.

Regulatory Framework for Wireless Service Providers. In December 1996, the CRTC issued Telecom Decision 96-14 regarding the regulation of wireless service providers. The CRTC decided, subject to certain conditions, to forbear from exercising many of its regulatory powers, including its rate-setting powers, with respect to wireless service providers. The CRTC considered it necessary to retain the power to impose certain conditions such as confidentiality of customer information, and to ensure that wireless service providers do not unjustly discriminate against other service providers or subscribers.

Regulatory Framework for Competitive Local Exchange Carriers. In May 1997, the CRTC issued Telecom Decision 97-8 which set out the initial terms and conditions for competition in the local telecommunication services market. Decision 97-8 establishes a technology neutral regulatory framework that permits wireless carriers to become competitive local exchange carriers provided they satisfy all the applicable terms and conditions Decision 97-8 has been modified from time to time by subsequent CRTC decisions and orders. The following is a summary of the major features of Decision 97-8 in relation to our business.

In the local services market, the CRTC considers competitive local exchange carriers to be carriers of equal stature with, and not merely customers of, the incumbent local exchange carriers. Accordingly, the CRTC mandated that incumbent local exchange carriers and competitive local exchange carriers terminate each others’ traffic originating within the same incumbent telephone exchange based on mutual compensation “bill and keep” arrangements. These arrangements do not require the originating carrier to compensate the terminating carrier for terminating its local traffic unless there is a substantial traffic imbalance. In areas where

The CRTC also directed that local exchange carriers should share the cost of this interconnection equally. This is accomplished through the terms of interconnection agreements between the carriers. In addition, in order to provide service, the CRTC has determined that competitive local exchange carriers require access to certain essential and “near essential” elements of the incumbent local exchange carriers’ local exchange network, referred to as unbundled facilities. The CRTC directed the incumbent local exchange carriers to make these facilities available to competitive local exchange carriers at cost-based rates.

The CRTC considers competitive local exchange carriers to be “non-dominant carriers”. As such, they are not subject to the same degree of regulation as incumbent local exchange carriers and are not required to file tariffs for their rates for end-customer services. However, the CRTC requires competitive local exchange carriers to assume certain regulatory obligations, including obtaining CRTC approval of interconnection agreements and tariffs for services provided to other carriers (as opposed to end-customers). In addition, competitive local exchange carriers must permit long distance providers to interconnect with them, on request, for the purpose of providing alternative long distance services to the competitive local exchange carrier’s end-customers. Competitive local exchange carriers are also required to:


	•	implement local number portability, which permits an end-customer to move from one local exchange carrier to another without changing telephone numbers;

	•	provide emergency 911 service;

	•	provide message relay service for the hearing impaired; and

	•	satisfy various other regulatory requirements designed to protect customers’ privacy and ensure that customers receive adequate service information.

Solutions received interim CRTC approval of its competitive local exchange carrier tariffs on September 8, 2000, a condition precedent necessary to achieving competitive local exchange carrier status. Since then, Solutions has converted to competitive local exchange carrier status from wireless service provider status in all of our principal operating exchanges across the country. On March 7, 2003, the CRTC granted final approval to the terms and conditions of our tariffs, and interim approval of the rates therein.

Contribution Obligations. Under a CRTC-administered regime referred to as the “contribution regime”, all telecommunications service providers operating in Canada, including wireless service providers and resellers, are required to pay a percentage of their Canadian telecommunications service revenues, less certain deductions, such as inter-carrier payments, into a fund to subsidize the cost of local telecommunications service in certain high-cost regions of the country. In its December 19, 2003 Telecom Decision 2003-84, the CRTC approved a final contribution rate for 2003 of 1.1%, and also set the interim rate for 2004 at 1.1%.

Foreign Ownership Restrictions. Solutions and Inukshuk are required, as radiocommunication carriers and by the conditions of their respective licenses, to comply with the Canadian ownership and control provisions. The Canadian ownership and control provisions must also be respected by Solutions and Inukshuk to maintain their eligibility to operate as Canadian carriers under the Telecommunications Act and to hold and have renewed our PCS license and MCS licenses.

The Canadian ownership and control provisions require Solutions and Inukshuk to be Canadian-owned and controlled corporations incorporated or continued under the laws of Canada or a province of Canada. Solutions and Inukshuk are deemed to be Canadian-owned and controlled as long as:


	(1) not less than 80% of the members of their respective boards of directors are individual Canadians;

	(2) Canadians beneficially own not less than 80% of their respective issued and outstanding voting shares; and

	(3) they are not otherwise controlled in fact by non-Canadians.

A “Canadian” is defined to include a Canadian citizen who is ordinarily resident in Canada, a permanent resident of Canada, various Canadian government agencies, various qualified trusts, mutual insurance companies, and corporations in which Canadians beneficially own and control in the aggregate not less than 66 2/3% of the issued and outstanding voting shares and which are not otherwise controlled in fact by non-Canadians.

In our case, as the ultimate parent corporation of both Solutions and Inukshuk, the Canadian ownership and control provisions require, for Solutions and Inukshuk to be considered eligible thereunder, that not less than 66 2/3% of our issued and outstanding voting shares be owned by Canadians, and that we not otherwise be controlled in fact by non-Canadians. A voting share for purposes of the Canadian ownership and control provisions means a share or class of shares of a corporation carrying voting rights under all circumstances or by reason of an event that has occurred and is continuing or by reason of a condition that has been fulfilled and includes a security that is convertible into such a share at the time that a calculation referred to in that clause is made.

We may restrict the issue, transfer and ownership of shares, if necessary, to ensure that we remain in conformity with the Canadian ownership and control provisions. For such purposes, in particular but without limitation, we may, in accordance with the provisions of the Canadian ownership and control provisions, to the extent applicable:


	(1) refuse to accept any subscription for any voting shares;

	(2) refuse to allow any transfer of voting shares to be recorded in our share register;

	(3) suspend the rights of a holder of voting shares to vote at a meeting of our shareholders; and

	(4) sell, repurchase or redeem any voting shares.

Our articles of incorporation provide that we may, in connection with the issue, or transfer of ownership, of voting shares in our capital, take any action, or refuse to take any action, as the case may be, to the extent necessary to ensure that any of our subsidiaries is and continues to be eligible to operate as a Canadian carrier under the Telecommunications Act or to be issued, to hold and to renew radio authorizations or radio licenses under the Radiocommunication Act, if and only to the extent that the business activities of such subsidiary require such eligibility.

Solutions, Inukshuk and Microcell may not otherwise be controlled by non-Canadians. In other words, non-Canadians cannot exercise control in fact over these companies. The test for determining control has been applied in a negative fashion. That is, reviews have focused on whether non-Canadians have control, not whether Canadians control, the carrier in question. Any one determinant may not necessarily amount to control, but the cumulative effect of several determinants may influence whether de facto control is being exercised by non-Canadians.

Our failure to comply with the requirements relating to the Canadian ownership and control provisions may affect the ability of Solutions and Inukshuk to operate as Canadian carriers and to hold and have renewed our PCS license and the MCS licenses.

In November 2002, Industry Canada initiated a review of the Canadian ownership and control provisions. The review was conducted by the House of Commons Standing Committee on Industry, Science and Technology, and it determined that the restrictions on foreign participation in the telecommunications sector set out in the Canadian ownership and control provisions are no longer appropriate, and their removal is needed. There is no assurance that the Standing Committee recommendations will lead to modifications to the Canadian ownership and control provisions.

The following chart illustrates, as of June 30, 2004 the intercorporate relationship among Microcell and our subsidiaries, and the percentage of voting rights held or controlled by us. All these companies were incorporated under the Canada Business Corporations Act, except for Telcom Investments Inc., which was incorporated under the laws of the State of Delaware.

We lease approximately 511,806 square feet of office space in Montreal, which houses staff of our principal office, switching office, computer rooms and national network operations center; of the 511,806 square feet that we lease in Montreal, approximately 83,407 square feet of office space is currently subleased to third parties. We also lease 1,340 square feet of space in Quebec city, 2,161 square feet for warehouse in Ottawa, 34,433 square feet of space in Toronto, 17,225 square feet of space in Vancouver, 18,536 square feet in Calgary, 1,508 square feet of space in St. Catherines-Niagara, 1,216 square feet in Kitchener, 726 square feet of space in Edmonton, 1,859 square feet of space in Saskatoon, 820 square feet of space in Victoria, 2,269 square feet of space in Windsor, 4,440 square feet of space in Winnipeg, 5,921 square feet of space in Halifax, 10,627 square feet of space in Mississauga, 2,270 square feet of space in Regina, 10,795 square feet in New Westminster and 200 square feet of space in St. John’s, Newfoundland for business offices and switching offices. In addition, we lease approximately 1,850 antenna sites and own six antenna sites.

In most instances, we own the assets essential to our operations, including transmitters, microwave systems, antennae, electronic transmission receiving and processing accessories and other network equipment, including switches, radio channels, base station equipment, microwave facilities and PCS equipment. We generally lease land and space on buildings for the placement of antenna towers and also lease the premises on which our switches are located, principally under long term leases. We either own the operating systems and software related to these assets or use them under license. Substantially all of our assets are subject to various security interests in favor of our lenders.

Environmental protection requirements applicable to our operations are not expected to have a significant effect on our capital expenditures, earnings or our competitive position in the current or future fiscal years.

On April 10, 2002, ASP, a former service provider of Solutions, filed a notice of arbitration pursuant to an agreement that ASP had with Solutions. ASP claims in the notice of arbitration that Solutions has breached its agreements with ASP and ASP therefore suffered damages in the amount of $18.5 million, which ASP is claiming from us. The breach alleged by ASP relates to Microcell’s failure to provide ASP access to

Furthermore, we are involved from time to time in other legal and regulatory proceedings incidental to our business. We do not believe that such proceedings will have, individually or in the aggregate, a materially adverse effect on us.

The table below sets forth the name, principal occupation and date of the appointment of each actual member of our current board since the implementation of the plan of reorganization on May 1, 2003.

Pursuant to the plan of reorganization: (1) Mr. André Bureau, Mr. Jim Continenza, Mr. Christian Dubé, Mr. Gary Goertz, Mr. Robert Latham, Mr. Paul McFarlane and Mr. I. Berl Nadler were nominated by the secured creditors; (2) Mr. Steven D. Scheiwe and Mr. Lorie Waisberg were nominated by the noteholders; and (3) Mr. Charles Sirois was nominated by the Old Board. See “Composition of the Board” below for more details on the nomination of the directors on our current board.

The principal occupation of each director during the past five years is as follows:

André Bureau was appointed a director of Microcell on May 8, 1998. Since May 14, 2003 Mr. Bureau has been Chairman of Microcell. Since December 1997, he has been Chairman of the board of Astral Media Inc., Canada’s largest operator of English and French specialty, pay and pay-per-view television services. Astral also owns 24 radio stations in Quebec and the Atlantic provinces of Canada, as well as Astral Affichage, for outdoor advertising, and was President and Chief Executive Officer of Astral Broadcasting Group Inc. from 1993 until October 2001. Mr. Bureau is also counsel at Heenan Blaikie LLP. Before 1989, Mr. Bureau was Chairman of the CRTC.

André Tremblay has been President and Chief Executive Officer of Microcell since May 1995 and was Chairman of Microcell from August 10, 1999 to March 9, 2000. Mr. Tremblay has been actively involved in the telecommunications industry since 1989. Prior to 1989, Mr. Tremblay was a tax partner and member of the management committee of Raymond, Chabot, Grant, Thornton, a Canadian accounting firm.

Charles Sirois has been a director of Microcell since December 9, 1993. Mr. Sirois was the Chairman of Microcell until May 1, 2003. Since 1990, Mr. Sirois has been Chairman and President of Telesystem Ltd., an entrepreneurial private equity company of which he is the founder and principal shareholder. Mr. Sirois is also Chairman of Telesystem International Wireless Inc. From 1992 to February 2000, Mr. Sirois was Chairman and Chief Executive Officer of Teleglobe Inc., a leading global provider of broadband services with the most extensive global Internet network. From 1988 to 1990, Mr. Sirois was Chairman and Chief Executive Officer of BCE Mobile Inc. He currently sits on the board of directors of the Canadian Imperial Bank of Commerce and is Chairman and CEO of Enablis Entrepreneurial Network, a non-profit organization sponsored by the G8 DotForce. He was also a member of the G8 dot force, of the National Broadband Task Force and was a founding member of the Washington-based Global Information Infrastructure Commission.

James Continenza has been a director of Microcell since May 1, 2003. Mr. Continenza is Chief Executive Officer and a director of Teligent, Inc. a full service facilities based communications company offering small and medium size business customers local and long-distance telephony, high speed data and internet access services. Prior to September 2002, Mr. Continenza was Chief Operating Officer and a Director of Teligent, Inc. From September 2000 to May 2001, Mr. Continenza served as Senior Vice-President Strategic Operations of Teligent, Inc. Prior to joining Teligent, Inc., Mr. Continenza was President and Chief Executive Officer of Lucent Technologies Product Finance where he worked for eleven years with Lucent and its predecessor AT&T. Mr. Continenza holds a degree in business administration from the University of Wisconsin.

Christian Dubé has been a director of Microcell since May 1, 2003. Mr. Dubé is Senior Vice-President and Chief Financial Officer of Domtar Inc., the third largest integrated manufacturer and marketer of fine paper in North America. From 1996 to 1998 he was Vice-President Corporate Development of Domtar Inc. Mr. Dubé is a director of Norampac Inc. and of NB Capital Corporation. He has been a Chartered Accountant since 1979 and holds a bachelor’s degree in business administration from Laval University.

Gary Goertz has been a director of Microcell since May 1, 2003. Mr. Goertz was Executive Vice-President, Finance and Chief Financial Officer of MDS Inc., the largest health and life science company in Canada from September 1999 to February 2003. From March 1994 to August 1999, Mr. Goertz was Executive Vice-President & CFO of TELUS Corporation Inc., formerly BCT.Telus Communications Inc. Mr. Goertz is a Chartered Accountant. Mr. Goertz is also a director of CML Healthcare Inc. and Cipher Pharmaceuticals Inc. and is a trustee of Associated Brands Income Fund and Associated Brands Operating Trust.

Robert Latham has been a director of Microcell since May 1, 2003. Since April 2001, he has been the President of RFL Consulting, a company providing consulting advice to small entrepreneurial companies and other organizations developing and expanding new business. Since February 2003, he has been the Chairman of Tela Wireless Devices Inc. From February 2001 to April 2001 he was Chairman and Chief Executive Officer of Axxent Inc. a telecommunications company in Canada where he also served as President and Chief Executive Officer from September 1999 to February 2001. From January 1998 to September 1999, he was President of ORBCOMM Global L.P. a telecommunications company based in Dulles, Virginia. He also served as Executive Vice-President of ORBCOMM from April 1997 to January 1998. From February 1996 to February 1997, Mr. Latham was Managing Director, Telecom for Bell Canada International Management Ltd., U.K. From April 1996 until November 1996, Mr. Latham was seconded to Mercury Communications Limited in London England, a facilities-based carrier, as the Managing Director, Commercial Service. Mr. Latham spent the previous 28 years with Bell Canada in a wide variety of Sales, Marketing, Operations, Customer Service and Regulatory assignments. During this period, he was the President and CEO of Bell Cellular from August 1986 until August 1991 and responsible for the Signature Service Organization from July 1992 until October 1994.

Paul McFarlane has been a director of Microcell since May 1, 2003. Mr. McFarlane retired from the Canadian Imperial Bank of Commerce in December 2002 after more than forty years of service in numerous regional and head office positions most recently as Senior Vice-President, Special Loans, Head Office from 1994 until retirement. Mr. McFarlane is also a director of Brookfield Properties Corporation having served since May 1998.

I. Berl Nadler has been a director of Microcell since May 1, 2003. Mr. Nadler has been a partner of Davies Ward Phillips & Vineberg LLP, and its predecessor firm, Davies Ward & Beck, in Toronto, since 1984 and is a member of the firm’s management committee. Mr. Nadler is a graduate of the Faculty of Law McGill University and of the Harvard Law School.

Steven D. Scheiwe has been a director of Microcell since May 1, 2003. Mr. Scheiwe is currently President of Ontrac Advisors Inc., a consulting firm providing analysis and management services to private equity groups, privately held companies and fund/traders of distressed corporate debt issues. Mr. Scheiwe has also been a director of Assisted Living Concepts, Inc. since June 2004, General Chemical Industrial Products, Inc. since March 2004, Reptron Electronics, Inc. since February 2004, Neff Corporation since May 2001 and

Lorie Waisberg has been a director of Microcell since May 1, 2003. Mr. Waisberg is also a director of McWatters Mining Inc., Chemtrade Logistics Income Fund and Specialty Foods Group Income Fund. From August 2000 to October 2002, Mr. Waisberg was Executive Vice-President Finance and Administration of Co-Steel Inc., a steel manufacturer. Prior to that, Mr. Waisberg was a partner at the law firm of Goodmans LLP and predecessor firms in Toronto, Ontario, where he had been partner since 1974.

The following table indicates the name of the present officers of Microcell, along with their positions held with Microcell.

The principal occupation of each officer (other than André Tremblay, which is described above) during the past five years is as follows:

Alain Rhéaume was appointed President and Chief Operating Officer of Solutions on May 1, 2003. He was President and Chief Executive Officer of Microcell’s PCS division from February 12, 2001 to April 30, 2003. From June 1996 to February 2001, Mr. Rhéaume was Chief Financial Officer and Treasurer of Microcell and from May 1998 to February 2001, he was also Executive Vice-President, Corporate Services. Prior to joining Microcell, Mr. Rhéaume had worked for the Government of the Province of Québec at the Ministry of Finance since 1974. Mr. Rhéaume was Deputy Minister of Finance from 1992 to 1996 and prior to that he was Associate Deputy Minister of Finance from November 1988 to October 1992.

Bruno Péloquin joined Microcell in 1997 and is Vice-President, Customer Relations and Operations, Solutions. Prior to joining Microcell, Mr. Péloquin held positions in eastern and western Canada as Regional Director of Sales and Operations with United Parcel Service Canada Ltd. He was also Vice-President, Operations, with Diners Club/enRoute.

Carl Dexter joined Microcell in January 2001 as Vice-President, National Network and Services Operation. Mr. Dexter has 26 years of experience in the telecom industry, mainly at MTT, now Aliant Telecom, in Nova Scotia. The last position he held at MTT was that of Vice-President, Network Operations and Customer Services. Immediately prior to joining Microcell, Mr. Dexter was Vice-President, Operations Support, of the international wireless operating companies of Telesystem International Wireless.

Dean Proctor has been Vice-President of Microcell since February 1996. Prior to joining Microcell, Mr. Proctor practiced law in Montreal and Ottawa, focusing on broadcasting and telecommunications matters. He is a Director of the Wireless Communications Association, based in Washington, D.C., and acts as Microcell’s Privacy Ombudsman. Mr. Proctor graduated from the University of Saskatchewan with a Bachelor of Arts degree in 1984 and received bachelor degrees in Common Law and Civil Law from McGill University in 1988. Mr. Proctor is a member of the Bars of Québec and Ontario.

Gaétan Jacques was appointed Vice-President of Microcell on August 10, 1999. From June 2003 to December 2003, Mr. Jacques acted as interim Vice-President, Sales of Solutions. Before joining Microcell, Mr. Jacques was Director, Human Resources at the Canadian Broadcasting Corporation from 1993-1994 and from 1994-1999, General Manager, Technical Products and Engineering at the CBC. He also has worked for several large corporations, including Stone-Consolidated, where he performed various duties in human resources and quality management. Mr. Jacques holds an MBA and a bachelor’s degree in Industrial Relations.

Jacques Leduc was appointed Chief Financial Officer and Treasurer of Microcell on February 12, 2001. From May 1999 to February 2001, Mr. Leduc was Vice-President Finance of Microcell. From January 1995 to May 1999, he was Director, Financial Planning of Microcell. Prior to joining Microcell, Mr. Leduc was the Corporate Controller and Officer of a privately owned business in the manufacturing and food industry from 1990 to 1995. Mr. Leduc holds a master’s degree in business administration from HEC Montréal, which was formerly known as école des Hautes études Commerciales (University of Montreal). He also holds a bachelor’s degree in business administration from the University of Québec in Montreal and was admitted by the Canadian Institute of Chartered Accountants in 1986.

Jocelyn Côté was appointed Vice-President of Microcell on August 10, 2001 and Assistant Secretary on May 10, 2001. From February 1998 to August 2001, Mr. Côté was Director, Legal Affairs of Microcell. Prior to joining Microcell, he was, from 1997 to 1998, legal counsel at Le Groupe Vidéotron Ltd. and, prior to that, practiced corporate and tax law at the law firm Stikeman Elliott LLP in Montreal. Mr. Côté holds a law degree from Laval University and a master’s degree in Taxation from Sherbrooke University. Mr. Côté is a member of the Bar of Québec.

Michel Cordeau was appointed Secretary of Microcell on May 8, 1998. Mr. Cordeau was, from February 1996 to August 2001, Vice-President, Legal Affairs of Microcell. From March 1996 to May 1998, he was Assistant-Secretary of Microcell. Mr. Cordeau is also legal counsel for Telesystem Ltd. Mr. Cordeau was a partner of the law firm of Hickson, Martin, Blanchard in Québec City, where he practiced corporate and bankruptcy law from 1974 to 1999. Mr. Cordeau holds a law degree and a master’s degree in Law from Laval University. Mr. Cordeau is a member of the Bar of Québec.

Pierre Bonin was appointed Chief Information Officer of the Company on December 12, 2000. Prior to joining Microcell, Mr. Bonin worked for Bell Canada from 1987 to 2000 where he held various senior management positions, including Vice-President, Information Technology and Vice-President, Finance and Administration. Mr. Bonin holds an MBA from HEC Montréal, which was formerly known as école des Hautes études Commerciales (University of Montreal), and other computer sciences degrees.

Robert Fortier was appointed Vice-President of the Company on August 9, 2002. From January 1995 to August 9, 2002, Mr. Fortier was Director, Corporate Controller of Microcell. Mr. Fortier chaired the Taxation

René Bousquet joined Microcell in March 1996 and held the position of Director with the Financial Planning and Corporate Planning departments before becoming Vice-President, Finance of Solutions in May 2002 and Vice-President, Marketing of Solutions in June 2003. Prior to joining Microcell, Mr. Bousquet held a number of management positions in marketing, including Director at PricewaterhouseCoopers. Mr. Bousquet holds a Bachelor’s degree in Business Administration (Marketing and Finance) from the Université de Sherbrooke and a Master’s degree in Business Administration from the same institution.

Steven Picco joined Microcell in January 2004 as Vice-President, Sales for Solutions. Prior to joining Microcell, Mr. Picco was an executive with Procter & Gamble for the last 16 years, most recently as the head of the business transition that ensured from Procter & Gamble’s acquisition of Clairol and, during a five-year period, as the head of Procter & Gamble product distribution through Costco superstores.

For the fiscal year ended December 31, 2003, directors of Old Microcell who served as directors until April 30, 2003 and who were not officers or employees of Microcell or our subsidiaries or of a shareholder for whom they were the designated nominees, received $3,332 until that date as well as an attendance fee per board or committee meeting. Due to his extensive involvement in the business of Old Microcell, the chairman of the board of Old Microcell received a fee of $20,000 per month until April 30, 2003 and each committee chairman of the committee of Old Microcell, except for the special committee chairman, received a fee of $667 until April 2003. His duties as a chairman consisted of being responsible for the management, development and effective performance of the board of directors. The chairman also advised our president and chief executive officer in all matters concerning the interest and management of the Company. Since May 1, 2003, our directors receive a yearly fee of $35,000, plus an attendance fee per board or committee meeting of $1,500 for an attendance in person and $750 for an attendance by telephone. Such attendance fee amounts to $3,000 per board or committee meeting held outside of the Montreal-Ottawa-Toronto corridor. Members of the committees of our current board receive a fee of $2,000 per year. The chairman of our current board receives an annual fee of $150,000, considering the significant amount of time dedicated by him to the governance, management and business of the Company. For example, he oversees the strategies of the Company, the remuneration of key employees, the strategic position of the Company and the communications between the Company and the board. The chairman of our current board is also chairman of the board of Astral Media Inc. and counsel at Heenan Blaikie LLP. The chairman of the human resources, corporate governance and audit committees receive respectively a fee of $3,000, $3,000 and $6,000 per year. We have no service contracts with our directors.

At the time of the establishment of the special committee, established in connection with our restructuring, compensation in respect of the members of the special committee was based in part upon attendance at meetings. However, in light of the difficulties of administering such a method of compensation given the frequent communications among the members of the special committee, the compensation arrangements were amended, with effect from September 1, 2002, to be $10,000 per month, with the chairman of the special committee receiving an additional amount of $40,000 per month. In February 2004, our board of directors granted a non-recurring bonus of $200,000 to the chairman of the special committee following the successful closing of our restructuring. No amounts based upon the number of meetings of the special committee were payable in addition to these monthly fees. The members of the special committee were also entitled to reimbursement of reasonable out of pocket expenses incurred in the course of performing their functions. The mandate of the special committee was subsequently expanded to include the powers of our

The table below shows certain compensation information for the respective fiscal years ended December 31, 2003, 2002 and 2001 for Mr. André Tremblay, president and chief executive officer of Microcell, and certain other executive officers of Microcell. This information includes the dollar value of base salaries, bonus awards, long-term incentive plan payments, the number of options granted, and certain other compensation, if any, whether paid or deferred.


(1)	The aggregate value of perquisites and other benefits does not exceed, for each named executive officer, the lesser of $50,000 or 10% of the total salary and bonus.

(2)	For 2003 indicates the number of options granted under our existing stock option plan. For 2001 indicates the number of options granted under the old stock option plan. All the options granted under the old stock option plan were cancelled on May 1, 2003.

(3)	All other compensation for 2003 represents payments under our retention plan for key employees, as described below and, in the case of Mr. Tremblay, Mr. Rhéaume and Mr. Leduc also represents a non recurring restructuring success bonus in the amounts of $200,000, $100,000 and $200,000 respectively. All other compensation for 2002 represents payments under our retention plan for key employees that was put in place for the purpose of our restructuring, as described below. In the case of Mr. Rhéaume, the amount for 2001 was paid in respect to his relocation to Montreal. In order to receive payments under the retention plan, each named executive officer was required to remit for cancellation the following number of options granted under the Old Stock Option Plan: André Tremblay — 126,348; Alain Rhéaume — 88,443; Pierre Bonin — 60,647; Jacques Leduc — 53,066 and Bruno Péloquin — 44,222.

The following table sets forth details of options granted under the new stock option plan to the executive officers named above during the financial year ended December 31, 2003. Each option granted under the new

As of December 31, 2003, stock options to purchase a total of 919,500 Class B Non-voting Shares were granted to our twelve executive officers. These executive officers are: Pierre Bonin, René Bousquet, Jocelyn Côté, Carl Dexter, Robert Fortier, Gaétan Jacques, Jacques Leduc, Bruno Péloquin, Dean Proctor, Alain Rhéaume and André Tremblay. Our employees at the “manager” and “director” levels have also received options. As of June 30, 2004, stock options to purchase a total of 990,500 Class B Non-Voting Shares were granted to our executive officers.

The following table summarizes, for each of the executive officers named above, the number of stock options under the new stock option plan, if any, exercised during the financial year ended December 31, 2003, the aggregate value realized upon exercise and the total number of exercisable and unexercisable options, if any, held at December 31, 2003. Value realized upon exercise is the difference between the fair market value of the underlying class B non-voting shares of Microcell on the exercise date and the exercise or base price of the option. Value of unexercised in-the-money options at financial year-end is the difference between its exercise or base price and the closing fair market value of the underlying class B non-voting shares of Microcell on December 31, 2003, which was $17.29 per share. These values, unlike the amounts set forth in the column “Aggregate Value Realized”, have not been, and may never be, realized. There can be no assurance that these values will be realized. Unexercisable options are those which have been held for less than the time required for vesting.


(1)	Aggregate value realized is calculated using the closing price of the class B non-voting shares of Microcell on the TSX on the date of exercise.

(2)	The value of unexercised “in-the-money” options is calculated using the closing price of the class B non-voting shares of Microcell on the TSX on December 31, 2003, which was $17.29 per share less the exercise price of the “in-the-money” options.


	*	“in-the-money” options are options for which the market value of the underlying securities is higher than the price at which such securities may be exercised.

We have not implemented a pension plan. There is only a deferred profit sharing plan under which we make a defined contribution for the employees. Our total contribution under such plan for our executive officers in 2003 totaled $82,250.

We are a party to employment contracts with Mr. André Tremblay, Mr. Alain Rhéaume and Mr. Jacques Leduc which provide that in the event of termination by us without just and sufficient cause, lay-off following a change of control or resignation within 30 days of a change of control or a constructive dismissal, they are entitled to receive an amount equal to two years’ base salary, increased by their target bonus, and to exercise all vested and unvested options to acquire our shares. We are party to an employment contract with Mr. Jocelyn Côté which provides that in the event of termination by us without just and sufficient cause, lay-off following a change of control, or resignation within 30 days of a change in control or a constructive dismissal, Mr. Côté is entitled to receive an amount equal to eighteen months’ base salary and to exercise all vested and unvested options to acquire shares. The other executive officers of Microcell are entitled to receive an amount equal to one year’s base salary in the event of termination of their employment by Microcell without just and sufficient cause and upon resignation within a 30-day period following the occurrence of a constructive dismissal. Mr. Pierre Bonin is entitled to exercise all vested and unvested options in the case of a layoff or resignation within 30 days following a major change.

In the context of the review of our capital structure in 2002, we amended and restated the terms and expanded the scope of our existing retention program for key employees in order to mitigate the risks related to other recruiting activities and to maintain in our employment the employees necessary for the successful completion of our recapitalization. Amounts payable by us under our retention program were equal to the annual compensation of each employee and were payable in installments until August 2003, to the extent the employee continued to be employed at the date of each payment.

A total compensation policy was introduced in 1994 to recognize and reward individual contributions to our short-term and long-term success and also ensure that we offer competitive compensation. This compensation policy was reviewed in 2003 and certain adjustments were made to ensure that it remained competitive with the industry.

According to this policy, executive compensation is based on three major components: base salary, benefits and incentive compensation. We aim to provide base salaries and benefits targeted at a selected market median level as well as incentive programs designed to bring executive total compensation in the upper quartile upon the achievement of superior results. Incentive compensation is awarded through plans and criteria approved by the Human Resources Committee.

The benefits consist of standard deferred profit sharing plan and insurance coverage arrangements and allowance for certain expenses.

The short-term incentive compensation offers bonuses tied to our financial performance and the achievement of strategic corporate and business unit objectives established on a yearly basis. Our finance performance is mainly measured by the level of our revenues and our OIBDA (operating income before depreciation and amortization). Our strategic corporate business objective consists of ARPU levels, churn levels and number of subscribers acquisitions.

In the case of the named executive officers, incentive bonuses range from 30% to 55% of base salary when the financial and strategic objectives are achieved. When such objectives are exceeded, bonuses are higher; when the objectives are not met, the incentive bonuses are lower, or they may not be paid at all under certain circumstances.

The human resources committee reviewed and recommended to the board of Old Microcell the approval of the 2002 bonuses on the basis that management’s performance did not entirely meet the set of objectives presented to the board of Old Microcell at the beginning of the year. Bonuses were granted in 2002 as a retention tool in order to retain our valuable employees. At the time the bonuses were declared, the company had reasonable assurance that its restructuring process would be successfully completed which is one additional reason why these bonuses were declared and paid.

Introduced in 1994 and revised from time to time, the old stock option plan was designed to motivate employees to share interest with the Old Microcell’s shareholders over the long-term and provided salary-linked stock option grants. It was of limited duration and was subject to human resources committee review to ensure maintenance of its market competitiveness. With the implementation of the plan on May 1, 2003, the old stock option plan, and all outstanding options issued pursuant thereto, were cancelled.

The old stock option plan provided for the issuance of options to employees to purchase class B non-voting shares of Old Microcell. Each participant in the old stock option plan was entitled to receive one grant of options per year, except for certain classes of participants who may only receive one grant of options per 3-year period. The number of options was based on the grant amount value for a class of employees multiplied by a factor of between 0 and 1.5 depending on the individual contribution of the employee and divided by the reference price fixed by the board of Old Microcell on or around July 1 of each year. The first year began on July 1, 2001 and the reference price was set at $35.00. During 2001, the class of employees eligible to be participants in the old stock option plan was extended to almost all employees as a result of the overall review of the compensation policy.

Pursuant to the old stock option plan, options for no more than 19,000,000 class B non-voting shares of Old Microcell could be granted. The exercise price of the options was determined by the board of Old Microcell at the time of granting the options, subject to compliance with the rules of all stock exchanges on which the class B non-voting shares were listed and with all relevant securities legislation.

Options granted pursuant to the old stock option plan were exercisable as to 25% of the options on the first, second, third and fourth anniversaries of the date of the grant. Options were exercisable for a period of seven years from the date on which they are initially granted.

Any option granted pursuant to the old stock option plan lapsed 30 days after the date on which the holder thereof ceased to be an officer, director or employee of Old Microcell or of one of its subsidiaries. In the event of death, any option held by the optionee lapsed 180 days after the date of such death.

With the implementation of the plan of reorganization on May 1, 2003, a new stock option plan of Microcell has been adopted. No further approval or ratification by shareholders will be sought or required in connection therewith.

The purpose of the new stock option plan is to provide an opportunity, through options, for the officers and employees of Microcell and our subsidiaries to purchase class A restricted voting shares, in the case of a Canadian, or class B non-voting shares, in the case of a non-Canadian, upon exercise of options granted pursuant to the new stock option plan and thereby participate in our future growth and development.

Our current board, or if it so resolves, a committee thereof, administers the new stock option plan including the allocation thereof.

Under the new stock option plan, we have reserved for issuance class A restricted voting shares and class B non-voting shares, representing, together with such shares reserved for issuance in connection with the

The human resources committee is responsible for ensuring that executive compensation conforms to our total compensation policy.

As at June 30, 2004, Microcell or our subsidiaries had not made any loan to officers, directors, employees and former officers, directors and employees of Microcell and our subsidiaries.

Pursuant to our by-laws, we may indemnify a director or officer in any legal proceeding if such person acted honestly and in good faith, and had reasonable grounds to believe that such person’s conduct was lawful.

We maintain insurance protection against liability incurred by our officers and directors as well as those of our subsidiaries in the performance of their duties. We paid the entire premium of U.S.$750,000 in 2003. The aggregate limit of liability in respect of any and all claims is U.S.$31 million per year. The policy provides for the indemnification of directors and officers in the case of claims for which we have not indemnified or are not permitted by law to indemnify them, and for the reimbursement to us, subject to a deductible of U.S.$1,000,000, in the case of claims for which we have indemnified or were permitted to indemnify the directors or officers involved.

The board is responsible for orientation and follow-up of the achievement of business objectives and of our activities. The board is responsible for approving and ensuring that the mission, the vision and the strategy we have adopted are respected in the pursuit of our business objectives. The board holds regular meetings on a quarterly basis as well as additional meetings to consider particular issues or conduct specific reviews whenever deemed appropriate. The board approves our ethical values and ensures that our major business risks are identified and measured and that a proper management process is implemented.

Before the start of every fiscal year, the board receives and approves an annual budget submitted by the president and chief executive officer.

The board monitors and evaluates the performance of the president and chief executive officer and of senior management. Finally, the board reviews those matters requiring the board’s approval pursuant to the law or our articles and by-laws. All our important decisions and those of our wholly-owned subsidiaries are subject to approval by the board.

Our board was designated by the Court as part of the sanction order and the directors of the current board were appointed on May 1, 2003, the effective date of the plan of reorganization. The board has been fixed at 11 directors initially, one of which is our chief executive officer from time to time. A majority of members of the board must be Canadians.


	(1) seven appointees were selected by the secured creditors as holders of the first preferred voting shares;

	(2) two appointees were selected by the AHB Committee; and

	(3) one appointee was selected by the board of Old Microcell. On January 27, 2003 the board of Old Microcell selected Mr. Charles Sirois as its appointee.

The initial chairman of our current board, Mr. André Bureau, has been selected by the members of the board appointed by the secured creditors as holders of first preferred voting shares.

As redemptions or conversions of first preferred shares, or first units, will occur over time, the number of directors nominated and elected to our current board by holders of first preferred voting shares, or first units comprised of first preferred voting 2 shares, will be reduced according to the number of first preferred shares, or first units, outstanding relative to the aggregate number originally issued, as follows:

As a result of the redemption of our first preferred shares on May 1, 2004, the holders of our class A restricted voting shares now have the right to elect all 11 directors.

Pursuant to our articles, the board has been divided into two groups: a first group, or group A, to consist of six directors appointed to hold office for a stated term expiring at the close of the third annual meeting of shareholders following May 1, 2003 and a second group, or group B, to consist of five directors appointed to hold office for a stated term expiring at the close of the second annual meeting of shareholders following May 1, 2003. At the end of their respective initial terms of office, elections of directors shall be for terms of two years each. The table below identifies, in respect of each individual listed therein, whether such individual is part of group A or group B.

As at June 30, 2004, the human resources committee of our board was composed of the following individuals: Mr. Charles Sirois, Mr. Lorie Waisberg, Mr. Gary Goertz, Mr. Jim Continenza and Mr. André

The human resources committee is a committee of our board of directors. It is mandated to review and make recommendations to the board in connection with the appointment and remuneration of senior officers of Microcell and of our subsidiaries, including the chief executive officer. In addition, the human resources committee determines the options to be granted under the stock option plan in accordance with the rules adopted by the board. Our relative position in terms of compensation levels is determined annually through studies performed by independent consulting firms using a selected reference market of comparable companies. Internal pay equity studies are a key factor to complete the process and provide necessary adjustments where required.

As at June 30, 2004, the audit committee was composed of five individuals, namely Mr. Paul McFarlane, Mr. Christian Dubé, Mr. Charles Sirois, Mr. Steven D. Scheiwe and Mr. André Bureau, all of whom are independent directors. The audit committee oversees our financial reporting process on behalf of the board of directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. In fulfilling its responsibilities, the audit committee reviews our audited financial statements with management and with the auditors.

The audit committee reviews with the auditors their judgments as to the quality of our accounting principles and such other matters as are required to be discussed under generally accepted auditing standards. In addition, the audit committee discusses with the independent auditors their independence from management, including the matters in the written disclosures required by the independence standards board. The audit committee discusses with our internal and independent auditors the overall scope and plans for their respective audits. The audit committee meets with the internal and independent auditors, with and without management presence, to discuss the result of their examinations, their evaluations of our internal controls, and the overall quality of our financial reporting.

We consider good corporate governance to be important to our effective operations. The corporate governance committee ensured that the corporate governance policy complied with the TSX guidelines. It approved any material transactions with a related party having a significant impact on our business and affairs. Our corporate governance committee is composed of five independent directors: Mr. André Bureau, Mr. I. Berl Nadler, Mr. Lorie Waisberg, Mr. Robert F. Latham and Mr. Christian Dubé.

As at June 30, 2004, we had approximately 2,304 employees, expressed in full-time equivalent employees. We are not party to any collective labor agreements and none of our employees are represented by a union. We believe that we enjoy good relations with our employees. As of December 31, 2003, 2002, 2001, and 2000, we had respectively approximately 2,200, 2,026, 2,377 and 2,603 employees (expressed in full-time equivalent employees).

Besides Mr. Charles Sirois, who beneficially owns 5,665 class A restricted voting shares and Mr. André Bureau, who beneficially owns 2,280 class A restricted voting shares, to our knowledge, no director or officer beneficially owns more than 1% of each of our classes of securities. Directors and officers of Microcell as a group own: (1) 5,665 class A restricted voting shares, or 19.1% of that class, all of which are owned directly and indirectly by Mr. Charles Sirois; and (2) 1,914 class B non voting shares, 2 of which are owned directly by Mr. Alain Rhéaume, 12 of which are owned, directly and indirectly, by Mr. André Tremblay, and 1,900 of which are owned directly and indirectly by Mr. André Bureau.

Prior to May 1, 2003, the effective date of the plan of reorganization, Telesystem Ltd. was the major shareholder of Old Microcell with 72.1% of the votes and 25% of the equity of Old Microcell. T-Mobile USA, Inc. and Capital Communications CDPQ Inc., with respectively 14.6% and 16.6% of the equity of Old Microcell, were the other principal shareholders of Old Microcell.

The following table and notes thereto set forth certain information, to our knowledge, regarding ownership of our securities outstanding as of September 30, 2004, namely the, class A restricted voting shares and class B non-voting shares, and Warrants, for the following persons:


	(1) each person who is known by Microcell to be the beneficial owner of 5% or more of any of our classes of shares or Warrants; and

	(2) directors and officers of Microcell; and

	(3) all other stakeholders as a group.


(1)	Based on a total of 198,679 class A restricted voting shares outstanding. The holdings for each named beneficial holder is 17,876 for Harbert Management Corporation, and 10,000 for Gestion Michel Ostiguy.

(2)	Based on a total of 29,566,308 class B non-voting shares outstanding. The holdings for each named beneficial holder are 5,724,960 for Harbert Management Corporation, 3,893,894 for Wayzata Investments Partners LLC, 3,027,846 for York Capital Management LP and 2,272,727 for COM Canada, LLC.

(3)	Based on a total of 3,998,302 Warrants 2005. The holdings for each named beneficial holder are 394,210 for Harbert Management Corporation, and 669,128 for Telesystem Ltd.

(4)	Based on a total of 6,663,943 Warrants 2008. The holdings for each named beneficial holder are 633,690 for Harbert Management Corporation, and 1,115,214 for Telesystem Ltd.

(5)	Includes securities held by COM Canada, LLC Irrevocable Trust of 2004. COM Canada, LLC is a private holding company of Craig O. McCaw.

(6)	Includes securities held by Telesystem Ltd. and its subsidiaries, ultimately controlled by Charles Sirois. All other directors and executive officers of Microcell as a group, excluding Mr. Sirois and Mr. Bureau, hold less than 0.1% of each of these classes of securities.

(7)	To our knowledge, these persons or entities are residents of the U.S.

To our knowledge, other than as disclosed in this prospectus, the aforementioned beneficial holders did not, as of September 30, 2004, own or exercise control over any of our other securities.

This prospectus is related to the offer and resale of up to 10,875,489 of our class A restricted voting shares and class B non-voting shares issuable upon exercise of our Warrants 2005 and Warrants 2008 from time to time by the holders of the Warrants, or their permitted successors or assigns. We refer to these holders as the selling shareholders.

Because the selling shareholders may offer all, some or none of their class A restricted voting shares and class B non-voting shares issuable upon exercise of our Warrants 2005 and Warrants 2008, no definitive estimate as to the number of the class A restricted voting shares and class B non-voting shares that will be held by the selling shareholders after this offering can be provided. The following table shows the equity ownership that the selling shareholders would hold in us before and after this offering assuming that:


	(1) they sell all of their class A restricted voting shares and class B non-voting shares issuable upon exercise of our Warrants 2005 and Warrants 2008, and

	(2) they do not own any other shares, except as specified.

In addition to the class A restricted voting shares and class B non-voting shares offered by the selling shareholders named in the following table, the class A restricted voting shares and class B non-voting shares offered by this prospectus also include those offered by other selling shareholders holding less than 1% of our class A restricted voting shares and class B non-voting shares, who are not individually named in this prospectus. We estimate that the number of these other selling shareholders is approximately 27,000.


(1)	Number of class A restricted non-voting shares and/or class B non-voting shares.

(2)	Percentage of the combined number of all outstanding class A restricted non-voting shares and class B non-voting shares, including those offered by this prospectus.

(3)	These companies are controlled by Charles Sirois, one of our directors.

From the beginning of our last full fiscal year up to the latest practicable date, we have entered into transactions with shareholders and companies under common control, which were not material to us or the related party. These transactions were undertaken in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. These transactions consisted primarily of our purchase or sale of management services and telecommunication services or equipment.

During all of 2001, Telesystem Ltd., which owned approximately 72.1% of the voting common shares of Old Microcell, owned 50% of Spectra Telecommunications Inc. which provides engineering consulting for us. During 2001, these services amounted to $1,684,448. In February 2002, Telesystem Ltd. sold its 50% interest to SNC — Lavalin Inc., the other shareholder of Spectra Telecommunications Inc.

This prospectus contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, that are based on expectations and estimates. Forward-looking statements may be identified by the use of forward-looking terminology such as believe, intend, may, will, expect, estimate, anticipate, continue or similar terms, variations of those terms or the negative of those terms. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements contain potential risks and uncertainties, and actual results may therefore differ materially. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

Important factors that may affect these expectations include, but are not limited to: changes in the Canadian economy and in Canadian and U.S. capital markets; changes in competition in our markets; advances in telecommunications technology; changes in the telecommunications regulatory environment; future litigation; availability of future financing; unanticipated changes in expected growth of the number of subscribers; radio emission concerns; exchange rate fluctuations; penetration and churn rates; the mix of products and services offered in our markets; the outcome of the Rogers offers or the TELUS offers; and the other factors discussed under “Risk Factors”. You should evaluate any statements in light of these important factors.

Our general by-laws do not contain any provisions with respect to directors’ power to vote on a proposed arrangement or contract in which directors are materially interested. The CBCA, the corporate statute governing Microcell, imposes certain disclosure obligations upon a director where such director:


	(1) is party to a contract or transaction with Microcell;

	(2) is a director or an officer of a party to a contract or transaction with Microcell; or

	(3) has a material interest in a party to a contract or transaction with Microcell.

In any such event the director is restricted in voting on any resolution to approve such contract or transaction (subject to statutory exceptions).

In accordance with our general by-laws, the remuneration to be paid to directors may be fixed by the board from time to time. Decisions of the board with respect to such matter are subject to general quorum and voting rules governing meetings of directors.

Our general by-laws provide that the board may from time to time on our behalf, without authorization of the shareholders, exercise borrowing powers. Borrowing powers exercisable by the directors may be varied by way of an amendment to the general by-laws, which amendment must be approved by the shareholders by ordinary resolution.

The general by-laws do not provide for mandatory retirement of directors based on age.


	(1) an unlimited number of first preferred shares, issuable as first preferred voting shares, first preferred non-voting shares, first preferred voting 2 shares and first preferred non-voting 2 shares;

	(2) an unlimited number of second preferred shares issuable as second preferred voting shares, second preferred non-voting shares, second preferred voting 2 shares and second preferred non-voting 2 shares;

	(3) an unlimited number of class A restricted voting shares; and

	(4) an unlimited number of class B non-voting shares.

Issue price. First preferred voting shares and first preferred non-voting shares were issued at $15 per share. As of May 1, 2004, we redeemed all our outstanding first preferred shares.

Rights upon liquidation. Holders of first preferred shares are entitled to receive, on our winding-up, liquidation or dissolution and in priority to any payment or distribution in respect of shares of any other class, an amount per share equal to the first preferred shares redemption price (as described below) plus any declared but unpaid dividends.

Voting. Holders of first preferred voting shares are entitled to receive notice of and to attend and vote at all meetings of our shareholders (except meetings at which only the holders of another specified class or series of shares (other than the class A restricted voting shares or class B non-voting shares, as the case may be) are entitled to vote separately as a class or series as provided by law or in our articles) and each first preferred voting share confers the right to one vote (in person or by proxy) at all such meetings. Holders of first preferred voting shares are also entitled to vote together with the class A restricted voting shares and, if

Non-Cumulative Dividend. The holders of first preferred voting shares and first preferred non-voting shares are entitled to a fixed, non-cumulative preferential dividend at the rate of 9% per annum, from time to time and payable semi-annually in arrears in cash. All dividends declared on the first preferred shares shall be declared and paid at the same time, and in equal amounts, share for share, without any preference or priority of one series over the other.

Maturity. The first preferred shares shall be mandatorily redeemed on May 1, 2013.

First Preferred Shares Redemption Price. The first preferred shares redemption price, or FPS redemption price, is initially the issue price therefor, increased at the beginning of each semi-annual period commencing on November 1, 2003 by


	(1) an amount equal to the dividend accrued during such period; less

	(2) the amount of any cash dividend that has been declared and paid in respect of such semi-annual period.

In the event of any redemption or mandatory conversion of first preferred shares other than as at the end of a semi-annual period, the FPS redemption price is to be adjusted by adding the accrued dividend on a pro rata basis with reference to the number of days from the beginning of the then current semi-annual period to the date of such redemption or conversion, less the amount of any cash dividend that has been declared and paid in respect of such period.


	(1) in whole or in part at any time at the option of Microcell at the then current FPS redemption price, payable in cash, provided however that holders of first preferred shares may exercise any conversion rights prior to any such redemption;

	(2) at maturity, (a) mandatorily at a price per share equal to the then current FPS redemption price payable in cash or (b) at Microcell’s option, if the class A restricted voting shares and the class B non-voting shares continue to be listed and posted for trading on a recognized exchange, in consideration of the issuance of a number of class A restricted voting shares or class B non-voting shares (as the case may be) equal to the FPS redemption price divided by the average share price of such shares;

	(3) mandatorily prior to maturity at the then current FPS redemption price to the extent that Microcell has funds available for such purpose (determined by reference to certain thresholds established in the Articles); and

	(4) at any time prior to maturity, in whole or in part, at the option of Microcell upon payment of the then current FPS redemption price by issuing first units comprised of a note and a first preferred voting 2 share or first preferred non-voting 2 share.

Intra Class Exchange Rights. The first preferred non-voting shares are exchangeable, at the option of the holders, into first preferred voting shares on a share-for-share basis, in the following circumstances:


	(1) at any time upon provision by a holder of preferred shares certifying that the holder is a Canadian;


	(2) upon a bid being made for the first preferred voting shares where no equivalent bid is made for the first preferred non-voting shares for the purposes of allowing the first preferred non-voting shares to tender to an exclusionary bid;

	(3) automatically upon the repeal or relaxation of the Canadian rules restricting Microcell’s ownership and control, but only to the extent of such repeal or relaxation and non-Canadian ownership and control of Microcell and its subsidiaries not otherwise being restricted by law.

The first preferred voting shares are exchangeable, at the option of the holders, into first preferred non-voting shares on a share-for-share basis.

Conversion Features. The first preferred shares have the following conversion features:


	(1) at any time, the first preferred voting shares and the first preferred non-voting shares are convertible, at the option of the holders into class A restricted voting shares and class B non-voting shares respectively on a share-for-share basis;

	(2) if at any time prior to May 1, 2008, Microcell shall complete an offering of class A restricted voting shares or class B non-voting shares for gross proceeds of not less than $150 million and at a per share price equal to or greater than 200% of the then current FPS redemption price and the proceeds thereof are used as provided in the articles, the first preferred voting shares and the first preferred non-voting shares which remain outstanding after the application of such proceeds will be converted, at the option of Microcell, into class A restricted voting shares and class B non-voting shares respectively on a share-for-share basis; and

	(3) if at any time on or after May 1, 2008, on the 25th day (or if such day is not a trading day, then on the next following trading day) following the release by Microcell of its quarterly or annual financial statements, as the case may be, the first preferred voting shares and the first preferred non-voting shares are in-the-money (namely that the FPS redemption price is less than the average share price of the class A restricted voting shares and class B non-voting shares), they will be converted automatically into class A restricted voting shares and class B non-voting shares respectively on a share-for-share basis.

Upon conversion of any first preferred voting shares or first preferred non-voting shares into class A restricted voting shares or class B non-voting shares, the holders of such first preferred voting shares or first preferred non-voting shares will have no right to receive any payment in cash on account of the FPS redemption price.

All conversion rights described above are subject to a registration statement having been filed by Microcell and having become effective under the United States Securities Act of 1933, or Securities Act, or to an exemption being available under the Securities Act in connection with the issuance of shares resulting from the exercise of such conversion right. If such exemption was not available, Microcell agreed to file, on a date not earlier than six months and not later than seven months after May 1, 2003, a registration statement with the SEC in respect of shares to be issued upon the exercise of conversion rights and to use reasonable commercial efforts to have the SEC declare the registration statement effective. We believe that an exemption under Section 3(a)(9) of the Securities Act was available for the issuance of the class A restricted voting shares or class B non-voting shares issuable upon conversion of any first preferred voting shares or first preferred non-voting shares, and therefore filed a registration statement relating to the shares resulting from the exercise of these conversion rights.

Anti-layering provisions. The articles of Microcell provide that, so long as there remain outstanding first preferred shares (or first units, if issued) representing in the aggregate an initial issue price in excess of $75 million, the approval:


	(1) by written resolution signed by the holders of a majority of the aggregate number (or principal amount, as the case may be) of first preferred shares (or first units, if issued) then outstanding or

	(2) by a majority of the holders of first preferred shares (or first units, if issued) then outstanding represented in person or by proxy at a meeting of such holders called for such purpose,


	(X) issue any shares ranking prior to or pari passu with the first preferred shares (or first units, if issued) or

	(Y) incur funded debt (other than permitted debt under Microcell’s credit facilities, first units and second units),

as a result of which the aggregate consolidated funded debt thereof would be in excess of 4.0 times consolidated annual EBITDA, calculated on a pro forma basis based upon the four consecutive quarters ended as at the fiscal quarter-end immediately prior to the date of the resolution of the board of Microcell approving such issuance or incurrence, as the case may be.

Foreign Ownership Restrictions. The first preferred shares shall be subject to sale in a manner that will ensure compliance with the Canadian rules governing the ownership and control of Microcell, for so long as same remain in effect.

Issue price. Second preferred voting shares and second preferred non-voting shares were issued at $15 per share. As of May 1, 2004, we redeemed all our outstanding second preferred shares.

Rights upon liquidation. Holders of second preferred shares are entitled to receive, on the winding-up, liquidation or dissolution of Microcell and in priority to any payment or distribution in respect of shares of any other class, other than the first preferred shares, an amount per share equal to the second preferred shares redemption price (as described below) plus any declared but unpaid dividends.

Voting. Holders of second preferred voting shares are entitled to receive notice of and to attend and vote at all meetings of the shareholders of Microcell (except meetings at which the holders of another specified class or series of shares (other than the class A restricted voting shares or class B non-voting shares, as the case may be) are entitled to vote separately as a class or series as provided by law or in the articles of Microcell) and each second preferred voting share confers the right to one vote (in person or by proxy) at all such meetings. Holders of second preferred voting shares are also entitled to vote together with the class A restricted voting shares and, if applicable, the class B non-voting shares on an “as converted” basis on any matter on which the class A restricted voting shares or class B non-voting shares, as the case may be, are entitled to vote. Except as otherwise provided in the Canada Business Corporations Act or in the articles of Microcell, holders of second preferred non-voting shares are not entitled to vote at any meetings of the shareholders of Microcell, but otherwise enjoy the same rights, privileges and economic entitlements as are enjoyed by holders of the second preferred voting shares. The holders of second preferred non-voting shares are entitled to receive notice of and to attend meetings of the holders of second preferred voting shares and class A restricted voting shares. Each second preferred non-voting share confers the right to one vote (in person or by proxy) at any meeting at which the holders of second preferred non-voting shares are entitled to vote and shall be entitled to vote on an “as converted basis” at any meeting at which the class B non-voting shares, as the case may be, are entitled to vote.

Non-Cumulative Dividend. The holders of second preferred voting shares and second preferred non-voting shares are entitled to a fixed, non-cumulative preferential dividend at the rate of 9% per annum, from time to time and payable semi-annually in arrears in cash. All dividends declared on the second preferred shares shall be declared and paid at the same time, and in equal amounts, share for share, without any preference or priority of one series over the other, but subject to the prior declaration and payment (or setting apart for payment) of dividends on the first preferred shares in respect of the corresponding period.

Maturity. The second preferred shares shall be mandatorily redeemed on May 1, 2013.

Second Preferred Shares Redemption Price. The redemption price of each second preferred share is initially the issue price therefor, increased at the beginning of each semi-annual period beginning on November 1, 2003 by


	(1) an amount equal to divided accrued during such period; less

	(2) the amount of any cash dividend that has been declared and paid in respect of such semi-annual period.

In the event of any redemption or conversion other than as at the end of a semi-annual period, the second preferred shares redemption price, or SPS redemption price, is to be adjusted by adding the accrued dividend on a pro rata basis with reference to the number of days from the beginning of the then current semi-annual period to the date of such redemption or conversion, less the amount of any cash dividend that has been declared and paid in respect of such period.


	(1) Subject to the prior redemption for cash of all first preferred shares (except for any first preferred shares which have been voluntarily redeemed or converted for shares by the holder thereof), in whole or in part at any time at the option of Microcell at the then current SPS redemption price, payable in cash, provided however that holders of second preferred shares may exercise any conversion rights prior to any such redemption;

	(2) at maturity, (a) mandatorily at a price per share equal to the then current SPS redemption price payable in cash, subject to the prior redemption for cash of all first preferred shares (except for any first preferred shares which have been voluntarily redeemed or converted for shares by the holder thereof) or (b) at Microcell’s option, if the class A restricted voting shares and the class B non-voting shares continue to be listed and posted for trading on a recognized exchange, in consideration of the issuance of a number of class A restricted voting shares or class B non-voting shares (as the case may be) equal to the SPS redemption price divided by the average share price of such shares;

	(3) mandatorily prior to maturity at the then current SPS redemption price to the extent that Microcell has remaining funds available for such purpose (determined by reference to certain thresholds established in the articles), subject to the prior redemption for cash of all outstanding first preferred shares; and

	(4) at any time prior to maturity, in whole or in part, at the option of Microcell upon payment of the then current SPS redemption price by issuing second units composed of a note and a second preferred voting 2 share or second preferred non-voting 2 share.

Intra Class Exchange Rights. The second preferred non-voting shares are exchangeable, at the option of the holders, into second preferred voting shares on a share-for-share basis, in the following circumstances:


	(1) at any time upon provision by a holder of second preferred non-voting shares of a residency declaration to Microcell and the transfer agent of second preferred shares certifying that the holder is a Canadian;

	(2) upon a bid being made for the second preferred voting shares where no equivalent bid is made for the second preferred non-voting shares, for the purposes of allowing the second preferred non-voting shares to tender to an exclusionary bid; and

	(3) automatically upon the repeal or relaxation of the Canadian rules restricting Microcell’s ownership and control, but only to the extent of such repeal or relaxation and non-Canadian ownership and control of Microcell and its subsidiaries not otherwise being restricted by law.

The second preferred voting shares will at any time be exchangeable, at the option of the holders, into second preferred non-voting shares on a share-for-share basis.

Conversion Features. The second preferred shares have the following conversion features:


	(1) at any time, the second preferred voting shares and the second preferred non-voting shares are convertible, at the option of the holders, into class A restricted voting shares and class B non-voting shares respectively on a share-for-share basis;

	(2) if at any time prior to May 1, 2008, Microcell shall complete an offering of class A restricted voting shares or class B non-voting shares for gross proceeds of not less than $150 million and at a per share price equal to or greater than 200% of the then current SPS redemption price and the proceeds thereof are used as provided in the articles, the second preferred voting shares and the second preferred non-voting shares which remain outstanding after the application of such proceeds will be converted, at the option of Microcell, into class A restricted voting shares and class B non-voting shares respectively on a share-for-share basis; and

	(3) if at any time on or after May 1, 2008, on the 25th day (or if such is not a trading day, then on the next following trading day) following the release of Microcell’s quarterly or annual financial statements, as the case may be, the second preferred voting shares and the second preferred non-voting shares are in-the-money (namely that the SPS redemption price is less than the average share price of the class A restricted voting shares and class B non-voting shares), they will be converted automatically into class A restricted voting shares and class B non-voting shares respectively on a share-for-share basis.

Upon conversion of any second preferred voting shares or second preferred non-voting shares into class A restricted voting shares or class B non-voting shares, the holders of such second preferred voting shares or second preferred non-voting shares will have no right to receive any payment in cash on account of the SPS redemption price.

All conversion rights described above are subject to a registration statement having been filed by Microcell and having become effective under the United States Securities Act or to an exemption being available under the Securities Act in connection with the issuance of shares resulting from the exercise of such conversion right. If such exemption was not available, Microcell agreed to file, on a date not earlier than six months and not later than seven months after May 1, 2003, a registration statement with the SEC in respect of shares to be issued upon the exercise of conversion rights and to use reasonable commercial efforts to have the SEC declare the registration statement effective. We believe that an exemption under Section 3(a)(9) of the Securities Act was available for the issuance of the class A restricted voting shares or class B non-voting shares issuable upon conversion of any second preferred voting shares or second preferred non-voting shares, and therefore filed a registration statement relating to the shares resulting from the exercise of these conversion rights.

Anti-Layering Provisions. The articles of Microcell provide that, so long as there remain outstanding second preferred shares (or second units, if issued) representing in the aggregate an initial issue price in excess of $50 million, the approval:


	(1) by written resolution signed by the holders of a majority of the aggregate number (or principal amount, as the case may be) of second preferred shares (or second units, if issued) then outstanding or

	(2) by a majority of the holders of second preferred shares (or second units, if issued) represented in person or by proxy at a meeting of such holders called for such purposes


	(X) issue any shares ranking prior to or pari passu with the second preferred shares (or second units, if issued) (other than first preferred shares issued on May 1, 2003), or

	(Y) incur funded debt (other than permitted debt under Microcell’s credit facilities, first units and second units), as a result of which the aggregate consolidated funded debt thereof would be in excess of 4.0 times consolidated annual EBITDA, calculated on a pro forma basis based upon the four consecutive quarters ended as at the fiscal quarter-end immediately prior to the date of the resolution of the board of Microcell approving such issuance or incurrence, as the case may be.

Voting. Holders of class A restricted voting shares are entitled to receive notice of and to attend and vote at all meetings of the shareholders of Microcell (except meetings at which only the holders of another specified class or series are entitled to vote separately as a class as provided in the Canada Business Corporations Act or in the articles of Microcell) and each class A restricted voting share confers the right to one vote (in person or by proxy) at all such meetings.

Except as to voting the class A restricted voting shares will have equal rights to the class B non-voting shares on a share-for-share basis.

Dividends. All dividends declared on the class A restricted voting shares and the class B non-voting shares shall be declared and paid at the same time, and in equal amounts, share for share, without any preference or priority of one class over the other.

Rights upon liquidation. Holders of class A restricted voting shares are entitled to receive the remaining assets of Microcell on the winding up, liquidation or dissolution of Microcell, pari passu with the holders of class B non-voting shares, on a per share basis.

Exchange Right. The class A restricted voting shares are exchangeable at any time, at the option of the holders, into class B non-voting shares on a share-for-share basis.

Foreign Ownership Restrictions. The class A restricted voting shares are subject to sale in a manner that will ensure compliance with the Canadian rules relating to Microcell’s ownership and control, for so long as same remain in effect. For more information on these rules, readers are referred to the description of these rules under the heading “Foreign Ownership Restrictions” below.

Voting. Except as otherwise provided by law or in the articles of Microcell, holders of class B non-voting shares are not entitled to vote at any meetings of the shareholders of Microcell, but otherwise enjoy the same rights, privileges and economic entitlements as are enjoyed by holders of the class A restricted voting shares. The holders of class B non-voting shares are entitled to receive notice of and to attend meetings of the holders of class A restricted voting shares. Each class B non-voting share confers the right to one vote (in person or by proxy) at any meeting at which the holders of class B non-voting shares are entitled to vote.

Rights upon liquidation. Holders of class B non-voting shares are entitled to receive the remaining assets of Microcell on the winding up, liquidation or dissolution of Microcell, pari passu with the holders of class A restricted voting shares, on a per share basis.

Exchange Right. The class B non-voting shares are exchangeable, at the option of the holders, into class A restricted voting shares on a share-for-share basis, in the following circumstances:


	(1) any time upon provision by a holder of class B non-voting shares of a residency declaration to Microcell and the transfer agent of the class A restricted voting shares certifying that the holder is a Canadian;

	(2) upon a bid being made for the class A restricted voting shares where no equivalent bid is made for the class B non-voting shares, for the purposes of allowing the class B non-voting shares to tender to an exclusionary bid; and

	(3) automatically upon the repeal or relaxation of the Canadian rules governing Microcell’s ownership and control, but only to the extent of such repeal or relaxation and non-Canadian ownership and control of Microcell and its subsidiaries not otherwise being restricted by law.

Microcell issued on May 1, 2003 two series of warrants, which we collectively refer to in this section as the Warrants, entitling holders thereof to purchase class A restricted voting shares or class B non-voting shares (based on Canadian residency status) being the Warrants 2005 (having a two-year term and an exercise price per share of $19.91) and Warrants 2008 (having a five-year term and an exercise price per share of $20.69).

The indentures relating to the Warrants provide that in the event of certain fundamental transactions,


	(1) the holders of Warrants shall, upon exercise of the Warrants following any such fundamental transactions, be entitled to receive the same number and kind of securities, cash or other property that they would have been entitled to receive had they exercised their Warrants prior to any such fundamental transactions;

	(2) where the consideration payable to holders of equity shares of Microcell is payable solely in cash, the holders of Warrants are required to surrender or exercise their Warrants and are entitled to receive, upon surrender or exercise thereof, payments on an equal basis with holders of such shares as if the Warrants had been exercised immediately prior to such fundamental transactions, less the exercise price thereof, and upon receipt of such payment, if any, the rights of a holder of such Warrant shall terminate and cease and such holder’s Warrants shall expire (for greater certainty, in all cases without regard to whether or not the holders have exercised their Warrants); and

	(3) where applicable, the successor corporation to Microcell (if applicable) shall expressly assume the performance of Microcell covenants and conditions under the indentures relating to the Warrants.

No Warrants may be exercised until the date that a registration statement filed by Microcell under the Securities Act with respect to the exercise of Warrants has been declared effective by the SEC. Microcell has filed the registration statement of which this prospectus forms a part with the SEC in respect of the shares issuable upon exercise of the Warrants and has agreed to use reasonable commercial efforts to have the SEC declare this registration statement effective. In accordance with the warrant indentures governing the 2005 and 2008 Warrants, the number of shares issuable upon the exercise of such warrants has been adjusted from 1.00 to 1.02 class A or class B shares, as the case may be, per warrant. This warrant share-rate adjustment was made as a result of the Company’s rights offering.

The first preferred voting shares and first preferred non-voting shares are redeemable at any time prior to maturity at the option of Microcell in consideration of the issuance of first units (voting and non-voting series). The second preferred voting shares and second preferred non-voting shares are redeemable at any time prior to maturity by Microcell in consideration of the issuance of second units (voting and non-voting series).

The first units and second units are hybrid instruments designed to duplicate the economic interest and other features (including as to voting entitlements) attaching to the first preferred shares and second preferred shares. Each unit is composed of a note, which provides the holder of the unit with an economic interest similar to that of a holder of first preferred share, together with a first preferred voting 2 share or first preferred non-voting 2 share (in the case of first units) or with a second preferred voting 2 share or second preferred non-voting 2 share (in the case of second units).

Microcell has entered into two unit indentures, respectively in respect of first units and second units, which provide for similar redemption and conversion features attaching to the units as those attaching to the first preferred shares and second preferred shares under the articles. The indentures relating to the units also provide for certain adjustment mechanisms in the event of fundamental transactions, as well as provisions customarily found in indentures governing issuances of notes.

No units may be converted into class A restricted voting shares or class B non-voting shares until the date that a registration statement filed by Microcell under the Securities Act has been declared effective by the SEC.

The amount of our outstanding share capital has changed during the last three years, primarily as the result of the exercise of options and warrants, the conversion of preferred shares and certain public and private issuances of shares. These changes are summarized as follows.


	•	Conversion of 800,600 common shares into class B shares by Com2i & Cie S.C.A.

	•	Conversion of 314,184 common shares into class B shares by Atlas International.

	•	Conversion of 12 common shares into class B shares by Martin O’Neill.

	•	Issuance of 9,590,000 class A shares to T-Mobile USA Inc. (formerly VoiceStream Wireless Corporation) in exchange for $400 million equity investment in March 2000.

	•	Exercise of warrants into 497,607 class B shares.

	•	Issuance of 407,044 class B shares from stock options.


	•	Conversion of 3,599,506 common shares into class B shares by Le Groupe Vidéotron.

	•	Conversion of 434,232 common shares into class B shares by Com2i & Cie S.C.A.

	•	Issuance of 172,659,118 class B shares from rights issue and private equity placements to Telesystem Ltd., T-Mobile USA Inc., CDPQ and CIBC

	•	Issuance of 2,032,659 class B shares from $54.9 million equity offering in January 2001 at a price of $27 per share.

	•	Issuance of 499,614 class B shares from stock options.


	•	No changes during this time, which encompassed the recapitalization period.

	•	Old shares converted into class B shares of New Microcell on the basis of 10,630 for 1.

We have had the following changes to our share capital since the consummation of the recapitalization plan on May 1, 2003.


	•	47,367 first preferred voting shares converted into same number of class B non-voting shares.

	•	14,118 second preferred voting shares converted into same number of class B non-voting shares.

	•	20,834 first preferred voting shares converted into same number of first preferred non-voting shares.

	•	77,144 second preferred non-voting shares converted into same number of class B non-voting shares.

	•	5,665 class B non-voting shares converted into same number of class A restricted voting shares.


	•	1,500 first preferred non-voting shares converted into same number of first preferred voting shares.

	•	4 class B non-voting shares converted into same number of class A restricted voting shares.

	•	69,773 first preferred voting shares converted into same number of first preferred non-voting shares.

	•	500 first preferred non-voting shares converted into same number of class B non-voting shares.

	•	21,100 second preferred voting shares converted into same number of second preferred non-voting shares.

	•	6 class A restricted voting shares converted into same number of class B non-voting shares.


	•	6,025 class A restricted voting shares converted into same number of class B non-voting shares.

	•	400 class B non-voting shares converted into same number of class A restricted voting shares.

	•	51,300 first preferred non-voting shares converted into same number of class B non-voting shares.

	•	114,800 second preferred non-voting shares converted into same number of class B non-voting shares.

	•	56,400 second preferred voting shares converted into same number of second preferred non-voting shares.

	•	156,058 first preferred voting shares converted into same number of first preferred non-voting shares.


	•	440 class B non-voting shares converted into same number of class A restricted voting shares.

	•	58,495 first preferred voting shares converted into same number of class A restricted voting shares.

	•	280 second preferred voting shares converted into same number of class A restricted voting shares.

	•	5,593,240 first preferred non-voting shares converted into same number of class B non-voting shares.

	•	3,636,344 second preferred non-voting shares converted into same number of class B non-voting shares.

	•	1,704 first preferred voting shares converted into same number of first preferred non-voting shares.

	•	100 second preferred non-voting shares converted into same number of second preferred voting shares.


	•	132,106 first preferred voting shares converted into same number of class A restricted voting shares.

	•	14,602 second preferred voting shares converted into same number of class A restricted voting shares.

	•	5,841,521 first preferred non-voting shares converted into same number of class B non-voting shares.

	•	3,309,989 second preferred non-voting shares converted into same number of class B non-voting shares.

	•	58,541 first preferred voting shares converted into same number of first preferred non-voting shares.

	•	1,450 first preferred voting shares, 40,688 first preferred non-voting shares and 33,095 second preferred non-voting shares were redeemed by Microcell. On April 7, 2004, we gave a notice of redemption pursuant to which we stated that we would redeem, as of May 1, 2004, all our outstanding preferred shares as at 5:00 p.m. (Montreal time) on April 30, 2004, in accordance with the provisions of our restated articles of incorporation. Such redemption was subject to the right of the holders of preferred shares to convert such shares into class A restricted voting shares or class B non-voting shares prior to their redemption.

	•	52,621 class A restricted voting shares converted into same number of class B non-voting shares.

	•	6,792,363 class B non-voting shares were issued pursuant to the rights offering and concurrent private placement with Com Canada LLC.


	•	31,941 class A restricted voting shares converted into same number of class B non-voting shares.

	•	47,280 class B non-voting shares converted into same number of class A restricted voting shares.

	•	Issuance of 449,673 class B non-voting shares following the exercise of same number of stock options.

Subject to the provisions of the CBCA and the articles of Microcell, an annual meeting of the shareholders of Microcell will be held on such date in each year, at such time and place as the board may

Special meetings of the shareholders may be called at any time by resolution of the board or by the president or the chairman of the board and shall be called when required by the shareholders in conformity with the Canada Business Corporations Act.

Any person entitled to attend a meeting of shareholders may participate in the meeting, to the extent and in the manner permitted by law, by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, if Microcell makes available such a communication facility.

Notice of each annual meeting and of each special meeting of the shareholders is given in the manner provided in the by-laws of Microcell to the shareholders entitled to vote thereat, to the shareholders entitled to receive such notice, to the directors and to the auditor or auditors at their respective addresses as they appear in the records of Microcell.

The quorum of shareholders at an annual or special meeting of shareholders is fixed at five shareholders entitled to vote at such meeting, present in person or represented either by proxy or by an individual acting on behalf of a body corporate or association and duly authorized by a resolution of the board or governing body of the body corporate or association to represent it at meetings of shareholders of Microcell, irrespective of the number of shares held by such shareholders. If a quorum is present at the opening of the meeting, the shareholders present or represented may proceed with the business of the meeting, notwithstanding the fact that a quorum is not present throughout the meeting.

Every question submitted to any meeting of shareholders shall be decided by a show of hands unless a ballot is ordered or required in the manner hereinafter set out. The chairman of such meeting may, in his discretion, order a ballot. Moreover, any shareholder or its representative, where the shareholder is a body corporate or an association, or his proxyholder, either before or after any vote by show of hands, may require a ballot on any question at any time before the termination of the meeting. A demand for a ballot may be withdrawn.

At all meetings of shareholders, every shareholder entitled to vote thereat, whether present in person or by proxyholder, or, in the case of a body corporate or association by a duly authorized representative, shall be entitled to exercise the number of votes per share as is prescribed in the articles of Microcell; however, if by virtue of the Canada Business Corporations Act another scale of voting rights is fixed with respect to a particular matter or to another class of shares, such scale of voting shall be adopted.

Solutions and Inukshuk are required, as radiocommunication carriers and by the conditions of their respective licenses, to comply with the Canadian ownership and control provisions. The Canadian ownership and control provisions must also be respected by Solutions and Inukshuk to maintain their eligibility to operate as Canadian carriers under the Telecommunications Act and to hold and have renewed the PCS license and MCS licenses.

The Canadian ownership and control provisions require Solutions and Inukshuk to be “Canadian-owned and controlled” corporations incorporated or continued under the laws of Canada or a province of Canada. Solutions and Inukshuk are deemed to be “Canadian-owned and controlled” as long as:


	(1) not less than 80% of the members of their respective boards of directors are individual Canadians;

	(2) Canadians beneficially own not less than 80% of their respective issued and outstanding voting shares; and

In the case of Microcell, as the ultimate parent corporation of both Solutions and Inukshuk, the Canadian ownership and control provisions require, for Solutions and Inukshuk to be considered eligible thereunder, that not less than 66 2/3% of the issued and outstanding voting shares (i.e. the class A restricted voting shares) of Microcell be owned by Canadians, and that Microcell not otherwise be controlled in fact by non-Canadians. A “voting share” for purposes of the Telecommunications Act means a share or class of shares of a corporation carrying voting rights under all circumstances or by reason of an event that has occurred and is continuing or by reason of a condition that has been fulfilled and includes a security that is convertible into such a share at the time that a calculation referred to in that clause is made. Microcell’s class A restricted voting shares are “voting shares” for the purpose of the Telecommunications Act.

Microcell may restrict the issue, transfer and ownership of voting shares, if necessary, to ensure that Microcell remains in conformity with the Canadian ownership and control provisions. For such purposes, in particular but without limitation, Microcell may, in accordance with the provisions of the Canadian ownership and control provisions, to the extent applicable:


	(1) refuse to accept any subscription for any voting shares;

	(2) refuse to allow any transfer of voting shares to be recorded in Microcell’s share register;

	(3) suspend the rights of a holder of voting shares to vote at a meeting of the shareholders of Microcell; and

	(4) sell, repurchase or redeem any voting shares.

Microcell’s articles of incorporation provide that Microcell may, in connection with the issue, or transfer of ownership, of voting shares in its capital, take any action, or refuse to take any action, as the case may be, to the extent necessary to ensure that any subsidiary of Microcell is and continues to be eligible to operate as a Canadian carrier under the Telecommunications Act or to be issued, to hold and to renew radio authorizations or radio licenses under the Radiocommunication Act, if and only to the extent that the business activities of such subsidiary require such eligibility.

Microcell, Solutions and Inukshuk may not be otherwise controlled by non-Canadians. In other words, a non-Canadian cannot exercise control in fact over these companies.

Failure by Microcell to comply with the requirements relating to the Canadian ownership and control provisions may affect the ability of Solutions and Inukshuk to operate as Canadian carriers and to hold and have renewed the PCS license and the MCS licenses.

The articles of Microcell provide that, until May 1, 2005 (except if varied or waived by a special resolution of holders of all voting and non-voting shares (and all units comprised of notes and preferred shares, if issued, voting on an “as converted basis”), voting as a single class, of Microcell adopted by a 66 2/3% majority thereof represented and voting in person or by proxy at a meeting called for such purpose and, for greater certainty, at which the voting limitations provided for herein shall be applicable), no person or company, acting alone or acting jointly or in concert with any other person or company with respect to the acquisition, disposition or voting of securities of Microcell, shall be permitted to exercise on any resolution submitted to a vote of holders of securities, voting rights representing in excess of 20% of the aggregate voting rights exercisable with respect to the particular resolution. Such restriction does not apply to any person or company that makes an offer to acquire all the preferred and common shares (and units comprised of notes and

This is a summary of our Rights Plan only; you should refer to the Rights Plan itself filed as an exhibit to the registration statement of which this prospectus forms a part, in particular to defined terms used in this section, for details.

The objective of the Rights Plan is to ensure, to the extent possible, that all shareholders of the Company will be treated equally and fairly in connection with any take-over offer for the Company.

The Rights Plan is designed to prevent the use of coercive and/or abusive takeover techniques and to encourage any potential acquiror to negotiate directly with our current board for the benefit of all shareholders of the Company. In addition, the Rights Plan is intended to provide increased assurance that a potential acquiror would pay an appropriate control premium in connection with any acquisition of the Company.

The Rights Plan utilizes the mechanism of a permitted bid (as described therein) to attempt to ensure that a person seeking to acquire beneficial ownership of 10% or more of the shares (and units if issued) of the Company (treated for such purposes as though they were a single class and on a fully diluted basis, assuming full conversion but without giving effect to management and employee options and exercise of Warrants), gives shareholders and our current board sufficient time to evaluate the transaction, negotiate with the proposed acquiror, encourage competing bids to emerge, and ensure that all alternatives to the transaction designed to maximize shareholder value have been considered. We have the ability to raise such 10% threshold and may in future consider the possibility of doing so.

The Rights Plan will provide our current board with time to review any unsolicited take-over bid that may be made and to take action, if appropriate, to enhance shareholder value. The Rights Plan attempts to protect shareholders by requiring all potential bidders to comply with the conditions specified in the Permitted Bid provisions, failing which such bidders are subject to the dilutive features of the Rights Plan. By creating the potential for substantial dilution of a bidder’s position, the Rights Plan encourages an offeror to proceed by way of a Permitted Bid or to approach our current board with a view to a negotiation.

Pursuant to the Rights Plan, one Right has been issued in respect of each share issued on May 1, 2003. In addition, one Right will be issued for each additional share (or unit) issued thereafter. Each Right entitles the registered holder thereof to purchase from Microcell 1.0229 Class A Share or Class B Share, as the case may be, at a price of $97.76, subject to certain anti-dilution adjustments. In addition, following a Flip-In Event (as defined below), each Right initially entitled the holder thereof to purchase Shares having a fair market value of $195.52 for $97.76. The Rights are not exercisable until the separation time.

Until the separation time, the Rights trade together with the shares (or units, if issued). After the separation time, the Rights are exercisable, and are transferable separately from the shares (or units, if issued).

The acquisition by a person making an unsolicited take-over bid for Microcell, including others acting jointly or in concert, of beneficial ownership of 10% of the shares (or units, if issued) (treated for such purposes as though they were a single class and on a fully diluted basis assuming full conversion but without giving effect to management and employee options and exercise of the Warrants), other than by way of a permitted bid is referred to as a “Flip-In Event”. As indicated above, we have the ability to raise such 10% threshold and may in the future consider the possibility of doing so. Any Rights beneficially owned by an Acquiring Person upon the occurrence of any Flip-In Event will be void, as will any Rights beneficially owned by associates, affiliates or Persons acting jointly or in concert with an Acquiring Person, and transferees thereof. After the occurrence of a Flip-In Event, each Right (other than those that are void) will permit the


	(1) the take-over bid must be made by way of a take-over bid circular;

	(2) the take-over bid must be made to all registered holders of all outstanding shares (and units, if issued) (other than shares (and units, if issued) held by the offeror or any associate or affiliate of the offeror);

	(3) the take-over bid must contain, and the take-up and payment for securities tendered or deposited thereunder is subject to, irrevocable and unqualified conditions that (1) no new instruments shall be taken up or paid for pursuant to the take-over bid prior to the close of business on the date which is not less than 60 days following the date of the take-over bid and (2) no shares (and units, if issued) shall be taken up or paid for pursuant to the take-over bid unless, at the date referred to in (1) above, more than 50% of the aggregate outstanding shares (and units, if issued) held by “independent shareholders” shall have been deposited or tendered pursuant to the take-over bid and not withdrawn;

	(4) the take-over bid must contain an irrevocable and unqualified provision that, unless the take-over bid is withdrawn, shares (and units, if issued) may be deposited pursuant to such take-over bid at any time prior to the close of business on the date of first take-up or payment for shares (and units, if issued) and that any shares (and units, if issued) deposited pursuant to the take-over bid may be withdrawn until taken up and paid for; and

	(5) the take-over bid must contain an irrevocable and unqualified provision that if, on the date on which shares (and units, if issued) may be taken up or paid for, more than 50% of the aggregate outstanding shares (and units, if issued) held by “independent shareholders” shall have been deposited or tendered pursuant to the take-over bid and not withdrawn, the offeror will make a public announcement of that fact and the take-over bid will remain open for deposits and tenders of shares (and units, if issued) for not less than ten Business Days from the date of such public announcement.

The usual provisions regarding “permitted lock-up agreements” are included in the Rights Plan.

The Rights Plan allows a Competing Bid to be made while a Permitted Bid is in existence. A Competing Bid must satisfy all the requirements of a Permitted Bid.

We have entered into a first unit indenture, made as of May 30, 2003, with Computershare Trust Company of Canada as trustee, providing for the issuance of first units, consisting of a first note and first preferred 2 share.

We have also entered into a second unit indenture, made as of May 30, 2003, with Computershare Trust Company of Canada as trustee, providing for the issuance of second units, consisting of a second note and second preferred 2 share.

We are party to the warrant indenture for the Warrants 2005 dated as of May 1, 2003 and amended on November 20, 2003 with Computershare Trust Company of Canada, as trustee, providing for the issuance of the Warrants 2005 entitling their holders to subscribe, until May 1, 2005 for class A restricted voting shares or class B non-voting shares, as the case may be, at an exercise price of Cdn.$19.91 per share.

We are also party to the warrant indenture for the Warrants 2008 dated as of May 1, 2003 and amended on November 20, 2003 with Computershare Trust Company of Canada, as trustee, providing for the issuance

A shareholder rights plan agreement dated as of May 1, 2003 between Computershare Trust Company of Canada, as Rights Agent, and us, ensures, to the extent possible, that all our shareholders will be treated equally and fairly in connection with any take-over offer for Microcell.

Our amended and restated tranche A exit facility agreement dated as of March 17, 2004 among us, as parent, Solutions, as borrower, the financial institutions from time to time parties thereto as lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent, collateral agent and issuing bank, provides for a credit facility of $50 million, which may be increased up to $75 million, and was established in favor of Solutions.

Also, our tranche B-term loan A credit agreement dated as of March 17, 2004 among us, as parent, Solutions, as borrower, the financial institutions from time to time parties thereto, as lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent and collateral agent, provides for a term loan to Solutions of $200,000,000.

Our tranche B-term loan B credit agreement dated as of March 17, 2004 among us, as parent, Solutions, as borrower, the financial institutions from time to time parties thereto as lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent and collateral agent, provides for a term loan to Solutions in the aggregate amount of $200,000,000.

We are party to an amended and restated intercreditor and collateral agency agreement, dated as of March 17, 2004, among Solutions, as borrower, Microcell, as guarantor, each of the persons listed on the execution pages thereto under the “Tranche A Lenders”, “Tranche B-Term Loan A Lenders” and “Tranche B-Term Loan B Lenders” heading, each of the lenders listed therein, JP Morgan Chase Bank, Toronto Branch, in several capacities, Computershare Trust Company Of Canada, as trustee for the holders of the first units, and for the holders of the second units.

We have a lease dated as of August 1, 1998, as amended from time to time, with WPBI Property Management Inc. for the lease of approximately 300,000 square feet of office and switchroom space at 800 de La Gauchetière Street West in Montreal, Quebec.

We are also a party to a purchase and licence agreement with Nortel Networks Corporation, dated December 21, 2001 and amended on January 16, 2004, whereby Nortel is our exclusive supplier for GSM and UMTS core wireless network equipment until December 31, 2006. This agreement grants to Nortel an exclusivity for provisioning GSM MSC (Mobile Switching Centre), HLR (Home Location Register) and call server products.

We are party to a warrant agreement with COM Canada, LLC, a Washington limited liability company, effective May 3, 2004, which provides for the issuance to COM Canada, LLC of 3,977,272 warrants to purchase class B non-voting shares.

We are party to a support agreement with Rogers effective September 19, 2004 which relates to the Rogers offers commenced on September 30, 2004

There are currently no laws, decrees, regulations or other legislation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to non-resident holders of Microcell’s securities, other than withholding tax requirements.

There is no limitation imposed by Canadian law or by the articles of incorporation or other charter documents of Microcell on the right of a non-resident to hold voting shares of Microcell, other than as provided by the Canadian ownership and control provisions, the Investment Canada Act, as amended, as amended by the North American Free Trade Agreement (NAFTA) Implementation Act (Canada), and the World Trade Organization (WTO) Agreement Implementation Act. This legislation requires notification and,

The following is a summary of certain Canadian federal income tax considerations relating to an investment in Class A Restricted Voting Shares, Class B Non-Voting Shares and Warrants (together, also referred to as the Securities or the Microcell Securities).

The summary is only applicable to a holder of Microcell Securities who, for the purposes of the Income Tax Act (Canada) (also referred to as ITA) and the Canada-United States Income Tax Convention (also referred to as the Convention), is a resident of the United States and is not resident in Canada, deals at arm’s length with Microcell and is not affiliated with Microcell and holds its Securities as capital property (also referred to as the U.S. Holder). For this purpose, related persons are deemed not to deal with each other at arm’s length. A person and a corporation are related if the person controls the corporation or is a member of a related group that controls the corporation. It is a question of fact whether persons not related to each other are dealing with each other at arm’s length. The Securities will generally be considered to be capital property for this purpose to a U.S. Holder unless either the U.S. Holder holds such securities in the course of carrying on a business, or the U.S. Holder has acquired such securities in a transaction or transactions considered to be an adventure in the nature of trade.

This summary is not applicable to a U.S. Holder that is a financial institution (as defined in the ITA) for purposes of the mark-to-market rules. In addition, this discussion does not apply to an insurer or an authorized foreign bank, who carries on an insurance business or a bank business in Canada and elsewhere.

This summary is based upon the current provisions of the ITA and counsel’s understanding of the current published administrative practices and policies of the Canada revenue agency (“CRA”). It also takes into account all specific proposals to amend the ITA publicly announced by or on behalf of the Canadian Minister of Finance prior to the date of this Circular (the “Tax Proposals”), and assumes that all such Tax Proposals will be enacted. This summary does not otherwise take into account or anticipate any changes in law, whether by way of legislative, judicial or administrative action or interpretation, nor does it address any provincial, territorial or foreign tax considerations. No assurance can be given that the Tax Proposals will be enacted in the form proposed or at all.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder. Consequently, U.S. Holders are urged to consult their own tax advisors for advice as to the tax considerations in respect of holding Microcell Securities having regard to their particular circumstances.

All amounts, including the dividends received and accrued on, and proceeds of disposition from the Class A Restricted Voting Shares and Class B Non-Voting Shares and Warrants must be determined in Canadian dollars at applicable exchange rates for the purposes of the ITA. Any capital gain or capital loss of a U.S. Holder may be affected by fluctuations in Canadian dollar exchange rates.

Dividends paid or deemed paid by Microcell to a U.S. Holder on its Class A Restricted Voting Shares and Class B Non-Voting Shares will be subject to a Canadian withholding tax in the amount of 25%. Such withholding tax may be reduced by virtue of the provisions of any income tax treaty or convention. Under the Convention, the rate of withholding tax in respect of dividends or deemed dividends beneficially owned by a resident of the United States is generally reduced to 15%. If the beneficial owner of the dividends is a company which owns at least 10% of the voting shares of Microcell, the rate of withholding tax in respect of dividends or deemed dividends is 5%. Moreover, under the Convention, dividends paid to certain religious, scientific,

A U.S. Holder will not be subject to tax under the ITA on any taxable capital gain (or will not be entitled to deduct any allowable capital loss in computing taxable income earned in Canada) realized on a disposition of Class A Restricted Voting Shares, Class B Non-Voting Shares and Warrants, as the case may be, unless the shares or the Warrants constitute “taxable Canadian property” (as defined in the ITA) at the time of their disposition. Class A Restricted Voting Shares, Class B Non-Voting Shares and the Warrants, assuming they remain listed on a prescribed exchange at the time of such disposition, generally would not constitute taxable Canadian property to a U.S. Holder unless at any time during the 60-month period immediately preceding their disposition, the U.S. Holder, persons with whom the U.S. Holder did not deal at arm’s length, or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class or series of Microcell.

The Convention provides for an exemption under the terms of which capital gain on shares of Canadian corporations, the value of which is not derived principally from real estate situated in Canada, are exempt from Canadian income tax, and, as a result, U.S. Holders may not be liable to Canadian tax (or will not be entitled to deduct any allowable capital loss in computing taxable income earned in Canada).

No gain or loss will be realized by a U.S. Holder upon exercise of Warrants. When a Warrant is exercised, the cost to the U.S. Holder of the Class A Restricted Voting Shares or Class B Non-Voting Shares, as the case may be, thus acquired will be the aggregate of the adjusted cost base, for that U.S. Holder, of the Warrant and the price paid for the Class A Restricted Voting Shares, or Class B Non-Voting Shares, as the case may be, upon exercise of the Warrant. The adjusted cost base of the Warrants acquired at the time of the plan of arrangement of Microcell under the Companies’ Creditor Arrangement Act (Canada) is equal to their fair market value on the issuance date of such Warrants.

To the extent that a U.S. Holder receives a cash payment in lieu of a fractional share as a result of the exercise of a Warrant, the CRA generally allows a shareholder who receives cash not exceeding $200 in lieu of a fractional share to recognize a capital gain or capital loss on the disposition of the fractional share in the taxation year in which the cash payment was received in lieu of the fractional share or, alternatively, to reduce the adjusted cost base of the shares received by such shareholder by the cash amount.

The expiry of an unexercised Warrant will generally result in a capital loss to the U.S. Holder equal to the adjusted cost base of the Warrant immediately before its expiry. Provided that such Warrant consisted of “taxable Canadian property” to such U.S. Holder one-half of such loss will be considered an allowable capital loss deductible against taxable capital gains from “taxable Canadian property”. For more details on this issue, see the discussion above under the heading “Holding and Disposition of Class A Restricted Voting Shares and Class B Non-Voting Shares”.

A U.S. Holder will not be subject to Canadian tax in respect of the exchange of Class B Non-Voting Shares for Class A Restricted Voting Shares. The adjusted cost base of Class A Restricted Voting Shares into which the Class B Non-Voting Shares were exchanged will equal the adjusted cost base of the Class B Non-Voting Shares.

The following is a discussion of the material U.S. federal income tax consequences to a U.S. holder (as defined below) of exercising warrants, and of acquiring, holding and disposing of class A restricted voting shares or class B non-voting shares (collectively, “shares”) below) This discussion is limited to consequences related to warrants and shares held as capital assets within the meaning of section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). Insofar as it relates to matters of law or legal conclusions, this discussion constitutes the opinion of Pillsbury Winthrop LLP.

This discussion is based on the Code, Treasury regulations promulgated under the Code, and judicial and administrative interpretations thereof, all as in effect on the date hereof and all of which are subject to change, which change may be retroactive and may affect the tax consequences described herein. This discussion does not address the tax consequences of exercising warrants, or of acquiring, holding and disposing of shares to any particular U.S. holder, and does not deal with persons that may be subject to special treatment under the U.S. federal income tax laws (including, without limitation, insurance companies, tax-exempt organizations, individual retirement accounts and other tax-deferred accounts, regulated investment companies, financial institutions, broker-dealers, individuals subject to section 877 of the Code, U.S. holders whose “functional currency” is not the U.S. dollar, U.S. holders that hold a warrant or a share, as a position in a “straddle”, “hedge”, “constructive sale transaction”, “conversion transaction” or other integrated transaction or persons who mark to market their securities).

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of warrants or shares that is, for U.S. federal income tax purposes:


	•	an individual who is a citizen or resident of the United States;

	•	a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any State thereof or the District of Columbia;

	•	an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or

	•	a trust the administration of which is subject to the primary supervision of a court in the United States and for which one or more U.S. persons have the authority to control all substantial decisions.

If a partnership holds warrants or shares, the U.S. federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership.

U.S. holders should consult their own tax advisors with respect to the tax consequences to them of exercising warrants, or of acquiring, holding and disposing of shares in light of their particular circumstances, including the tax consequences under state, local, non-U.S. and other tax laws and the possible effects of changes in U.S. federal and other tax laws.

Upon the exercise of warrants, a U.S. holder will not recognize gain or loss and will have a tax basis in the shares issued equal to the holder’s tax basis in the exercised warrants plus the exercise price. The holding period for shares issued upon the exercise of warrants will commence on the date of exercise.

Distributions on shares, whether in cash or in property, that are paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will generally be includible in income by a U.S. holder as a dividend when actually or constructively received. The amount of the dividend will equal the amount of cash and the fair market value of the property received. To the extent a U.S. holder receives a distribution that exceeds our current and accumulated earnings and profits, the distribution will be treated first as a non-taxable return of capital that reduces the holder’s adjusted tax basis in the shares (to the extent of such basis) and thereafter as taxable gain from the sale or exchange of the shares. Generally, the

For taxable years beginning after December 31, 2002 and before January 1, 2009, dividends received by an individual from a “qualified foreign corporation” are eligible for preferential rates of taxation, subject to minimum holding period and other requirements. The determination of whether a dividend would qualify for the preferential rates must be made at the time the dividend is paid.

Dividends paid in Canadian dollars (including the amount of any Canadian taxes withheld therefrom) will be included in a U.S. holder’s income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the dividends are actually or constructively received by the U.S. holder, regardless of whether the Canadian dollars are converted to U.S. dollars at that time. U.S. holders should consult their own tax advisors regarding the possible effect and rate of any Canadian withholding tax and the reduction of such withholding rate under the income tax treaty between the United States and Canada.

Upon the sale, exchange or other disposition of shares, a U.S. holder will recognize capital gain or loss equal to the difference between the amount realized and the U.S. holder’s adjusted tax basis in the shares. Such gain or loss will be long-term capital gain or loss if the shares have been held for more than one year and otherwise will be short-term capital gain or loss. Long-term capital gains of individuals are eligible for preferential rates of taxation, which have been reduced for long-term capital gains recognized before January 1, 2009. Short-term capital gains are taxed at the rates applicable to ordinary income, which, for gains recognized before January 1, 2009, will be higher than the rates applicable to dividends. The deductibility of capital losses is subject to limitations.

A U.S. holder will recognize no gain or loss upon an exchange of class B non-voting shares for class A restricted voting shares. The U.S. holder’s adjusted tax basis in the class A restricted voting shares received in the exchange will equal the holder’s adjusted tax basis in the class B non-voting shares exchanged therefor, and the U.S. holder’s holding period for the class A restricted voting shares will include the holding period for the class B non-voting shares exchanged therefor.

For U.S. foreign tax credit limitation purposes, dividends on shares generally will be treated as foreign source income, and gain or loss recognized on the sale, exchange or other disposition of shares will be treated as from U.S. sources. To the extent Canadian withholding tax is payable in respect of a distribution or payment to a U.S. holder, the holder may be eligible for a foreign tax credit or deduction. Further, foreign source income has an effect on a U.S. holder’s ability to absorb foreign tax credits. The rules relating to U.S. foreign tax credits are extremely complex, and U.S. holders should consult their tax advisors regarding the application of the U.S. foreign tax credit rules to their particular situations.

The Code provides special anti-deferral rules regarding certain distributions received by U.S. persons with respect to, and sales and other dispositions (including pledges) of stock of, a “passive foreign investment company” (“PFIC”). A foreign corporation will be treated as a PFIC if 75% or more of its gross income is passive income for a taxable year or if the average percentage of its assets (by value) that produce, or are held for the production of, passive income is at least 50% for a taxable year.

We do not believe that we are currently a PFIC, and we anticipate that we will not become a PFIC. If we become a PFIC, U.S. holders may become subject to adverse U.S. federal income tax consequences. U.S. holders should consult their tax advisors regarding those consequences and possible ameliorative actions.

The payment within the United States of dividends on, or the proceeds from a disposition of, shares held by certain non-corporate holders may be subject to U.S. information reporting rules. Such payments may also be subject to U.S. backup withholding, unless a holder provides a taxpayer identification number and satisfies certain other conditions or otherwise establishes an exemption under the Code. Backup withholding is not an additional tax, and may be credited against a holder’s U.S. federal income tax liability or refunded if the amounts so withheld exceed the holder’s U.S. federal income tax liability.

Any documents referred to in this registration statement may be inspected at our office at 800 de La Gauchetière Street West, Suite 4000, Montreal, Quebec, Canada, H5A 1K3.

We are incorporated under the laws of Canada and certain members of our board of directors and certain of the experts named herein are residents of Canada or other countries other than the U.S. Substantially all of our assets and the assets of such persons are located outside the U.S. As a result, it may not be possible for investors to effect service of process within the U.S. upon us or such persons, or to enforce against us or such persons in courts in the U.S. judgments of such courts predicated upon the civil liability provisions of U.S. securities laws. There can be no assurance that U.S. investors will be able to enforce against us, or members of our board of directors or certain experts named herein who are residents of Canada or other countries outside the U.S., any judgments in civil and commercial matters, including judgments under the federal securities laws.

We have appointed CT Corporation System as our agent to receive service of process with respect to any action brought against us arising out of or in connection with United States federal or state securities laws or out of violations of such laws, in any federal or state court in the United States relating to the transactions covered by this prospectus.

Sales of the class A restricted voting shares and/or class B non-voting shares of Microcell covered by this prospectus may be made from time to time by the selling shareholders, or, subject to applicable law, by pledgees, donees, distributees, transferees or other successors in interest. Such sales may be made on a national securities exchange (any of which may involve crosses and block transactions) or other markets on which the class A restricted voting shares or class B non-voting shares of Microcell may be listed at the time of sale, including the TSX, in privately negotiated transactions or otherwise or in a combination of such transactions at prices and at terms then prevailing or at prices related to the then current market price, or at privately negotiated prices or at fixed prices that may be changed. In addition, any class A restricted voting shares or class B non-voting shares of Microcell covered by this prospectus that qualify for sale pursuant to Section 4(1) of the Securities Act or Rule 144 promulgated thereunder may be sold under such provisions rather than pursuant to this prospectus. Without limiting the generality of the foregoing, the class A restricted voting shares or class B non-voting shares of Microcell covered by this prospectus may be sold in one or more of the following types of transactions:


	•	a block trade in which the broker-dealer so engaged will attempt to sell the class A restricted voting shares or class B non-voting shares of Microcell as agent but may position and resell a portion of the block as principal to facilitate the transaction;

	•	purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus;

	•	an exchange distribution in accordance with the rules of such exchange;


	•	ordinary brokerage transactions and transactions in which the broker solicits purchasers; and

	•	face-to-face transactions between seller and purchasers without a broker-dealer. In effecting sales, brokers or dealers engaged by the shareholders may arrange for other brokers or dealers to participate in the resales.

In connection with distributions of the class A restricted voting shares or class B non-voting shares or otherwise, the selling shareholders may enter into hedging transactions with broker-dealers. In connection with such transactions, broker-dealers may engage in short sales of the class A restricted voting shares or class B non-voting shares offered by this prospectus in the course of hedging the positions they assume with the selling shareholders. The selling shareholders may also sell class A restricted voting shares or class B non-voting shares short and deliver the class A restricted voting shares or class B non-voting shares to close out such short positions. The selling shareholders may also enter into options, swaps, derivatives or other transactions with broker-dealers, which require the delivery to the broker-dealer of the class A restricted voting shares or class B non-voting shares offered by this prospectus, which the broker-dealer may resell pursuant to this prospectus. The selling shareholders may also pledge the class A restricted voting shares or class B non-voting shares registered hereunder to a broker or dealer and upon a default, the broker or dealer may effect sales of the pledged class A restricted voting shares or class B non-voting shares pursuant to this prospectus.

From time to time the selling shareholders may be engaged in short sales, short sales against the box, puts and calls and other hedging transactions in our securities, and may sell and deliver the class A restricted voting shares or class B non-voting shares in connection with such transactions or in settlement of securities loans. These transactions may be entered into with broker-dealers or other financial institutions. In addition, from time to time, the selling shareholders may pledge their class A restricted voting shares or class B non-voting shares pursuant to the margin provisions of their customer agreements with their broker-dealers.

Upon delivery of the class A restricted voting shares or class B non-voting shares or a default by the selling shareholders, the broker-dealer or financial institution may offer and sell the pledged class A restricted voting shares or class B non-voting shares from time to time.

Brokers, dealers or agents may receive compensation in the form of commissions, discounts or concessions from the selling shareholders in amounts to be negotiated in connection with the resale of the class A restricted voting shares or class B non-voting shares. Such brokers or dealers and any other participating brokers or dealers may be deemed to be underwriters within the meaning of the Securities Act in connection with such sales and any such commission, discount or concession may be deemed to be underwriting discounts or commissions under the Securities Act.

Information as to whether underwriters who may be selected by the selling shareholders, or any other broker-dealer, are acting as principal or agent for the selling shareholders, the compensation to be received by underwriters who may be selected by the selling shareholders, or any broker-dealer, acting as principal or agent for the selling shareholders and the compensation to be received by other broker-dealers, if the compensation of such other broker-dealers is in excess of usual and customary commissions, will, to the extent required, be set forth in a supplement to this prospectus. Any dealer or broker participating in any distribution of the class A restricted voting shares or class B non-voting shares may be required to deliver a copy of this prospectus, including the prospectus supplement, if any, to any person who purchases any of the class A restricted voting shares or class B non-voting shares from or through such dealer or broker.

In offering the class A restricted voting shares and/or class B non-voting shares covered by this prospectus, the selling shareholders and any broker-dealers who execute sales for the selling shareholders may be deemed to be “underwriters” within the meaning of the Section 2(11) of the Securities Act in connection with such sales. Any profits realized by the selling shareholders and the compensation of any broker-dealer may be deemed to be underwriting discounts and commissions. Since the selling shareholders and any broker- dealers who execute sales for the selling shareholders may be deemed “underwriters,” they will be subject to the prospectus delivery requirements of the Securities Act. We will make copies of this prospectus available to the selling shareholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act.

We have advised the selling shareholders that during such time as they may be engaged in a distribution of the class A restricted voting shares or class B non-voting shares offered by this prospectus, they may be required to comply with Regulation M promulgated under the Securities Exchange Act of 1934. With some exceptions, Regulation M precludes the selling shareholder, any affiliated purchasers and any broker-dealer or other person who participates in such distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the class A restricted voting shares and/or class B non-voting shares.

We do not know if the selling shareholders will actually offer or resell any of the class A restricted voting shares or class B non-voting shares covered by this prospectus. Further, because it is possible that a significant number of class A restricted voting shares or class B non-voting shares could be sold at the same time under this prospectus, such sales, or the possibility of such sales, may have a depressive effect on the market price of our class A restricted voting shares and/or class B non-voting shares. As of the date of this prospectus, we are not aware of the selling shareholders entering into any agreements regarding the sale of the class A restricted voting shares or class B non-voting shares being offered by this prospectus.

Stikeman Elliott LLP, Montreal, Quebec, Canada has passed upon the legality of the class A restricted voting shares and class B non-voting shares offered by this prospectus.

Our consolidated financial statements as at December 31, 2003, May 1, 2003 and December 31, 2002, and for the eight months ended December 31, 2003, the four months ended April 30, 2003 and the years ended December 31, 2002 and 2001 included in this prospectus and the registration statement of which it forms a part have been audited by Ernst & Young LLP, independent auditors, as set forth in their report included in this prospectus, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

We file annual reports and other information with the SEC. You may read and copy these reports and other information at the public reference room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for more information on the operation of the public reference room. The information we file with the SEC is available on its website at www.sec.gov. We also file annual reports and other information with the Canadian Securities Commissions, which is available on their website at www.sedar.com.

We have filed with the SEC a registration statement on Form F-1 to register the class A restricted voting shares and class B non-voting shares being offered by this prospectus. This prospectus is part of that registration statement and, as permitted by the rules of the SEC, does not contain all the information contained in the registration statement. For further information with respect to us and our class A restricted voting shares and class B non-voting shares, you should refer to the registration statement and to the exhibits filed as part of the registration statement, as well as the documents discussed below.

You should rely only on the information contained in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information appearing in this prospectus and the documents incorporated by reference in this prospectus are accurate only as of the date of those documents, regardless of the time of delivery of this prospectus or any sale of Class B non-voting shares. Our business, financial condition, results of operations and prospects may have changed since those dates. We do

We have audited the consolidated balance sheets of Microcell Telecommunications Inc. as at December 31, 2003, May 1, 2003 and December 31, 2002, and the consolidated statements of net income (loss) and deficit and cash flows for the eight months ended December 31, 2003, the four months ended April 30, 2003 and the years ended December 31, 2002 and 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003, May 1, 2003 and December 31, 2002, and the results of its operations and its cash flows for the eight months ended December 31, 2003, the four months ended April 30, 2003 and the years ended December 31, 2002 and 2001 in accordance with Canadian generally accepted accounting principles.

Microcell Telecommunications Inc. [“Microcell”] is incorporated under the Canada Business Corporations Act [“CBCA”] and is a provider of wireless telecommunications services in Canada. As at December 31, 2003, Microcell conducted its wireless communications business through two wholly owned subsidiaries [collectively, the “Company”], which were: Microcell Solutions Inc. [“Solutions”] and Inukshuk Internet Inc. [“Inukshuk”].

Solutions operates a Global System for Mobile Communication [“GSM”] network across Canada and markets Personal Communications Services [“PCS”] and General Packet Radio Service [“GPRS”] under the Fido brand name pursuant to a 30Mhz PCS license [the “PCS license”] issued by the Minister of Industry (Canada) [“Industry Canada”].

Inukshuk was awarded Multipoint Communication Systems [“MCS”] Licenses to deploy a high-speed Internet Protocol-based data network using MCS technology in Canada. In November 2003, Inukshuk entered into a new venture with two partners which, depending on the results of phase 1 of the project, may result in the deployment of a MCS network in Canada. As at December 31, 2003, the activities of this venture were not significant for the Company.

The Company continues to experience growth-related capital requirements arising from the need to fund network capacity improvements, ongoing maintenance and the cost of acquiring new PCS customers. Microcell’s ability to generate positive net income and cash flow in the future is dependent upon various factors, including the level of market acceptance of its services, the degree of competition encountered by the Company, the cost of acquiring new customers, technology risks, general economic conditions and regulatory requirements.

On May 1, 2003, the predecessor company of Microcell [“Old Microcell”], and certain subsidiaries of Old Microcell, emerged from a restructuring plan under the Companies’ Creditors Arrangement Act [“CCAA”] and CBCA. The terms of Old Microcell’s restructuring plan are set out in Old Microcell’s plan of reorganization and of compromise and arrangement [the “Plan”], a copy of which is contained in the Information Circular and Proxy Statement dated February 17, 2003 [the “Circular”] filed on SEDAR on February 19, 2003 and on EDGAR with the U.S. Securities and Exchange Commission [“SEC”] on Form 6-K on February 20, 2003. Pursuant to the Plan, Microcell became a holding company for Old Microcell, its previous subsidiaries, which amalgamated together to form Solutions and Inukshuk. The Board of directors was replaced by a new Board of directors and Microcell’s long-term debt obligations decreased by approximately $1.6 billion. On December 31, 2003, Old Microcell was liquidated into Microcell.

Prior to May 1, 2003, Old Microcell’s Class B Non-Voting Shares were registered pursuant to Section 12(g) of the Securities Exchange Act of 1934. Under the terms of the Plan, Microcell issued First Preferred Voting Shares, First Preferred Non-Voting Shares, Second Preferred Voting Shares, Second Preferred Non-Voting Shares, Class A Restricted Voting Shares [“Class A Shares”], new Class B Non-Voting Shares [“Class B Shares”] and warrants. Two series of warrants [collectively the “Warrants”] were issued pursuant to the Plan: [i] 2-year warrants entitling the holders thereof to subscribe, until May 1, 2005, for Class A Shares or Class B Shares of Microcell, as the case may be, at an exercise price of $19.91 per share [the “Warrants 2005”]; and [ii] 5-year warrants entitling the holders thereof to subscribe, until May 1, 2008, for Class A Shares or Class B Shares of Microcell, as the case may be, at an exercise price of $20.69 per share [the “Warrants 2008”].

For a more detailed description of the transactions related to the Plan, readers are referred to the Plan.

Effective May 1, 2003, the date of reorganization, the Company has accounted for its financial reorganization by using the principles of fresh start accounting. Accordingly, all assets and liabilities were revalued at estimated fair values and Microcell’s deficit was eliminated. Microcell determined that its enterprise value was $689 million of which $350 million has been allocated to long-term debt and $339 million to equity. This enterprise value was determined based on several traditional valuation methodologies, utilizing projections developed by management including discounted cash flow analysis and comparable company trading analysis. A comprehensive revaluation of the assets and liabilities of the Company has been done based on this enterprise value.

The following table summarizes the adjustments recorded to implement the financial reorganization and to reflect the fresh start basis of accounting:

[i] The Company revalued its assets and liabilities and adjusted their carrying values to reflect the enterprise value of the Company following the financial reorganization. This resulted in a reduction of the current assets [mainly consisting of the deferred charges incurred during the recapitalization process], the property, plant and equipment, the long-term investments and the accrued liabilities. The Company also

assigned a value, calculated at management’s best estimate of fair value, to the Company’s intangible assets, which are the PCS license at $188 million, determined using the replacement cost based on comparable transactions, the Fido brand name at $28.5 million, determined using the replacement cost method, and the customer list at $24.7 million, determined using the discounted future cash flows method.

[ii] Pursuant to the Plan, the senior secured term loans of Old Microcell [carrying value of $553.9 million], the unpaid accrued interest [$12.2 million], and a net payable to Old Microcell’s secured creditors relating to cross currency and interest rate swaps terminated in December 2002 [$9.4 million], were converted into a term loan of $300 million [the “Tranche B Debt”], a term loan of $50 million [the “Tranche C Debt”], 11,766,667 First Preferred Shares [$176.5 million] and 3,600,186 Second Preferred Shares [$54 million] for a total equity interest in the new Company of 68% and 95.6% of voting rights.

Old Microcell’s senior discount notes [carrying value of $1.4 billion] and the unpaid accrued interest thereon [$103.6 million] were converted into 3,600,186 Second Preferred Shares [$54 million], 30,000 Class A Shares [$0.3 million], 3,578,676 Class B Shares [$36 million], 1,329,312 Warrants 2005 [$1.5 million] and 2,215,521 Warrants 2008 [$4.4 million] for a total equity interest in the new Company of 31.9% and 4.4% of voting rights.

The shareholders of Old Microcell [carrying value of $1.2 billion] received 22,469 Class B Shares [$0.2 million], 2,668,990 Warrants 2005 [$3.1 million] and 4,448,422 Warrants 2008 [$8.9 million] for a total equity interest in the new Company of 0.1% and no voting rights.

Comparative financial statements for periods prior to May 1, 2003 have been presented pursuant to regulatory requirements. In reviewing these comparative financial statements, readers are reminded that they do not reflect the effects of the Plan nor the application of fresh start accounting.

These consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles [“Canadian GAAP”]. As further described in note 18, these accounting principles differ in certain respects from those that would have been followed if these financial statements had been prepared in conformity with accounting principles generally accepted in the United States [“US GAAP”] and related rules and regulations adopted by the SEC.

The preparation of financial statements by management in accordance with Canadian GAAP requires the selection of accounting policies from existing acceptable alternatives. The summary of significant accounting policies is as follows:

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The consolidated financial statements include the results of operations of Microcell and all of its subsidiaries as well as its share of assets, liabilities, revenues and expenses of all joint ventures, if any, in which the Company participates. Intercompany transactions and balances are eliminated on consolidation.

The Company accounts for investments in which it exercises significant influence using the equity method. Other investments are accounted for at cost. The investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, and a provision for loss in value is recorded when a decline in value below the carrying amount is considered to be other than temporary.

Monthly access charges are billed in advance and recognized when the services are provided and collection is reasonably assured. Airtime charges are recognized as revenue when provided. City Fido’s activation fees and related incremental direct costs are deferred and recognized as revenue and expenses over the estimated life of a subscriber. Sales of products such as handsets and related equipment are recognized when goods are delivered, wireless service is activated, and collection is reasonably assured. Prepaid service revenues are deferred and recognized when services are provided. When prepaid airtime vouchers are sold to retailers, the revenue for airtime is measured at the amount paid by the subscriber and is recorded when services are provided to the subscriber. Commissions paid on prepaid airtime vouchers to third party retailers are classified within cost of products and cost of services.

The excess of the cost of handsets to the Company over the amount recovered from sales to subscribers is recognized when goods are delivered and wireless service is activated and is recorded in the cost of products.

Cash equivalents are short-term, highly liquid, held-to-maturity, investment-grade debt securities with maturities of 90 days or less from the date of purchase.

Short-term investments consist of highly liquid, held-to-maturity, investment-grade debt securities, such as term deposits, commercial paper and similar instruments, with maturities greater than 90 days but not exceeding twelve months. Short-term investments are accounted for at the lower of cost and market value. As at December 31, 2003, interest rates on most of the short-term investments vary from 2.5% to 2.8% [3.5% on May 1, 2003].

Inventories consist of handsets, subscriber identity module [“SIM”] cards and accessories held for resale, and are stated at the lower of cost [on a first-in, first-out basis] and replacement cost.

Property, plant and equipment are recorded at cost. The PCS network includes direct costs such as equipment, material, labor, engineering, site development, interest incurred during the network buildout, and

overhead costs. The costs of PCS network construction in progress are transferred to the PCS network in service as construction projects are completed and put into commercial service. Depreciation starts when the assets are put into service, and is provided on a straight-line basis over their estimated useful lives as follows:

For property, plant and equipment that existed as at May 1, 2003, the above periods of depreciation were reduced in order to reflect a new cost basis as a result of applying fresh start accounting.

The cost of maintenance and replacement of minor items of property, plant and equipment are charged to maintenance expense. Enhancements and improvements are capitalized.

Intangible assets consist of the Company’s PCS license, the Fido brand name and the customer list. The customer list is amortized over 30 months. The PCS license and the Fido brand name were determined to have an indefinite useful life and are not being amortized.

When events or changes in circumstances indicate that the carrying amount of a long-lived asset or group of assets held for use, including property, plant and equipment and intangible assets subject to amortization, may not be recoverable, an impairment loss is recognized when the carrying amount of those assets exceeds the sum of the undiscounted future cash flows related to them. The impairment loss is included in the statement of operations and the carrying value of the asset or group of assets is reduced to its fair value as determined by the sum of the discounted future cash flows related to those assets.

Intangible assets that are not subject to amortization are tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the assets might be impaired. The impairment test consists of a comparison of the carrying amount with the fair value of the intangible asset. When the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

Impairment charge, if any, is presented within depreciation and amortization expense of the related long-lived assets in the statement of income (loss).

Derivative financial instruments are accounted for at fair value with changes in fair value affecting income unless designated as effective hedges in which case the gains (losses) on these instruments are recognized in the income statement when the hedged item affects earnings. As at December 31, 2003, the Company has not designated its financial instruments as hedges [see note 8].

The costs of obtaining debt financing are deferred and amortized over the life of the debt to which they relate. The costs of issuing equity are recorded as a reduction of the item to which they relate.

The Company has a stock option plan, which is described in note 9. The Company has chosen to recognize no compensation when stock options are granted to employees and directors under stock option plans with no cash settlement features. Direct awards of stock to employees and stock and stock option awards granted to non-employees are accounted for in accordance with the fair value method of accounting for stock-based compensation. The fair value of direct awards of stock is determined by the quoted market price of the Company’s stock on the grant date, and the fair value of stock options is determined using the Black-Scholes option pricing model. Pro forma information regarding net income is required and has been determined as if the Company had accounted for its employee stock options under the fair value method [see note 9].

Up to December 31, 2003, no compensation expense was recognized for these plans when stock options were issued to employees. Any consideration paid by employees on exercise of stock options is credited to share capital.

The Company follows the liability method of accounting for income tax allocation. Under this method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities, and are measured using the substantively enacted tax rates and laws that are expected to be in effect in the periods in which the deferred income tax assets or liabilities are expected to be realized or settled. Deferred income tax assets, net of an appropriate valuation allowance, are recognized only to the extent that management believes it to be more likely than not that the assets will be realized and will first be applied to reduce the unamortized amount of intangible assets that were recognized as at May 1, 2003.

Research costs are charged against income in the year of expenditure. Development costs are charged against income in the year of expenditure unless a development project meets the criteria under Canadian generally accepted accounting principles for deferral and amortization.

The Company’s functional currency is the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange prevailing at the period-end. Revenues and expenses denominated in foreign currencies are translated at the rates of exchange prevailing on the transaction dates. Realized and unrealized gains and losses on currency transactions are included in income as they arise.

Basic and diluted earnings (loss) per share are calculated using the treasury stock method. Basic earnings (loss) per share is calculated using the weighted average number of Class A Shares and Class B Shares. Diluted earnings (loss) per share are calculated taking into consideration the effect of the exercise of securities, which have a dilutive effect.

The CICA modified Section 3870, Stock-based compensation and other stock-based payments. This section has been amended to require the expensing of certain stock-based compensation awards for fiscal years beginning on or after January 1, 2004. As permitted by this amendment, the Company will apply this new standard retroactively, without restatement, beginning January 1, 2004, for options granted since May 1, 2003. Consequently, the opening deficit as at January 1, 2004 will be adjusted to reflect an expense of $1.3 million relating to options granted since May 1, 2003.

The CICA also modified Section 3860, Financial instruments — disclosure and presentation. This section has been amended to provide guidance for classifying certain financial instruments that embody obligations that may be settled by the issuance of the issuer’s equity shares when the instrument that embodies the obligations does not establish an ownership relationship. The new standard is effective for fiscal years beginning on or after November 1, 2004. Initial application should be recognized on a retroactive basis and disclosed as an accounting policy change. As a result, the Company assesses that its Preferred Shares having an accreted value of $296.9 million and $284.5 million as at December 31, 2003 and May 1, 2003, respectively, which are classified as equity instruments under current rules, would have to be reclassified as liabilities. The accreted of their redemption price of $17.1 million during the eight-month period ended December 31, 2003 presented as an adjustment to the retained earnings (deficit) would have to be presented as an interest expense in the determination of the net income (loss). There would be no impact on the net loss attributable to Class A and B shares and on the earnings per share.

The PCS network includes PCS network construction in progress, amounting to $7.7 million as at December 31, 2003.

Radio and spectrum licenses are issued for a term and may be renewed at Industry Canada’s discretion. Revocation is rare and licenses have a high expectation of renewal unless a breach of a license condition has occurred, a fundamental reallocation of spectrum to a new service is required, or an overriding policy need arises. The Company intends to renew the PCS license indefinitely, and expects to be able to do so. The technology used in wireless telecommunications is not expected to be replaced by another technology in the foreseeable future. In December of 2003, Industry Canada issued its Spectrum Licensing Policy for Cellular and Incumbent Personal Communications Services, in which it announced the results of its review of the PCS terms, fees and conditions, as well as its intention to renew the Company’s PCS license up to March 31, 2011. Industry Canada also announced its intention to renew the PCS license every 10 years instead of every 5 years. Therefore, the Company anticipates generating sales and cash flows under its PCS license for an indefinite period of time and as a result, has classified the PCS license under this basis.

The Company has determined that its Fido brand name has an indefinite life because there are no legal, regulatory, contractual or other factors that limit the useful life of the brand name, the Company considers the brand name to be effective in the market place and the Company anticipates generating sales and cash flows under this brand name for an indefinite period of time.

The minimum contractual payments of Tranche B Debt and Tranche C Debt for the next five years are as follows: $9.3 million in 2004; $9.3 million in 2005; $13.9 million in 2006; $13.9 million in 2007; and $225.5 million in 2008.

The financing arrangements of the Company, as at December 31, 2003, consisted of the following credit agreements:

The Company has access to a revolving bank credit facility [the “Tranche A Facility”] of $25 million, which bears interest at the prime rate plus 2.5%, base rate plus 2.5% or bankers’ acceptance rate plus 3.5%. Pursuant to the terms of the credit agreement of the Tranche A Facility, the Company is entitled to raise up to an additional $50 million in revolving bank credit facility. The Tranche A Facility is payable in April 2006. A commitment fee computed at the rate of 1.0% per annum on the aggregate undrawn amount of the Tranche A Facility is payable on a quarterly basis. The Tranche A Facility is collateralized by a first lien on all of the Company’s assets. As at December 31, 2003 and May 1, 2003, no amounts were drawn on this facility.

The Tranche B Debt, a term loan in the amount of $300 million, comprising a Canadian dollar series in the amount of $104.8 million and a U.S. dollar series with a principal amount equivalent to Canadian $195.2 million [US$134.3 million]. The Tranche B Debt bears interest at the prime rate plus 3.0%, base rate plus 3.0% or bankers’ acceptance rate plus 4.0%. The Tranche B Debt is payable in quarterly installments, which started in June 2003 and will mature in December 2008. The Tranche B Debt is collateralized by a second lien on all of the Company’s assets. Reimbursements of Tranche B Debt are as follows: 2.5% of the principal amount was reimbursed in 2003; 3.33% will be reimbursed in 2004; 3.33% in 2005; 5% in 2006; 5% in 2007; and 80.84% in 2008. As at December 31, 2003, the effective interest rate on Tranche B Debt was 6.5%.

The Company entered into swap transactions with a preferred shareholder, who is also a lender, to manage its exposure to foreign exchange rate fluctuations on part of the U.S. dollar denominated portion of the Tranche B Debt; the Company swapped, in November 2003, $50 million [US$35.5 million] of the principal of the Tranche B Debt at a rate of 1.4072 and $50 million [US$36.7 million] of the principal of the Tranche B Debt at a rate of 1.3634. The swap transactions have a duration of three months. These swap transactions, which have not been designated as hedging instruments, are presented at their fair value as derivative instruments on the balance sheet and changes in fair value are recognized within foreign exchange gain (loss).

The Tranche C Debt, a term loan in the amount of $50 million, is payable in April 2013. The Tranche C Debt bears interest at the rate of 8.0% payable semi-annually at the Company’s discretion: [i] in cash; or [ii] accruing and compounding such interest semi-annually until paid. As at December 31, 2003, $2.7 million of such accreted interest has been capitalized to the Tranche C Debt. The Tranche C Debt is collateralized by a third lien on all of the Company’s assets.

Under the above credit agreements, the Company is committed to respect certain covenants, including restrictions on the ability to incur certain indebtedness, pay dividends, make certain other payments, create liens, sell assets and engage in mergers.

The Company must also maintain certain financial covenants and ratios under the credit agreements of the Tranche A Facility and Tranche B Debt, including minimum EBITDA [as defined in the credit agreements], number of subscribers, average retail revenue per subscriber per month, liquidity and maximum capital expenditures.

The Articles of the Company, and the credit agreements governing the Tranche B Debt and Tranche C Debt, require the Company to make the following payments to the Tranche B Debt and Tranche C Debt lenders and to the holders of First and Second Preferred Shares [or Units if issued]: [i] the net sale proceeds of material asset sales [sale of more than $2 million]; [ii] 75% of the amount calculated each fiscal year equal to excess cash flow [as this term is defined in the Articles of the Company and in the credit agreements]; and [iii] 75% of the amount of net proceeds from equity offerings [including proceeds from the exercise of Warrants]. Each payment on account of material asset sales and net proceeds from equity offerings has to be made within five business days following receipt of the proceeds thereof, and each payment hereunder on account of excess cash flow has to be made on or before March 31 of each fiscal year, commencing on March 31, 2004, with respect to the excess cash flow [if any] for the previous fiscal year.

Subject to the maintenance of a minimum cash balance of $45 million as at each year-end [prior to the Company’s 25% share of such year’s excess cash flow], such amounts are to be applied in the order of priority set forth below when First and Second Preferred Shares are issued: [i] repayment of the Tranche B Debt, up to 25% of the principal amount thereof; [ii] payment of interest on the Tranche C Debt; [iii] payment of dividends on the First Preferred Shares; [iv] until May 1, 2008, on a pro rata basis, repayment of the principal amount of the Tranche C Debt, up to 25% of the principal amount thereof, and redemption of up to 75% of the number of First Preferred Shares originally issued; [v] payment of dividends on the Second Preferred Shares; [vi] until May 1, 2008, redemption of up to 75% of the number of Second Preferred Shares originally issued; [vii] after May 1, 2008, on a pro rata basis, repayment of remaining principal amount of the Tranche C Debt and redemption of First Preferred Shares originally issued; and [viii] after May 1, 2008, redemption of the remaining Second Preferred Shares. If First and Second Units are issued, the order of priority set forth above

is substantially similar, with the exception that the repayment of First and Second Units is limited to 25% until May 1, 2008.

As of December 31, 2003, the Company reimbursed $0.4 million to the Tranche B Debt, under the excess cash flow sweep rules, following the sale of its equity investment in Saraide Inc.

Prior to the financial reorganization, as at December 31, 2002, the long-term debt, all of which was in default, consisted of the following:

Term Loan of $151.2 million, bearing interest at the prime rate plus 1% or Bankers’ Acceptance rate plus 2%, payable in quarterly installments starting in June 2002 and maturing in December 2005.

Term Loan of US$50.9 million, bearing interest at the U.S. base rate plus 2% or the U.S. LIBOR rate plus 3%, payable in quarterly installments starting in June 2002 and maturing in March 2006.

Term Loan of $18.8 million, bearing interest at the prime rate plus 1% or Eurocanadian plus 2%, payable in quarterly installments starting in June 2002 and maturing in December 2005.

Term Loan of $34.2 million, bearing interest at the prime rate plus 1% or Eurocanadian plus 2%, payable in quarterly installments starting in September 2002 and maturing in December 2005.

Term Loan of US$137.6 million, bearing interest at the U.S. base rate plus 2.25% or the U.S. LIBOR rate plus 3.25%, payable in quarterly installments starting in June 2002 and maturing in March 2006.

Term Loan of US$62.9 million, bearing interest at the U.S. base rate plus 2.5% or the U.S. LIBOR rate plus 3.5%, payable in quarterly installments starting in March 2003 and maturing in February 2007.

As of December 31, 2002, the full amounts were drawn on all Tranches of the Senior Secured Term Loans.

The Senior Secured Loans were collateralized by debentures of $1,100,000,000, issued under trust deeds. The debentures were collateralized by a first ranking security interest in all property and assets of these companies.

The unsecured Senior Discount Notes due 2006 consist of 417,973 Units, each Unit consisting of US$1,000 at maturity, 14% Series B Senior Discount Notes due on June 1, 2006 and four initial warrants each to purchase 2.1899 Class B Non-Voting Shares issued for gross proceeds of $273.3 million [US$200 million].

The unsecured Senior Discount Notes due 2007 consist of $429.4 million, 11 1/8% Series A and B Senior Discount Notes due on October 15, 2007, issued for gross proceeds of $250 million.

The unsecured Senior Discount Notes due 2009 consist of US$270 million, 12% Series B Senior Discount Notes due on June 1, 2009, issued for gross proceeds of $221.2 million [US$150.5 million].

An unlimited number of First Preferred Shares, issuable as First Preferred Voting Shares, First Preferred Non-Voting Shares, First Preferred Voting 2 Shares and First Preferred Non-Voting 2 Shares; and

An unlimited number of Second Preferred Shares issuable as Second Preferred Voting Shares, Second Preferred Non-Voting Shares, Second Preferred Voting 2 Shares and Second Preferred Non-Voting 2 Shares.

Holders of Class A Shares are entitled to receive dividends, and the remaining assets of the Company on the winding-up, liquidation or dissolution of the Company, pari passu with the holders of Class B Shares, on a per share basis.

Each Class A Share may, at the option of the holders, be exchanged at any time into one Class B Share.

Holders of Class B Shares are entitled to receive dividends, and the remaining assets of the Company on the winding-up, liquidation or dissolution of the Company, pari passu with the holders of Class A Shares, on a per share basis.

The Class B Shares are exchangeable, at the option of the holders, into Class A Shares on a share-for-share basis, in the following circumstances: [i] any time upon provision by a holder of Class B Shares of a residency declaration to the Company’s transfer agent certifying that the holder is a Canadian; [ii] upon a bid being made for the Class A Shares where no equivalent bid is made for the Class B Shares, for the purposes of allowing the Class B Shares to tender to an exclusionary bid; and [iii] automatically upon the repeal or relaxation of the Canadian rules governing the Company’s ownership and control, but only to the extent of such repeal or relaxation and non-Canadian ownership and control of the Company and its subsidiaries not otherwise being restricted by law.

Holders of First Preferred Shares are entitled to receive, on the winding-up, liquidation or dissolution of the Company and in priority to any payment or distribution in respect of shares of any other class, an amount per share equal to the PS Redemption Price [as described below] plus any declared but unpaid dividends.

Holders of Second Preferred Shares are entitled to receive, on the winding-up, liquidation or dissolution of the Company and in priority to any payment or distribution in respect of shares of any other class, other than the First Preferred Shares, an amount per share equal to the Preferred Share Redemption Price [as described below] plus any declared but unpaid dividends.

The holders of Preferred Shares are entitled to a fixed, non-cumulative preferential dividend at the rate of 9% per annum, from time to time and payable semi-annually in arrears in cash.

The redemption price of each Preferred Share [the “PS Redemption Price”] is initially the issue price therefor, increased at the beginning of each semi-annual period commencing on November 1, 2003 by [i] an amount equal to the dividend accrued during such period; less [ii] the amount of any cash dividend that has been declared and paid in respect of such semi-annual period. As at December 31, 2003, the PS Redemption Price is estimated to be $15.91 per share. In the event of any redemption or mandatory conversion of Preferred Shares other than as at the end of a semi-annual period, the PS Redemption Price is to be adjusted by adding the accrued dividend on a pro rata basis with reference to the number of days from the beginning of the then current semi-annual period to the date of such redemption or conversion, less the amount of any cash dividend that has been declared and paid in respect of such period.

The Preferred Shares are redeemable as follows: [i] in whole or in part at any time at the option of the Company at the then current PS Redemption Price, payable in cash, provided however that holders of Preferred Shares may exercise any conversion rights prior to any such redemption; [ii] at maturity, [a] mandatorily at a price per share equal to the then current PS Redemption Price payable in cash or [b] at the Company’s option, if the Class A Shares and the Class B Shares continue to be listed and posted for trading on a recognized exchange, in consideration of the issuance of a number of Class A Shares or Class B Shares [as the case may be] equal to the PS Redemption Price divided by the average share price of such shares; [iii] mandatorily prior to maturity at the then current PS Redemption Price to the extent that the Company has funds available for such purpose [determined by reference to certain thresholds established in the Articles]; and [iv] at any time prior to maturity, in whole or in part, at the option of the Company upon payment of the then current PS Redemption Price by issuing Units composed of a note and a Preferred Voting 2 Share or Preferred Non-Voting 2 Share.

The First Preferred Non-Voting Shares are exchangeable, at the option of the holders, into First Preferred Voting Shares on a share-for-share basis, and the Second Preferred Non-Voting Shares are exchangeable, at the option of the holders, into Second Preferred Voting Shares on a share-for-share basis, in the following circumstances: [i] at any time upon provision by a holder of Preferred Non-Voting Shares of a residency declaration to the Company’s transfer agent certifying that the holder is a Canadian; [ii] upon a bid being made for the Preferred Voting Shares where no equivalent bid is made for the Preferred Non-Voting Shares for the purposes of allowing the Preferred Non-Voting Shares to tender to an exclusionary bid; [iii] automatically upon the repeal or relaxation of the Canadian rules restricting the Company’s ownership and control, but only to the extent of such repeal or relaxation and non-Canadian ownership and control of the Company and its subsidiaries not otherwise being restricted by law. The First Preferred Voting Shares are exchangeable, at the option of the holders, into First Preferred Non-Voting Shares on a share-for-share basis. The Second Preferred Voting Shares are exchangeable, at the option of the holders, into Second Preferred Non-Voting Shares on a share-for-share basis.

The Preferred Shares have the following conversion features: [i] at any time, the Preferred Voting Shares and the Preferred Non-Voting Shares are convertible, at the option of the holders into Class A Shares and Class B Shares, respectively, on a share-for-share basis; [ii] if at any time prior to May 1, 2008, the Company shall complete an offering of Class A Shares or Class B Shares for gross proceeds of not less than $150 million and at a per share price equal to or greater than 200% of the then current PS Redemption Price and the proceeds thereof are used as provided in the Articles, the Preferred Voting Shares and the Preferred Non-Voting Shares that remain outstanding after the application of such proceeds will be converted, at the option of the Company, into Class A Shares and Class B Shares, respectively, on a share-for-share basis; and [iii] if at any time on or after May 1, 2008, on the 25th day [or if such day is not a trading day, then on the next following trading day] following the release by the Company of its quarterly or annual financial statements, as the case may be, the Preferred Voting Shares and the Preferred Non-Voting Shares are in-the-money [namely that the PS Redemption Price is less than the average share price of the Class A Shares and Class B Shares], they will be converted automatically into Class A Shares and Class B Shares respectively on a share-for-share basis.

Upon conversion of any Preferred Voting Shares or Preferred Non-Voting Shares into Class A Shares or Class B Shares, the holders of such Preferred Voting Shares or Preferred Non-Voting Shares will have no right to receive any payment in cash on account of the PS Redemption Price.

The Articles of the Company provide that, so long as there remain outstanding First Preferred Shares [or First Units, if issued] representing in the aggregate an initial issue price in excess of $75 million, or Second Preferred Shares [or Second Units, if issued] representing in the aggregate an initial issue price in excess of $50 million, the approval: [i] by written resolution signed by the holders of a majority of the aggregate number [or principal amount, as the case may be] of First Preferred Shares [or First Units, if issued] and, as the case may be, Second Preferred Shares [or Second Units if issued] then outstanding or [ii] by a majority of the holders of First Preferred Shares [or First Units, if issued] and, as the case may be, Second Preferred Shares [or Second Units if issued] then outstanding represented in person or by proxy at a meeting of such holders called for such purpose, will be required before the Company and its subsidiaries either [X] issue any shares ranking prior to or pari passu with the First Preferred Shares [or First Units, if issued] and, as the case may be, Second Preferred Shares [or Second Units if issued] or [Y] incur funded debt [other than permitted debt under the Company’s credit facilities, First Units and Second Units], as a result of which the aggregate

consolidated funded debt thereof would be in excess of 4.0 times consolidated annual EBITDA [as defined in the credit agreements], calculated on a pro forma basis based upon the four consecutive quarters ended as at the fiscal quarter-end immediately prior to the date of the resolution of the Board of the Company approving such issuance or incurrence, as the case may be.

The Preferred Shares are subject to the excess cash flow sweep described in note 8 of these financial statements.

Holders of First Preferred 2 Shares are entitled to receive, on the winding-up, liquidation or dissolution of the Company and in priority to any payment or distribution in respect of shares of any other class, an amount per share equal to the Preferred 2 Shares Redemption Price [the “PS2 Redemption Price”, as described below] plus any declared but unpaid dividends. Holders of Second Preferred 2 Shares are entitled to receive, on the winding-up, liquidation or dissolution of the Company and in priority to any payment or distribution in respect of shares of any other class, other than the First Preferred 2 Shares, an amount per share equal to the PS2 Redemption Price [as described below] plus any declared but unpaid dividends.

The holders of Preferred 2 Shares are not entitled to receive any dividends in respect thereof.

The Preferred 2 Shares will be automatically redeemed at the PS2 Redemption Price [as described below] upon the repayment, redemption or conversion of the First and Second Units, as the case may be, of which they form part. The PS2 Redemption Price is equal to $0.0001 per Preferred 2 Share.

The Units are hybrid instruments designed to duplicate the economic interest and other features [including as to voting entitlements] attaching to the Preferred Shares. Each Unit is composed of a note, which provides the holder of the Unit with an economic interest similar to that of a holder of Preferred Share, together with a First Preferred Voting 2 Share or First Preferred Non-Voting 2 Share [in the case of First Units] or with a Second Preferred Voting 2 Share or Second Preferred Non-Voting 2 Share [in the case of Second Units]. The First Units are senior in right of payment to the Second Units. As at December 31, 2003, no Units were issued.

Prior to the financial reorganization, authorized and issued share capital were as follow:

Unlimited number of Common Shares, each of which may, at any time, at the holder’s option, be converted into one Class B Non-Voting Share or into one Class A Non-Voting Share, if necessary, to comply with the restrictions on non-Canadian ownership and control.

Unlimited number of participating Class A Non-Voting Shares, each of which may, at any time, at the holder’s option, be converted into one Class B Non-Voting Share or into one Common Share, to the extent that the Company does not cease to comply with the restrictions on non-Canadian ownership and control as a result.

Unlimited number of Non-Voting First Preferred Shares issuable in one or more series.

In connection with the Plan, the Company issued on May 1, 2003 two series of warrants entitling holders thereof, at any time, to purchase one Class A Share or Class B Share as the case may be, for each warrant at the exercise price until their maturity on May 1, 2005 and May 1, 2008, respectively.

The initial warrants were each exercisable for 2,899 Class B non-voting shares at an exercise price of US$0.01 per share.

The Company has a stock purchase plan for its employees under which participants can contribute up to 10% of their salary. The Company makes a contribution in shares for the benefit of the participant equal to one-third the number of shares purchased with the participant’s contribution during the year [up to 5% of the participant’s salary]. The Company’s contribution is executed only if, on June 30 of the following year, the participant is still an employee of the Company and still holds the shares purchased with their contributions during the year. The Company may choose to make its contribution in treasury shares or to deposit with the administrative agent of the plan a sufficient amount of money to enable the administrative agent of the plan to purchase the appropriate number of shares in the market. The total number of treasury Class A Shares and Class B Shares that can be issued by the Company in order to make its contribution pursuant to this plan shall not exceed 250,000 shares. As at December 31, 2003, no shares were issued under this stock purchase plan.

A new stock option plan was implemented on May 1, 2003. The new stock option plan, as amended on November 20, 2003, authorizes the issuance of up to 3,000 Class A Shares and 2,006,818 Class B Shares. The Board may amend, supersede or terminate the stock option plan.

The stock option plan is administered by the Board, which has sole discretion to designate the recipients of options and to determine the number of Class A Shares or Class B Shares of the Company covered by each of such options, the date of grants and the subscription price of each option. Each option allows its holder to acquire one Class A Share or one Class B Share, as the case may be, at its exercise price following the vesting period. Options granted under the stock option plan have the terms and conditions, including exercise price, vesting and expiration, as established by the Board, from time to time, provided that the pricing of options is in accordance with the requirements of the Toronto Stock Exchange and is not less than the market prices for the Class A Shares and Class B Shares at the time of the grant of options.

During the eight-month period ended December 31, 2003, the Company granted 1,781,359 options and 48,400 options were forfeited. As a result, 1,732,959 options were outstanding as of December 31, 2003. 50%, 25% and 25% will vest and become exercisable on the second, third and fourth anniversaries of the grant. Accelerated vesting will be applicable after the first anniversary date of the grant in the event that the market price of the shares reaches a certain level.

For the purposes of pro forma disclosures, the estimated fair value of the options at the grant date is amortized to expense over the options’ vesting periods.

All the outstanding options granted under the prior stock option plan were cancelled upon the implementation of the Company’s financial reorganization on May 1, 2003.

The following table summarizes information about stock options outstanding, none of which were exercisable, as of December 31, 2003:

Intangible assets’ amortization for the next two years is expected to be approximately $8.6 million per year. Costs of products and costs of services are exclusive of depreciation and amortization, which are shown separately.

During the eight-month period ended December 31, 2003, the Company received proceeds of $2.4 million following the sale of its equity investment in Saraide Inc., which was previously written down to a value of nil. The entire amount was recorded as a gain on investments.

In 2002, the Company wrote down the value of its MCS Licenses to nil and an impairment charge of $223.4 million was recorded and included with depreciation and amortization of intangible assets. A related deferred income tax recovery of $72.9 million was also recorded. Also included with depreciation and amortization of property, plant and equipment in 2002 was an impairment charge of $37.3 million as a result of write-downs related to the network and to application software.

In light of the decline in market conditions for high-technology companies, the Company reduced the value of certain of its investments to their net estimated realizable value. Accordingly, write-downs of $11.8 million were recorded in 2002 and $28.0 million in 2001.

In 2002, the Company laid off approximately 350 employees [approximately 200 in 2001] to adjust its work force to the requirements of its operating plan. The restructuring charges of $7.5 million recorded in 2002 [$5.2 million in 2001] relate primarily to severance payments to the employees laid off.

During 2002, the Company terminated cross-currency swaps, interest rate swaps and hedging agreements related to the old long-term debt. These terminations generated net proceeds of $21.5 million, net deferred gain of $3.1 million and gain on financial instruments of $5.5 million. The net gain on financial instruments in 2002 also includes the amortization of the deferred gains of $1.4 million and the amortization of the deferred losses generated by the termination of the interest rate swaps of $0.3 million.

In 2002, the Company wrote down $18.9 million of deferred financing costs, $17.7 million of deferred loss on financial instruments and $19.7 million of deferred gain on financial instruments for a net total of $16.9 million, all of which related to the Company’s long-term debt, which was in default as at December 31, 2002.

The reconciliation of the numerator and denominator for the calculation of earnings (loss) per share is as follows:

Basic and diluted earnings (loss) per share are identical, as the effect of dilutive securities is antidilutive.

Since May 1, 2003, certain holders of the long-term debt and the derivative instruments are also shareholders of the Company.

During the pre-reorganization period, the Company has entered into transactions with shareholders, companies under common control, joint ventures and equity-accounted companies. These transactions are undertaken in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Amounts due from or to related parties are payable or receivable in cash on demand. These transactions consist primarily of the purchase or sale by the Company of engineering, telecommunications, development and management services or equipment. The

effect on the consolidated financial statements, excluding amounts related to long-term debt and derivative instruments, is as follows:

Significant components of the income tax benefit (expense) consist of the following:

The reconciliation of income tax computed at the statutory income tax rates to the income tax benefit (expense) is as follows:

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2003 are as follows:

Approximately $1.8 billion of the operating losses carried forward and $200 million of temporary differences existed at the date of the Company’s financial reorganization as described in note 1. The tax benefits related to these operating losses carried forward and temporary differences were not included in the assets as part of the fresh start accounting, as a valuation allowance of approximately $678 million was provided. Accordingly, if and when it is more likely than not that the tax benefits of these unrecognized losses

carried forward and temporary differences will be realized, they will be applied to reduce unamortized intangible assets to nil. During the period of eight months ended December 31, 2003, no amount of tax benefits related to these losses and temporary differences was realized.

As at December 31, 2003, the Company had net operating losses carried forward for income tax purposes totaling $1.6 billion, which expire as follows: 2004, $217.8 million; 2005, $57.9 million; 2006, $283.7 million; 2007, $282.6 million; 2008, $322.0 million; 2009, $480.1 million. The Company had also approximately $234.5 million of deductible temporary differences.

In addition, the use of tax losses carried forward will generally be restricted in future years to profits from those businesses carried on prior to the restructuring plan.

The aggregate minimum annual payments under operating leases related to sites, switch rooms, offices and stores are as follows:

Rental expenses for the eight months ended December 31, 2003 and for the four months ended April 30, 2003 amounted to $19.0 million and $9.7 million respectively [$29.7 million for 2002 and $29.5 million for 2001].

Under its site leases, the Company is generally committed to returning each site to its original state. The associated exit costs are expected to be insignificant because the Company estimates that most of its lease sites will be renewed at their expiry. Consequently, no provision has been recorded for asset retirement obligations and the associated exit costs will be provided for when such liabilities arise.

As at December 31, 2003, the Company had outstanding letters of credit for an aggregate amount of $0.4 million [$1.3 million as at May 1, 2003].

Under a supply agreement, the Company is committed until 2006 to acquire certain of its core wireless network equipment and call server products from a major supplier. Under this agreement, the Company has no unconditional purchase commitments.

On April 15, 1996, the Company was informed of the conditions attached to its PCS license, which had an initial term of five years. On March 29, 2001, Industry Canada renewed the Company’s PCS license for a second five-year term, commencing on April 1, 2001. On December 12, 2003, Industry Canada issued Canada Gazette Notice DGRB-006-03 announcing that the license terms of existing cellular and PCS licensees, including the Company, will be extended to March 31, 2011. Industry Canada also announced that it will make certain changes to the cellular and PCS license conditions, including granting licensees the power to divide and transfer their licenses, by both spectrum amount and geographic area.

Other License conditions detailed in Gazette Notice DGRB-006-03 that apply to the Company include:

[iii] to ensure that radio stations are installed and operated in compliance with applicable regulations from Health Canada [electromagnetic field exposure] and Transport Canada [air navigation], and only after meaningful consultations have taken place with applicable local land use authorities;

[iv] to invest a minimum of 2% of adjusted gross revenues resulting from operations in the spectrum, over the term of the License, in eligible research and development activities. As at December 31, 2003, 2% of the Company’s adjusted gross revenues represented a cumulative amount of $26.7 million. Up to December 31, 2003, the Company has spent approximately $15.9 million;

[v] to provide for and maintain lawful interception activities as authorized by law; and

In November 2003, Inukshuk announced the creation of a new venture with two partners. The new company plans to build a MCS network to offer high speed Internet, IP-based voice and local networking services using broadband wireless access technology. Each partner owns one-third of the new company, which will operate as an independent entity. The first phase will allow partners to validate technological and commercial acceptance to develop a detailed business plan. The first commercial service launches are planned for early 2004. Inukshuk will contribute the use of 60 MHz of its MCS Licenses, but no monetary investment. Contributions to the venture will be made in two phases and the second phase is subject to certain conditions.

As of December 31, 2003, the venture was at an early stage of activities and had no significant impact on the Company’s financial statements.

On April 10, 2002, ASP Wireless Net Inc., or ASP, a former service provider of Solutions, filed a notice of arbitration pursuant to an agreement that ASP had with Solutions. ASP claims in the notice of arbitration that Solutions has breached its agreements with ASP and ASP therefore suffered damages in the amount of $18.5 million, which ASP is claiming from the Company. The breach alleged by ASP relates to Microcell’s failure to provide ASP access to Microcell’s PCS network. The Company considers ASP’s claim frivolous and unfounded in fact and in law and intends to vigorously contest it.

Furthermore, the Company is involved from time to time in other legal and regulatory proceedings incidental to its business. The Company does not believe that such proceedings will have, individually or in the aggregate, a materially adverse effect on the Company.

The Company has a limited concentration of credit risk due to the composition of its customer base, which includes a large number of individuals and businesses. The Company evaluates the credit-worthiness of customers in order to limit the amount of credit extended where appropriate and establishes an allowance for doubtful accounts receivable sufficient to cover probable and reasonably estimated losses. Cash and cash equivalents and short-term investments are contracted with a limited number of financial institutions. However, risk of losses is managed by the Company through a policy of dealing only with large, creditworthy financial institutions.

The Company has exposure to interest rate risk for both fixed interest rate and floating interest rate instruments. Fluctuations in interest rates will have an effect on the valuation and the collection or repayment of these instruments.

The Company is subject to foreign exchange rate fluctuations as a portion of its assets and liabilities are unhedged and denominated in currencies other than Canadian dollars.

Fair value estimates are made as of a specific point in time, using available information about the financial instruments. These estimates are subjective in nature and often cannot be determined with precision.

The fair value of cash and cash equivalents, short-term investments, receivables, accounts payable and accrued liabilities approximate their carrying value due to the short-term maturity of these instruments.

The fair value of the Tranche B Debt and Tranche C Debt is determined based on an amount quoted on the over-the-counter market at the balance sheet date. The fair value of the derivative instruments is determined based on market rates prevailing at the balance sheet date obtained from the Company’s financial institutions for similar derivative instruments.

Fair values of the Company’s financial instruments, as at December 31, 2003, where the fair values differ from the carrying amounts on the financial statements, are as follows:

In the preceding years, the Company carried out its operations through three strategic business segments: PCS, wireless Internet and investments. As a result of the restructuring process, the Company realigned its cash flows to concentrate on the PCS activities. Consequently, the Company has determined that it operates in one segment since January 1, 2003, as the wireless internet and investments operations were no longer significant.

These financial statements were prepared in accordance with Canadian GAAP. The following summary sets out the material adjustments to the Company’s financial statements, which would be required to conform to U.S. GAAP.

There are no significant differences between Canadian GAAP and U.S. GAAP, which affect the captions of the cash flow statements.

The PCS license, which included certain development costs, and other costs associated with obtaining the PCS license from Industry Canada were deferred under Canadian GAAP. Under U.S. GAAP, such development costs are expensed as incurred. This difference created a reversal of amortization of intangible assets of $0.1 million in 2001. During 2002, the Company wrote down the value of the MCS Licenses to nil. Prior to this write-down, the carrying values of these licenses were $249.2 million and $223.4 million under U.S. GAAP and Canadian GAAP respectively, representing a difference of $25.8 million.

Under Canadian GAAP, the investor should continue to record its portion of investee losses unless the investor would be unlikely to share in losses of the investee. Under U.S. GAAP, in situations where an investor is not required to advance additional funds to the investee and where previous losses have reduced the common and the preferred stock investment account to zero, the Company should continue to report its share of equity method losses in its statement of operations to the extent of and as an adjustment to the loans to the investee.

In addition, under Canadian GAAP, the share of net income in an investee that is a private investment company is calculated based on its realized gains or losses. Under U.S. GAAP, the share of net income in such investees is calculated based on both realized and unrealized gains or losses.

Under Canadian GAAP, the marketable securities are recorded as explained in note 2. Under U.S. GAAP, the marketable securities are classified as available for sale, and any changes to the market value, net of income taxes, are recorded in other comprehensive income (loss). Fair value of marketable securities was $0.3 million as at December 31, 2002.

Under Canadian GAAP, certain development costs are deferred and amortized. Under U.S. GAAP, such costs would be expensed as incurred.

Under Canadian GAAP, a deferred gain or loss is recorded upon either the de-designation of a derivative financial instrument as a hedge or upon the early termination of a derivative financial instrument qualifying as a hedge. This deferred gain or loss represents the appreciation or depreciation of the fair market value of the derivative financial instrument from its inception until the date of the de-designation or early termination. The deferred gain or loss is then amortized over the remaining life of the originally hedged item. Under US GAAP, the appreciation or depreciation of the fair market value of the derivative financial instrument from its inception until the date of its de-designation or early termination is accumulated in other comprehensive income. The accumulated balance is then amortized to net income (loss) over the remaining life of the originally hedged item.

Under Canadian GAAP, certain costs related to bonuses in connection with stock compensation awards granted at-the-money with a minimum guaranteed performance, are not accounted for until the bonus is likely to be paid out and the amount can be quantified. Under U.S. GAAP, such costs are accounted for on a combined basis with the recognition of compensation cost over the service period equal to the bonus element. As at December 31, 2002, all such stock compensation awards granted in the past have been cancelled.

The preferred shares contain conversion features which result in the Company’s obligation to redeem such shares being conditional. Therefore, under US GAAP, these shares are outside the scope of SFAS 150. In such a case, redeemable preferred shares subject to mandatory redemption requirements that are outside the control of the issuer are excluded from “shareholders’ equity (deficiency)” and presented separately in the issuer’s balance sheet between liabilities and shareholders’ equity (deficiency). The related accretions are presented as a charge to retained earnings or, in the absence of retained earnings, by charges against share capital.

Under U.S. GAAP, the forgiveness of debt and the effects of the adjustments on the reported amounts of individual assets and liabilities resulting from the adoption of fresh start accounting should be reflected in the predecessor entity’s final statement of operations. Under Canadian GAAP, such adjustments are reflected as capital transactions. The reorganization items in the amount of $1.254 billion were comprised of $1.366 billion of forgiveness of debt and $112.5 million of adjustments resulting from the application of fresh-start accounting.

Under Canadian GAAP, the impact of changes in income tax rates on the measurement of deferred tax assets and liabilities are recorded when the changes in tax rates have been substantively enacted. Under U.S. GAAP, changes in income tax rates are recorded when the change in tax rates has been legislated. Under Canadian GAAP, the estimated deferred tax liabilities related to the MCS Licenses acquired during 2001, in the amount of $72.9 million, resulting from the difference between the carrying value and the tax basis of the asset acquired, was capitalized to the MCS Licenses. This amount was determined using substantially enacted tax rates at the date of acquisition. Using legislated tax rates at the date of acquisition, the tax liability and related increase in the carrying value of the asset was $98.7 million under US GAAP. During 2001, the change in rates was legislated, which resulted in a decrease in the deferred tax liability and a credit to income of $25.8 million under U.S. GAAP.

The Financial Accounting Standards Board has issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statements 137 and 138. The Company adopted SFAS 133 effective January 1, 2001. The Statements require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the effective portion of the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings.

The adoption of SFAS 133, as amended by Statements 137 and 138, resulted in the cumulative effect as of January 1, 2001, of an accounting change of $0.9 million being recognized as an expense in the statement of net loss and as a credit of $3.9 million in other comprehensive loss. For 2001, the adoption of SFAS 133 resulted in $1.4 million being recognized as income in the statement of net loss and in a charge of $1.4 million in other comprehensive income. As of December 31, 2002, all such derivative instruments have been terminated.

In 1996, an amount of $60.7 million was expensed with a corresponding increase in share capital under U.S. GAAP representing stock options recorded using APB 25.

Some of the comparative figures have been reclassified to conform to the presentation adopted in the current year.

(1) On March 17, 2004, the Company obtained financing of an aggregate principal amount equivalent to $450 million for its wholly owned subsidiary, Solutions, from a syndicate of lenders. The proceeds were used mainly to refinance the Company’s previous senior secured credit facilities (see note 8). The amended facilities consist of a six-year $50 million first lien revolving credit facility, and of a seven-year first lien term loan and of a seven-and-a-half-year second lien term loan, each in an aggregate principal amount equivalent to $200 million. The revolving credit facility is denominated in Canadian dollars, and both term loans are denominated in U.S. dollars. Pricing is LIBOR plus 4% for the revolving credit facility and the first lien term loan and LIBOR plus 7% for the second lien term loan. The loan pricing for the second lien term loan includes a LIBOR floor of 2%. The credit facilities are secured by a pledge on substantially all of the Company’s assets.

(2) In March 2004, the Company has entered into swap transactions to manage its exposure to foreign exchange rate fluctuations on the new U.S.-dollar-denominated first and second lien term loan described above. The Company swapped the total principal of both term loans in the amount of $400 million [US$299.9 million] at a rate of 1.3340. The Company also swapped the floating interest rate of Libor plus 4% on the first lien term loan, payable in US dollars, to a floating interest rate of Libor plus 5.085%, payable in Canadian dollars. The Company also swapped the floating interest rate of Libor plus 7% on the second lien term loan, payable in US dollars, to a floating interest rate of Libor plus 8.485%, payable in Canadian dollars. The maturity of the swap transactions corresponds to the maturity of both term loans. These swap transactions

are presented at their fair value as derivative instruments on the balance sheet and changes in fair value are recognized in income as foreign exchange gains or losses.

(3) Pursuant to a final prospectus dated March 24, 2004, the Company distributed to the holders of its class A restricted voting shares, class B non-voting shares, First Preferred Voting Shares, First Preferred Non-Voting Shares, Second Preferred Voting Shares and Second Preferred Non-Voting Shares, rights to subscribe for an aggregate of 4,519,636 class B non-voting shares. Each five rights entitled the holder thereof to purchase one class B non-voting share at a subscription price of $22 per share. In connection with the rights offering, the Company entered into a standby purchase agreement with COM Canada, LLC [“COM”] pursuant to which it has agreed to purchase, at the rights subscription price, all class B non-voting shares not otherwise purchased pursuant to the rights offering. In addition, to the extent COM purchased less than $50 million of such shares, it committed to purchase, at the subscription price, additional class B non-voting shares having an aggregate subscription price equal to the deficiency.

The closing of the rights offering occurred on April 30, 2004. The rights offering resulted in the issuance by Microcell of 4,519,636 class B non-voting shares. COM purchased concurrently, at a price of $22.00 per share, 2,272,727 class B non-voting shares. Furthermore, the Company granted COM, 3,977,272 warrants to acquire, at a price of $22.00 per share, additional class B non-voting shares for exercise at a later date. The net proceeds from the rights offering and private placement to COM amounted to approximately $147 million [net of approximately $2 million of issuance fees] and have been used by Microcell to redeem 75,233 outstanding preferred shares, at a price of $16.39 per share, for a total of $1.2 million. The remaining balance of $145.8 million will be used to fund capital expenditures and for general corporate purposes.

As a result, the Company’s share capital as at May 3, 2004, was composed of the following: 235,961 class A restricted voting shares; 29,079,353 class B non-voting shares; 3,998,302 Warrants 2005; 6,663,943 Warrants 2008; and, 3,977,272 new warrants issued to COM. In accordance with the warrant indentures governing the Warrants 2005 and the Warrants 2008, the number of shares issuable upon the exercise of the Warrants 2005 and the Warrants 2008 has been adjusted from 1.0 to 1.02 Class A Share or Class B Shares, as the case may be, for each warrant. This adjustment was made as a result of the Company’s rights offering.

(4) On March 19, 2004, the Company received a comment letter from the SEC in connection with its review of the Company’s registration statement filed on March 3, 2004 for the registration of its Class A Shares and Class B Shares issuable upon exercise of the Warrants 2005 and the Warrants 2008. The Company responded to the SEC’s March letter and filed an amended registration statement on June 29, 2004. The Company received a letter to its response on August 9, 2004. The SEC staff, among other things, has questioned whether the Company’s Fido brand name has an indefinite useful life and consequently whether it should be subject to periodic amortization. The Company believes such brand name should be considered to have an indefinite life. However, were periodic amortization to be applied, assuming hypothetically a useful life of ten years, this would reduce net income by $1.9 million, increase loss per share by $0.50 but have no effect on cash flows for the eight months ended December 31, 2003, and shareholders’ equity would decrease by $1.9 million as of December 31, 2003. The hypothetical amortization period of ten years is presented for illustrative purposes only. The resolution of the comment letter issues with SEC staff may require the Company to restate its financial statements for the eight months ended December 31, 2003.

(5) On April 21, 2004, UBS Wireless Services, Inc., an Ontario corporation that manufactures and operates wireless products and services, filed a lawsuit against Microcell, Solutions, Inukshuk and Allstream in the Ontario Superior Court of Justice. In its statement of claim, UBS claims, among other things, for damages in the amount of $160 million from each of Microcell, Solutions and Inukshuk for breach of contract, breach of confidence and breach of fiduciary duty and punitive damages. UBS also claims from Inukshuk, as an alternative to the damages claims, an order for specific performance of a conditional agreement between Inukshuk and UBS with respect to the use of 38 MHz of Inukshuk’ s spectrum by UBS. UBS also claims certain other equitable relief, including disgorgement of profits that UBS alleges would otherwise unjustly

enrich Inukshuk, Solutions and Microcell. The action is at a very early stage with no statement of defence yet delivered. Based on information currently available, management considers that the companies have substantive defences to the action brought by UBS and intend to vigorously defend the action.

(6) On May 17, 2004, TELUS Corporation [“TELUS”] launched unsolicited offers to purchase Microcell’s Class A Shares for $29.00 per share, Class B Shares for $29.00 per share, Warrants 2005 for $9.67 per warrant and Warrants 2008 for $8.89 per warrant. On May 20, 2004, Microcell announced that, after careful review and analysis of the TELUS offers performed with the assistance of its legal and financial advisors, Microcell’s board of directors recommended that holders of these securities not tender into the TELUS offers. Further to the TELUS offers, Microcell’s board of directors initiated a full strategic review in order to determine the best way to maximize value for all holders of securities.. The special committee directed the financial advisors and Microcell’s management to contact TELUS and a number of other parties, in order to evaluate all strategic and financial alternatives available to Microcell. Among the parties so contacted was Rogers Communications Inc., Rogers Wireless Communications Inc. and Rogers Wireless Inc. [collectively, “Rogers”]. On June 22, 2004, TELUS announced that it would extend the TELUS offers until July 22, 2004. The TELUS offers were further extended on July 22, 2004, on August 20, 2004 and, after the announcement of the Rogers offers (described below) on September 20, 2004. On October 12, 2004, TELUS announced that it would not extend its offer to purchase all of the issued and outstanding publicly traded shares and warrants of Microcell and, as a result, the TELUS offers expired on that day.

On September 19, 2004, the special committee of Microcell’s board of directors met to review the terms of the offers submitted by Rogers to purchase all Microcell’s Class A Shares for $35.00 per share, Class B Shares for $35.00 per share, Warrants 2005 for $15.79 per warrant and Warrants 2008 for $15.01 per warrant, and the terms of a proposed support agreement. Following Microcell’s special committee’s review of the relevant considerations and based upon the advice received from its legal and financial advisors and the opinions of its financial advisors to its board of directors to the effect that, as at such date and subject to the matters stated in such opinions, the consideration to be received by holders of shares under the share offers was fair, from a financial point of view, to such holders, Microcell’s special committee unanimously concluded that the share offers were fair to the holders of shares and in the best interests of Microcell and determined to unanimously recommend that Microcell’s board of directors recommend that holders of shares accept the share offers.

On September 19, 2004, Microcell’s board of directors met immediately following the meeting of its special committee and confirmed and ratified the special committee’s recommendation. At such meeting, Microcell’s board of directors approved the entering into of a support agreement in connection therewith. Microcell entered into a support agreement late on September 19, 2004 in respect of the Rogers offers. In accordance with the support agreement, Microcell’s board of directors also resolved on such date to waive the application of certain provisions of the shareholder rights plan to allow Rogers to proceed with the Rogers offers without any dilutive effects.

On September 20, 2004, Microcell and Rogers jointly announced the execution of the support agreement with respect to the Rogers offers. The terms of the support agreement do not prohibit the board of directors from fulfilling its fiduciary duties to consider and, in certain circumstances, to approve or recommend a superior proposal. The board of directors may, under certain circumstances, withdraw or modify in a manner adverse to Rogers its approval or recommendation of Rogers’ offers for our class A shares and class B shares or accept, approve, recommend or enter into any agreement in respect of an acquisition proposal on the basis that such an acquisition proposal would constitute a superior proposal. In such circumstances, among others, Microcell has agreed to pay to Rogers a termination fee of $45 million.

(7) On August 9, 2004, a proceeding under the Class Actions Act (Saskatchewan) has been brought against Microcell and other providers of wireless telecommunications services in Canada. The proceeding

involves allegations of deceit, misrepresentation and false advertising by wireless telecommunications service providers with respect to the monthly system access fees being charged to customers. The plaintiffs seek unquantified damages from the defendant wireless telecommunications service providers, plus costs and pre-judgment and post-judgment interest. Microcell believes it has good defences to the allegations made by the plaintiffs. Further, the proceeding has not been certified as a class action and it is too early to determine whether the proceeding will qualify for certification as a class action.

(8) The Company’s swap agreements include a recouponing provision which allowed both parties to enter into an amendment of the economic variables when the fair market value of the swaps exceed a threshold of $16 million, in such manner that the market value is reduced to an amount no greater than $16 million. As of September 30, 2004, an amendment occurred between the parties to revise the limit of $16 million to $24.8 million. Consequently, the economic variables were amended to reduce the market value of the swaps from $34.4 million payable by the Company to $24.7 million, generating a payment by the Company to the counterparties of $9.7 million on October 3, 2004. Under this amendment, the floating interest rates of the Company’s swap agreements relating to its Term Loan A and Term Loan B were reduced to LIBOR plus 4.616% and LIBOR plus 8.006% respectively.

Microcell Telecommunications Inc. [“Microcell”] is incorporated under the Canada Business Corporations Act [“CBCA”] and is a provider of wireless telecommunications services in Canada. As at June 30, 2004, Microcell conducted its wireless communications business through two wholly-owned subsidiaries [Microcell, collectively with its subsidiaries, the “Company”], which were: Microcell Solutions Inc. [“Solutions”] and Inukshuk Internet Inc. [“Inukshuk”].

Solutions operates a Global System for Mobile Communication [“GSM”] network across Canada and markets Personal Communications Services [“PCS”] and General Packet Radio Service [“GPRS”] under the Fido brand name pursuant to a 30MHz PCS license [the “PCS License”] issued by the Minister of Industry (Canada) [“Industry Canada”]. The Company also provides wireless high-speed Internet access in selected locations under the brand name iFido^TM.

Inukshuk was awarded Multipoint Communication Systems [“MCS”] licenses [the “MCS Licenses”] to deploy a high-speed Internet Protocol-based data network using MCS technology in Canada. Inukshuk entered into a venture with two partners to build an MCS network in order to offer high-speed Internet, IP-based voice and local networking services to selected markets across Canada. Inukshuk’s commitments to the venture are to transfer its MCS Licenses to the venture, to permit the utilization of its MCS Licenses by the venture pending Industry Canada’s approval of the transfer and to make cash contribution of up to $6.0 million. As of June 30, 2004, this venture was accounted for using the equity accounting method. Accordingly, an amount of $0.9 million has been recognized during the current quarter as the Company’s share of loss in this venture.

The Company continues to experience growth-related capital requirements arising from the need to fund network capacity improvements, ongoing maintenance and the cost of acquiring new PCS customers. Microcell’s ability to generate positive net income and cash flows in the future is dependent upon various factors, including the level of market acceptance of its services, the degree of competition encountered by the Company, the cost of acquiring new customers, technology risks, general economic conditions and regulatory requirements.

On May 1, 2003, the predecessor company of Microcell [“Old Microcell”] and certain subsidiaries of Old Microcell emerged from a restructuring plan under the Companies’ Creditors Arrangement Act [“CCAA”] and the CBCA. As a result, at that date, the Company has accounted for its financial reorganization by using the principles of fresh start accounting. Accordingly, all assets and liabilities were comprehensively revalued at estimated fair values and Microcell’s deficit of $2.4 billion was eliminated and long-term debt obligations decreased by approximately $1.6 billion. Microcell determined that its enterprise value was $689 million, of which $350 million was allocated to the long-term debt and $339 million to the equity. This enterprise value was determined based on several traditional valuation methodologies, utilizing projections developed by management, including discounted cash flow analysis and comparable company trading analysis.

A comprehensive revaluation of the assets and liabilities of the Company has been done based on this enterprise value. This resulted in a reduction of the current assets of $36.8 million [mainly consisting of the deferred charges incurred during the recapitalization process], the property, plant and equipment of $289.7 million, the long-term investments of $3.7 million and the accrued liabilities of $131.5 million. The

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] — (Continued)

Company also assigned a value, calculated at management’s best estimate of fair value, to the Company’s intangible assets, which are the PCS License at $188 million, determined using the replacement cost based on comparable transactions, the Fido brand name at $28.5 million, determined using the replacement cost method, and the customer list at $24.7 million, determined using the discounted future cash flow method.

The accompanying unaudited interim consolidated financial statements of Microcell have been prepared in accordance with accounting principles generally accepted in Canada [“Canadian GAAP”] for interim financial information. Accordingly, they do not include all of the information and footnotes required by Canadian GAAP for annual financial statements. In the opinion of management, all adjustments [consisting of normal recurring accruals] considered necessary for a fair presentation have been included. The consolidated balance sheet as of December 31, 2003 in these unaudited interim consolidated financial statements has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by Canadian GAAP for annual financial statements.

Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Specifically, during the fourth quarter, the Company’s operations are subject to certain seasonal factors associated with subscriber acquisition during the holiday period, which historically is the largest acquisition period of the year for the wireless industry. As a result, operating and net income during this period will be affected by the cost of acquiring a proportionately higher number of subscribers compared with each of the other three quarters of the year.

These unaudited interim consolidated financial statements should be read in conjunction with Microcell’s audited consolidated financial statements and footnotes for the year ended December 31, 2003. The accounting policies and methods followed in the preparation of these unaudited interim consolidated financial statements are the same as those used in the audited financial statements for the year ended December 31, 2003, except for the change related to stock-based compensation as described in note 2. The Company also introduced new customer retention programs during the period as described in note 3.

Comparative financial information for the one- and four-month periods ended April 30, 2003 has been presented pursuant to regulatory requirements. In reviewing this comparative financial information, readers are reminded that it does not reflect the effects of the financial reorganization and the application of fresh start accounting.

In March 2004, the Company received a comment letter from the U.S. Securities and Exchange Commission [“SEC”] in connection with its review of the Company’s registration statement filed on March 3, 2004 for the registration of its Class A Restricted Voting Shares [“Class A Shares”] and Class B Non-Voting Shares [“Class B Shares”] issuable upon exercise of the Warrants 2005 and the Warrants 2008. The Company responded to the SEC’s March letter and filed an amended registration statement on June 29, 2004. The Company received a letter to its response on August 9, 2004. SEC staff, among other things, has questioned whether the Company’s Fido brand name has an indefinite useful life and, consequently, whether it should be subject to periodic amortization. The Company believes such brand name should be considered to have an indefinite life. However, were such periodic amortization to be applied, assuming hypothetically a useful life of ten years, this would increase the Company’s net loss by $0.7 million and $1.4 million, increase basic and diluted loss per share by $0.03 and $0.10, but would have no effect on cash flows, for the three- and six-month periods ended June 30, 2004. In addition, opening deficit would be increased by $1.9 million.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] — (Continued)

Effective January 1, 2004, the Company adopted the standard set forth in Section 3870 of the Canadian Institute of Chartered Accountants [“CICA”] Handbook entitled Stock-based compensation and other stock-based payments. This section has been amended to require the expensing of certain stock-based compensation awards using the fair value-based method for fiscal years beginning on or after January 1, 2004. Under the amended rules, the Company is required to expense, over the vesting period, the fair value of the options at the date of the grant. As permitted by this amendment, the Company applied this change retroactively, without restatement, for options granted since May 1, 2003. Consequently, the opening deficit as at January 1, 2004 was adjusted to reflect an expense of $1.3 million relating to options granted since May 1, 2003. Under its prior stock option plan, the Company’s pro forma net income for the one- and four-month periods ended April 30, 2003 would be decreased respectively by $0.5 million and $1.6 million and the basic and diluted earnings per share figures would not be affected for the one month ended April 30, 2003 and would be decreased by $0.01 for the four months ended April 30, 2003. The Company’s pro forma net income for the two months ended June 30, 2003 would be decreased by $0.1 million and the basic and diluted earnings per share figures would be decreased by $0.03 and $0.01 respectively. For the three-and six-month periods ended June 30, 2004, an amount of $0.7 million and $1.4 million is included within general and administrative expenses, reflecting the recurring cost associated with the normal vesting of employee stock options. As a result of the appreciation in Microcell’s share price, resulting primarily from TELUS Corporation’s [“TELUS”] unsolicited public takeover offers detailed in note 7, and in accordance with accelerated vesting rules of the Company’s stock option plan, $3.2 million of special charges were recognized during the three-month period ended June 30, 2004. Accordingly, an amount of $5.9 million was credited to the contributed surplus. The Company used the Black Scholes option pricing model to determine the fair value of the options with the following assumptions: risk-free interest rate of 3%, share price volatility of 64%, no dividend yield and expected life of five years. Prior to January 1, 2004, no compensation expense was recognized when options were issued to employees or directors but the Company provided pro forma information as if the fair value-based method had been applied.

Secondly, the Company launched “Fido Rewards,” which allows its postpaid customers to accumulate “FidoDollars” based on their spending. Each FidoDollar allows its holder to obtain a discount of $1 on the suggested retail price of a future purchase of a handset. Since this handset will generate future service revenues after its acquisition, the Company will account for the cost of this reward program, consisting primarily of the subsidy on the handset, when such FidoDollars are redeemed. At that date, the Company recognizes as equipment revenue the amount received from its customers, net of applicable FidoDollars, as well as the cost of the related handset. The Company accrues for its estimated obligation as awards are earned by its customers which are registered with the program. As at June 30, 2004, 5.6 million FidoDollars were

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] — (Continued)

issued to approximately 382,000 registered customers and, as a result, an amount of $5.6 million is included in the Company’s balance sheet within deferred charges and accounts payable and accrued liabilities. If all of the Company’s customers were registered in this program, deferred charges and accounts payable and accrued liabilities as at June 30, 2004 would be increased by $9.0 million.

The reconciliation of the numerator and denominator for the calculation of earnings (loss) per share is as follows:

Except for the period of two months ended June 30, 2003, basic and diluted earnings (loss) per share are identical, as the effect of potential dilutive securities is antidilutive.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] — (Continued)

The minimum contractual payments of term loan A debt [“Term Loan A”] and term loan B debt [“Term Loan B”] for the next five years are as follows: $6.0 million for the rest of 2004; $12.0 million in 2005; $12.0 million in 2006; $12.0 million in 2007; $12.0 million in 2008 and $22.3 million for the first half of 2009.

On March 17, 2004, the Company entered into amended and restated credit agreements with a syndicate of lenders, certain of which were also shareholders of the Company. The proceeds have been used mainly to refinance borrowings under the previous senior secured credit facilities in the amount of $330.3 million and to terminate previous swap transactions in the amount of $4.3 million.

In conjunction with the amended and restated credit agreements, the Company paid, during the first half of 2004, $12.5 million of financing costs, which are being deferred and amortized over the term of the loans. As of June 30, 2004, the financing arrangements of the Company consisted of the following credit agreements:

The Company has access to a first lien revolving credit facility [the “Revolving Facility‘] of $50 million, which bears interest at CDOR or LIBOR plus 4.0% and is payable in March 2010. A commitment fee computed at the rate of 0.5% per annum on the aggregate undrawn amount of the Revolving Facility is payable on a quarterly basis. The Revolving Facility is secured by a pledge of a first lien on substantially all of the Company’s assets. As at June 30, 2004, no amounts were drawn on this facility. However, any credit exposure under the swap transactions described below is deducted from the amount otherwise available to be borrowed under the Revolving Facility. An amount of $16 million was agreed upon to be the initial swap exposure of the Company’s swap counterparty.

The Term Loan A debt consists of a first lien term loan with a principal amount equivalent to $200 million [US$149.9 million]. It bears interest at LIBOR plus 4% and is payable in quarterly installments, which started in June 2004 and will mature in March 2011. As of June 30, 2004, 1.25% of the principal amount was reimbursed. The Term Loan A is collateralized by a pledge on substantially all of the Company’s assets. As at June 30, 2004, the effective interest rate on Term Loan A was 6.65%.

The Term Loan B debt consists of a second lien term loan with a principal amount equivalent to $200 million [US$149.9 million]. It bears interest at LIBOR plus 7%, with a LIBOR floor at 2%, and is payable in quarterly installments, which started in June 2004 and will mature in September 2011. As of

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] — (Continued)

June 30, 2004, 0.25% of the principal amount was reimbursed. The Term Loan B is collateralized by a pledge on substantially all of the Company’s assets. As at June 30, 2004, the effective interest rate on Term Loan B was 10.05%.

Pursuant to the terms of the credit agreements governing the Company’s credit facilities, the Company is entitled to raise up to an additional $25 million under the Revolving Facility or Term Loan A, and up to an additional $50 million under Term Loan B.

The Company has entered into swap transactions to manage its exposure to foreign exchange rate fluctuations on the U.S.-dollar-denominated Term Loan A and Term Loan B. The Company swapped, in March 2004, the total principal of Term Loan A and Term Loan B in the amount of $400 million [US$299.9 million] at a rate of 1.3340. The Company also swapped the floating interest rate of Libor plus 4% on Term Loan A, payable in US dollars, to a floating interest rate of LIBOR plus 5.085%, payable in Canadian dollars. The Company also swapped the floating interest rate of LIBOR plus 7% on Term Loan B, payable in US dollars, to a floating interest rate of LIBOR plus 8.485%, payable in Canadian dollars. The maturity of the swap transactions corresponds to the maturity of both term loans. These swap transactions are presented at their fair value as derivative instruments on the balance sheet and changes in fair value are recognized in income as foreign exchange gains or losses.

The Company’s swap agreements include a recouponing provision which allowed both parties to enter into an amendment of the economic variables when the fair market value of the swaps exceed a threshold of $16 million, in such manner that the market value is reduced to an amount no greater than $16 million. As of September 30, 2004, an amendment occurred between the parties to revise the limit of $16 million to $24.8 million. Consequently, the economic variables were amended to reduce the market value of the swaps from $34.4 million payable by the Company to $24.7 million, generating a payment by the Company to the counterparties of $9.7 million on October 3, 2004. Under this amendment, the floating interest rates of the Company’s Term Loan A and Term Loan B were reduced to LIBOR plus 4.616% and LIBOR plus 8.006% respectively.

Under the credit agreements governing the Revolving Facility, Term Loan A and Term Loan B, the Company is committed to respect certain covenants, including restrictions on the ability to incur indebtedness, pay dividends, make various payments, create liens, sell assets and engage in mergers. The Company must also maintain certain financial covenants and ratios under its credit agreements, including levels of operating income excluding a number of specific items, levels of debt, liquidity levels and maximum levels of capital expenditures.

The credit agreements governing Term Loan A and Term Loan B require the Company to make, subject to certain conditions, prepayments to Term Loan A and Term Loan B lenders with respect to [i] net proceeds received by the Company from the sale of assets, [ii] the excess cash flow generated by the Company during any fiscal year, and [iii] the net proceeds received by the Company from the issuance of equity securities.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] — (Continued)

Pursuant to a final prospectus dated March 24, 2004, the Company distributed to the holders of its Class A Shares, Class B Shares, First Preferred Voting Shares, First Preferred Non-Voting Shares, Second Preferred Voting Shares and Second Preferred Non-Voting Shares, rights to subscribe for an aggregate of 4,519,636 Class B Shares. Each five rights entitled the holder thereof to purchase one Class B Share at a subscription price of $22 per share. In connection with the rights offering, the Company entered into a standby purchase agreement with COM Canada, LLC [“COM”] pursuant to which it agreed to purchase, at a price of $22.00, all Class B Shares not otherwise purchased under the rights offering. In addition, to the extent COM purchased less than $50 million of such shares, it committed to purchase, at a price of $22.00, additional Class B Shares having an aggregate subscription price equal to the deficiency.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] — (Continued)

$22.00 per share, additional Class B Shares for exercise at a later date. The net proceeds from the rights offering and private placement to COM amounted to approximately $148 million [net of approximately $1.1 million of issuance fees] and have been used by Microcell to redeem on May 1, 2004, 1,450 First Preferred Voting Shares, 40,688 First Preferred Non-Voting Shares and 33,095 Second Preferred Non-Voting Shares outstanding as at April 30, 2004 at a price of $16.39 per share, for a total of $1.2 million. The remaining balance of $147.1 million will be used to fund capital expenditures and for general corporate purposes. The Company has estimated the fair value of warrants issued to COM to be $11.3 million and this amount has been applied as a reduction of the value attributed to the Class B Shares.

In accordance with the warrant indentures governing the Warrants 2005 and the Warrants 2008, the number of shares issuable upon the exercise of the Warrants 2005 and the Warrants 2008 were adjusted from 1.0 to 1.02 Class A Share or Class B Shares, as the case may be, for each warrant. This adjustment has been made as a result of the Company’s rights offering.

In May 2004, an amendment to the Company’s stock option plan, to increase the number of Class B Shares that may be issued pursuant to options granted under the Option Plan by 682,236 (from 2,006,818 to 2,689,054) was approved by Microcell’s shareholders.

On May 17, 2004, TELUS Corporation [“TELUS”] launched unsolicited offers to purchase Microcell’s Class A Shares for $29.00 per share, Class B Shares for $29.00 per share, Warrants 2005 for $9.67 per warrant and Warrants 2008 for $8.89 per warrant. On May 20, 2004, Microcell announced that, after careful review and analysis of the TELUS offers performed with the assistance of its legal and financial advisors, Microcell’s board of directors recommended that holders of these securities not tender into the TELUS offers. Further to the TELUS offers, Microcell’s board of directors initiated a full strategic review in order to determine the best way to maximize value for all holders of securities.. The special committee directed the financial advisors and Microcell’s management to contact TELUS and a number of other parties, in order to evaluate all strategic and financial alternatives available to Microcell. Among the parties so contacted was Rogers Communications Inc., Rogers Wireless Communications Inc. and Rogers Wireless Inc. [collectively, “Rogers”]. On June 22, 2004, TELUS announced that it would extend the TELUS offers until July 22, 2004. The TELUS offers were further extended on July 22, 2004, on August 20, 2004 and, after the announcement of the Rogers offers (described below) on September 20, 2004. On October 12, 2004, TELUS announced that it would not extend its offer to purchase all of the issued and outstanding publicly traded shares and warrants of Microcell and, as a result, the TELUS offers expired on that day.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] — (Continued)

In conjunction with the Offers, Microcell is incurring both financial and legal fees. The Company engaged two financial advisors to determine the best way to maximize value for all security holders. One of the two financial advisors has affiliates which are shareholders, lenders or agent of the Company’s lenders. Engagement letters entered into with these advisors provide for advisory services to be rendered with minimum fees amounting to $6.5 million. Such fees will be recognized over the estimated period for which the services are rendered. If a transaction occurs, a transaction fee will be payable that will be calculated as a percentage of the consideration paid to acquire Microcell’s equity which may represent a significantly higher amount based on the value of the transaction. As of June 30, 2004, an expense amounting to $2.2 million was recognized with respect to these agreements. Furthermore, the consequential impact of the Offers on Microcell’s share price led to an accelerated vesting of shares under the Company’s stock option plan, resulting in an acceleration of a compensation expense of $3.2 million that the Company would have otherwise recognized over the remaining initial vesting period [see note 2].

These financial statements have been prepared in accordance with accounting principles generally accepted in Canada. As further described in Note 18 to the 2003 annual consolidated financial statements, these accounting principles differ in certain respects from those that would have been followed had these financial statements been prepared in conformity with accounting principles generally accepted in the United States and related rules and regulations adopted by the United States Securities and Exchange Commission. In addition, effective January 1, 2004, the Company adopted the standard set forth in Section 3870 of the

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] — (Continued)

CICA Handbook, as described in Note 2. Under U.S. GAAP, since the Company has selected the modified prospective method as permitted by SFAS 148, the adjustment to opening deficit in the amount of $1.3 million would not be recorded.

On April 21, 2004, UBS Wireless Services, Inc., an Ontario corporation that manufactures and operates wireless products and services, filed a lawsuit against Microcell, Solutions, Inukshuk and Allstream in the Ontario Superior Court of Justice. In its statement of claim, UBS claims, among other things, for damages in the amount of $160 million from each of Microcell, Solutions and Inukshuk for breach of contract, breach of confidence and breach of fiduciary duty and punitive damages. UBS also claims from Inukshuk, as an alternative to the damages claims, an order for specific performance of a conditional agreement between Inukshuk and UBS with respect to the use of 38 MHz of Inukshuk’s spectrum by UBS. UBS also claims certain other equitable relief, including disgorgement of profits that UBS alleges would otherwise unjustly enrich Inukshuk, Solutions and Microcell. The action is at a very early stage with no statement of defence yet delivered. Based on information currently available, management considers that the companies have substantive defences to the action brought by UBS and intend to vigorously defend the action.

On August 9, 2004, a proceeding under the Class Actions Act (Saskatchewan) was brought against Microcell Telecommunications Inc. and other providers of wireless telecommunications services in Canada. The proceeding involves allegations of deceit, misrepresentation and false advertising by wireless telecommunications service providers with respect to the monthly system access fees being charged to customers. The plaintiffs seek unquantified damages from the defendant wireless telecommunications service providers, plus costs and pre-judgment and post-judgment interest. Microcell believes it has good defences to the allegations made by the plaintiffs. Further, the proceeding has not been certified as a class action and it is too early to determine whether the proceeding will qualify for certification as a class action.

Certain of the comparative figures have been reclassified to conform to the presentation adopted in the current year.

Under the Canada Business Corporations Act, except in respect of an action by or on behalf of the registrant to procure a judgment in its favor, the registrant may indemnify a director or officer or former director or officer of the registrant or a person who acts or acted at the registrant’s request as a director or officer of another corporation of which the registrant is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of his position with the registrant and provided that the director or officer acted honestly and in good faith with a view to the best interests of the registrant and, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his conduct was lawful. A director or officer is entitled to indemnification from the registrant as a matter of right for his defense costs if he was substantially successful on the merits and fulfilled the conditions set forth above. Indemnification may be made in connection with a derivative action only with court approval.

Section 9 of the by-laws of the registrant provides in effect for the indemnification by the registrant of each director and officer of the registrant to the fullest extent permitted by applicable law.

The registrant has purchased insurance for the benefit of all directors and officers of the registrant and its subsidiaries against liability incurred by them in such capacity.

On May 1, 2003, the Registrant’s predecessor company, that was also named Microcell Telecommunications Inc. and is now named 2861399 Canada Inc. (“Old Microcell”), and certain subsidiaries of Old Microcell, emerged from a Canadian court-supervised restructuring plan initiated on January 3, 2003 under the Companies’ Creditors Arrangement Act (“CCAA”) and Canada Business Corporations Act (“CBCA”). The terms of Old Microcell’s restructuring plan are set out in Old Microcell’s plan of reorganization and of compromise and arrangement (the “plan”), a copy of which is contained in the prospectus forming a part of this Registration Statement.

Under the terms of the plan, on May 1, 2003, the Registrant issued First Preferred Voting Shares, First Preferred Non-Voting Shares, Second Preferred Voting Shares, Second Preferred Non-Voting Shares, Class A Restricted Voting Shares, new Class B Non-Voting Shares and warrants. Two series of warrants (collectively the “Warrants”) were issued pursuant to the plan: (1) 2-year warrants entitling the holders thereof to subscribe, until May 1, 2005, for Class A Restricted Voting Shares or Class B Non-Voting Shares of Microcell, as the case may be, at an exercise price of Cdn.$19.91 per share (the “Warrants 2005”); and (2) 5-year warrants entitling the holders thereof to subscribe, until May 1, 2008, for Class A Restricted Voting Shares or Class B Non-Voting Shares of Microcell, as the case may be, at an exercise price of Cdn.$20.69 per share (the “Warrants 2008”). There were no underwriters involved in these issuances, and the Registrant received no consideration for these issuances.

The initial issuances of these securities in connection with the plan were not registered under the Securities Act or (with a few exceptions) the securities laws of any state of the United States and were effected in reliance upon the exemption from registration provided by Section 3(a)(10) of the Securities Act and exemptions provided under the securities laws of each state of the United States. Section 3(a)(10) of the Securities Act exempts from registration a security which is issued in exchange for outstanding securities where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange have a right to appear, by a court or by a governmental authority expressly authorized by law to grant such approval. Accordingly, the final order of the court supervising the plan constituted the basis for the claim of

The exemption from registration provided by Section 3(a)(10) is not available for the Class A Restricted Voting Shares or Class B Non-Voting Shares issuable upon the conversion of the First Preferred Shares or Second Preferred Shares (or any First Notes or Second Notes) or upon the exercise of the Warrants. No First Preferred Share or Second Preferred Share (or First Note or Second Note) may be converted, and no Warrant may be exercised, unless (i) a registration statement covering the underlying Class A Restricted Voting Shares or Class B Non-Voting Shares is registered via a registration statement filed with the United States Securities and Exchange Commission, or (ii) another exemption under the Securities Act is available in respect of such conversion or exercise. The Registrant believes that an exemption under Section 3(a)(9) of the Securities Act is currently available for the issuance of the Class A Restricted Voting Shares or Class B Non-Voting Shares issuable upon conversion of the First Preferred Shares or Second Preferred Shares (or any First Notes or Second Notes). With respect to the Warrants, the Registrant has filed this registration statement with the Commission in respect of the shares issuable upon exercise of the Warrants and has agreed to use reasonable commercial efforts to have the Commission declare this registration statement effective.

The total number of securities issued by the Registrant on May 1, 2003 pursuant to exemptions from the Securities Act was as follows:

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.


	(1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:


	(i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

	(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any


	deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

	(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;


	(2) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;

	(3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and

	(4) to file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements.

The undersigned registrant hereby undertakes that, for the purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Montreal, Province of Quebec, Country of Canada, on the 22^nd day of October 2004.

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Pursuant to the requirements of Section 6(a) of the Securities Act of 1933, the undersigned has signed this registration statement, solely in the capacity of the duly authorized representative of Microcell Telecommunications Inc., in the City of Encinitas, State of California on the 22^nd day of October 2004.


*By:	/s/ JACQUES LEDUC


__________________________________
Name: Jacques Leduc Attorney-in-Fact Date: October 22, 2004


Canada	4812	Not Applicable
(State or other jurisdiction of incorporation or organization)	(Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)






Title of Each Class		Proposed Maximum	Proposed Maximum	Amount of
of Securities to be	Amount to be	Aggregate Price	Aggregate	Registration
Registered	Registered	Per Share	Offering Price	Fee(1)


Common Shares consisting of Class A Restricted Voting Shares or Class B Non-Voting Shares issuable upon exercise of Warrants 2005	4,078,268 shares	Cdn.$19.5196(2)	*Cdn.$79,606,193*	*U.S.$4,903.00*
			*(U.S.$60,604,195)*

Common Shares consisting of Class A Restricted Voting Shares or Class B Non-Voting Shares issuable upon exercise of Warrants 2008	6,797,221 shares	Cdn.$20.2843(2)	*Cdn.$137,876,981*	*U.S.$8,492.00*
			*(U.S.$104,965,746)*

Total	10,875,489 shares	N/A	*Cdn.$217,483,174*	*U.S.$13,395.00*
			*(U.S.$165,569,940.37)*


	Page

Prospectus Summary		1
Summary Financial Information and Operating Data		5
Risk Factors		7
Use of Proceeds		14
Price Range of Class B Non-Voting Shares		15
Dividend Policy		19
Consolidated Capitalization		20
Selected Financial Data		23
Exchange Rate Data		25
Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Quantitative and Qualitative Disclosure About Market Risk		75
About Microcell Telecommunications Inc.		78
Management		104
Principal Shareholders		117
Selling Shareholders		118
Related Party Transactions		119
Forward-Looking Statements		119
Certificate and Articles of Incorporation		120
Material Contracts		134
Exchange Controls		135
Taxation		136
Documents on Display		140
Service of Process and Enforcement of Civil Liabilities		140
Plan of Distribution		140
Legal Matters		142
Experts		142
Where You Can Find More Information		142
Index to Financial Statements		F-1
Consent of Ernst & Young



							Nasdaq or OTC Bulletin Board
	TSX Price Range						Price Range

	(Cdn.$)		(Cdn.$)		(000s)		(U.S.$)		(U.S.$)		(000s)
	High		Low		Volume		High		Low		Volume

1998		14.00		7.30		20,780		9.625		4.6875		16,430
1999		47.50		9.40		24,080		32.875		6.1875		52,960
2000		77.50		25.45		11,150		54.25		15.75		56,020
2001		38.66		1.34		100,430		25.625		0.82		48,300
2002		3.89		0.055		278,660		2.46		0.032		25,210
2001
First quarter		38.66		17.60		6,490		25.625		11.125		9,120
Second quarter		17.71		10.50		12,090		11.49		6.77		16,550
Third quarter		14.41		3.24		8,860		9.40		1.96		7,090
Fourth quarter		4.30		1.34		72,990		2.64		0.82		15,540
2002
First quarter		3.89		1.78		37,520		2.46		1.15		6,270
Second quarter		2.00		0.13		88,700		1.21		0.09		11,940
Third quarter		0.25		0.055		62,950		0.15		0.038		3,430
Fourth quarter		0.20		0.06		89,490		0.12		0.032		3,570
2003
First quarter		0.185		0.085		124,180		0.115		0.054		5,451



							Nasdaq or OTC Bulletin Board
	TSX Price Range						Price Range

	(Cdn.$)		(Cdn.$)		(000s)		(U.S.$)		(U.S.$)		(000s)
	High		Low		Volume		High		Low		Volume

November 2002		0.17		0.10		34,770		0.12		0.06		1,300
December 2002		0.125		0.08		26,240		0.075		0.053		1,320
January 2003		0.185		0.125		66,170		0.11		0.075		1,930
February 2003		0.185		0.12		22,050		0.115		0.08		911
March 2003		0.15		0.085		35,960		0.10		0.054		2,610
April 2003		0.14		0.085		26,930		0.09		0.056		2,600


800 de La Gauchetière Street West, Suite 4000 Montreal, Quebec, Canada H5A 1K3 (514) 937-2121 (Address and telephone number of Registrant’s principal executive offices)		CT Corporation System 111 Eighth Avenue New York, New York 10011 (212) 894-8940 (Name, address, and telephone number of agent for service)


Jocelyn Côté, Esq. Microcell Telecommunications Inc. 800 de La Gauchetière Street West, Suite 4000 Montreal, Quebec H5A 1K3 (514) 937-2121		David P. Falck, Esq. Pillsbury Winthrop LLP One Battery Park Plaza New York, New York 10004-1490 (212) 858-1000


	•	Microcell Solutions Inc., which we refer to as Solutions, and which owns our personal communication services network and retails personal communication services under the Fido brand name;

	•	Inukshuk Internet Inc., a company selected to be awarded multipoint communications systems licenses by Industry Canada in the spring of 2000 that cover some 30 million people in Canada. On November 19, 2003, Inukshuk announced arrangements with third parties to advance the multipoint communications systems project.


					Approximate		TSX Closing
			Issued and		number of		Price
	TSX Trading		Outstanding		registered and		October 21, 2004
Security	Symbol		June 30, 2004		beneficial holders		Cdn $

First preferred voting shares		MT.PR.A		—		—		—
First preferred Non-voting shares		MT.PR.B		—		—		—
Second preferred voting shares		MT.PR.C		—		—		—
Second preferred Non-voting shares		MT.PR.D		—		—		—
Class A restricted voting shares		MT.A		183,340		50		35.26
Class B non-voting shares		MT.B		29,131,974		3,600		34.75
Warrants 2005		MT.WT.A		3,998,302		10,250		15.48
Warrants 2008		MT.WT.B		6,663,943		12,600		14.80
Warrants		n/a		3,977,272		1		n/a



	TSX
	Price Range for April 2004

	(Cdn.$)		(Cdn.$)		(000s)
	High		Low		Volume

First preferred voting shares		24.20		22.53		15
First preferred Non-voting shares		24.90		24.00		56
Second preferred voting shares		25.20		25.20		0
Second preferred Non-voting shares		25.01		22.68		74
Class A restricted voting shares		25.00		22.60		11
Class B non-voting shares		25.00		22.99		1,908
Warrants 2005		6.12		4.00		186
Warrants 2008		7.30		6.10		189



	TSX
	Price Range for May 2004

	(Cdn.$)		(Cdn.$)		(000s)
	High		Low		Volume

Class A restricted voting shares		32.20		21.00		137
Class B non-voting shares		32.25		21.01		18,833
Warrants 2005		12.98		3.40		2,950
Warrants 2008		12.29		5.20		3,539



	TSX
	Price Range for June 2004

	(Cdn.$)		(Cdn.$)		(000s)
	High		Low		Volume

Class A restricted voting shares		32.75		32.03		44
Class B non-voting shares		32.90		31.80		3,441
Warrants 2005		13.42		12.41		409
Warrants 2008		12.70		11.85		1,612



	TSX
	Price Range for July 2004

	(Cdn.$)		(Cdn.$)		(000s)
	High		Low		Volume

Class A restricted voting shares		32.20		30.85		8
Class B non-voting shares		32.00		31.15		2,279
Warrants 2005		12.75		11.50		315
Warrants 2008		11.80		10.80		335



	TSX
	Price Range for August 2004

	(Cdn.$)		(Cdn.$)		(000s)
	High		Low		Volume

Class A restricted voting shares		30.96		29.00		21
Class B non-voting shares		31.15		29.44		3,559
Warrants 2005		11.52		9.69		270
Warrants 2008		10.85		8.91		261



	TSX
	Price Range for September 2004

	(Cdn.$)		(Cdn.$)		(000s)
	High		Low		Volume

Class A restricted voting shares		35.54		30.90		18
Class B non-voting shares		35.63		31.06		17,473
Warrants 2005		16.20		11.35		298
Warrants 2008		15.50		10.60		1,315


	*Microcell New Shares & Warrants*



	Conversion rate per $1,000 principal amount at maturity

	Second preferred		Class A restricted		Class B
	non-voting shares		voting shares		non-voting shares		Warrants 2005		Warrants 2008

2006 Notes		3.9710		0.0331		3.9473		1.4662		2.4437
2007 Notes		2.5677		0.0214		2.5524		0.9481		1.5802
2009 Notes		3.1026		0.0259		3.0841		1.1456		1.9093


	*Amendment and Restatement to our Credit Facilities*


	*Rights Offering*


	As at
	August 31, 2004

	(in thousands of
	Canadian dollars)
Secured debt (current portion)		12,000
Secured debt (long-term portion)		378,750
Other debt(1)		16,159

Total debt		406,909

Shareholders’ equity
Class A restricted voting shares (200,669 shares outstanding as at August 31, 2004)(3)		3,096
Class B non-voting shares (29,518,545 shares outstanding as at August 31, 2004)(2)(3)		482,384
Warrants 2005 (3,998,302 warrants as at August 31, 2004)		4,598
Warrants 2008 (6,663,943 warrants as at August 31, 2004)		13,328
Warrants (3,977,272 warrants as at August 31, 2004)		11,276
Contributed surplus(4)		4,536
Deficit(3)(4) (as at June 30, 2004)		(44,602	)

Total shareholders’ equity		474,616

Total capitalization		881,525


Year ended December 31,	Average Rate(1)

	(per Cdn.$1.00)
1999		0.6746
2000		0.6726
2001		0.6446
2002		0.6370
2003		0.7136


Three months ended June 30,	Average Rate(1)

	(per Cdn.$1.00)
2003		0.7215
2004		0.7357


Six months ended June 30,	Average Rate(1)

	(per Cdn.$1.00)
2003		0.6921
2004		0.7490


Previous six months	High		Low


	(per Cdn.$1.00)
April 2004		0.7637		0.7293
May 2004		0.7364		0.7158
June 2004		0.7459		0.7261
July 2004		0.7644		0.7489
August 2004		0.7714		0.7506
September 2004		0.7906		0.7651



		Three months ended						Six months ended
		June 30						June 30

		2004			2003			2004			2003

		$			$			$			$
Revenues			161,414			139,670			306,690			273,185
Operating income (loss)			6,878			6,893			5,299			(8,501	)
Income (loss) before income taxes			(10,742	)		34,113			(24,973	)		69,974
Net income (loss)			(11,228	)		25,210			(25,945	)		60,474
Net loss applicable to Class A and Class B Shares			(11,237	)		n/a			(31,129	)		n/a
Basic and diluted loss per share [in dollars]			(0.46	)		n/a			(2.14	)		n/a
OIBDA[3]			25,699			32,800			43,109			62,121
Capital expenditures			84,632			12,719			159,612			16,007
Total assets [end of period]			1,058,652			792,654			1,058,652			792,654
Long-term debt [end of period]			396,940			334,102			396,940			334,102
Cash dividends declared			nil			nil			nil			nil

Other data:
ARPU [in dollars]
	Postpaid[4]	$	62.48		$	60.11		$	60.20		$	59.04
	Prepaid[5]	$	18.84		$	20.49	[2]	$	17.17		$	19.55	[2]
	Blended[6]	$	41.82		$	38.63	[2]	$	38.78		$	37.68	[2]
COA [in dollars]		$	253		$	261		$	269		$	275
Blended churn			3.5	%[1]		3.3	%		3.2	%[1]		3.3	%

Net retail subscriber additions
Postpaid			45,923			(10,388	)		59,281			(41,465	)
Prepaid			(29,271	)[1]		(17,765	)		(30,263	)[1]		(26,623	)

Total			16,652			(28,153	)		29,018			(68,088	)

Total retail subscribers, end of period
Postpaid			651,461			503,596			651,461			503,596
Prepaid			547,860	[1]		592,836			547,860	[1]		592,836

Total			1,199,321			1,096,432			1,199,321			1,096,432


							[Pre-reorganization]
	Three months			Two months						Three months
	ended			ended			One month ended			ended
	June 30			June 30			April 30			June 30
	2004			2003			2003			2003

	$			$			$			$
Net income (loss)		(11,228	)		14,957			10,253			25,210
Income tax expense		486			7,704			1,199			8,903
Share of net loss in investees		882			—			—			—
Gain on investments, marketable securities and other assets		(7	)		(19	)		(266	)		(285	)
Foreign exchange loss (gain)		7,804			(13,696	)		(33,391	)		(47,087	)
Interest expense		9,563			4,444			17,322			21,766
Interest income		(622	)		(1,059	)		(555	)		(1,614	)

Operating income (loss)		6,878			12,331			(5,438	)		6,893
Depreciation and amortization		18,821			11,234			14,673			25,907

OIBDA		25,699			23,565			9,235			32,800


	[in thousands of Canadian dollars, unless otherwise indicated]


	Three months			Two months			One month			Three months
	ended			ended			ended			ended
	June 30			June 30			April 30			June 30
	2004			2003			2003			2003

	$			$			$			$
Service revenues for the period		147,359			87,663			41,956			129,619
Non-postpaid revenues included in service revenues		(33,470	)		(26,226	)		(12,190	)		(38,416	)

Postpaid revenues		113,889			61,437			29,766			91,203
Average number of subscribers		1,869			1,010			511			1,521

Average monthly service revenue per user [in dollars]	$	60.94		$	60.83		$	58.25		$	59.96
Net impact of promotions, deferred revenues and other	$	1.54		$	0.05		$	0.35		$	0.15

Postpaid ARPU	$	62.48		$	60.88		$	58.60		$	60.11


	Six months			Two months			Four month			Six months
	ended			ended			ended			ended
	June 30			June 30			April 30			June 30
	2004			2003			2003			2003

	$			$			$			$
Service revenues for the period		282,254			87,663			170,196			257,859
Non-postpaid revenues included in service revenues		(65,845	)		(26,226	)		(48,782	)		(75,008	)

Postpaid revenues		216,409			61,437			121,414			182,851
Average number of subscribers		3,679			1,010			2,090			3,100

Average monthly service revenue per user [in dollars]	$	58.82		$	60.83		$	58.09		$	58.98
Net impact of promotions, deferred revenues and other	$	1.38		$	0.05		$	0.07		$	0.06

Postpaid ARPU	$	60.20		$	60.88		$	58.16		$	59.04


	*Three- and six-month periods ended June 30, 2004, compared with three- and six-month periods ended June 30, 2003.*


	*Quarterly data (in millions of Canadian dollars, except for per-share data)*



	Post-reorganization


	2003						2004

	Q3			Q4			Q1			Q2

	$			$			$			$
Revenues		146.2			151.4			145.3			161.4
Net loss applicable to Class A and Class B shares		(5.1	)		(17.8	)		(19.9	)		(11.2	)
Basic and diluted loss per share		(1.35	)		(4.42	)		(4.02	)		(0.46	)[1]


											Post-
	Pre-reorganization										reorganization


	2002						2003


									Q2

	Q3			Q4			Q1		April		May & June

	$			$			$		$		$
Revenues		154.5			150.8			133.5		44.2		95.5
Net income (loss) applicable to Class A and Class B shares		(152.3	)		(123.7	)		35.3		10.3		10.7
Basic earnings (loss) per share		(0.63	)		(0.51	)		0.15		0.04		2.92
Diluted earnings (loss) per share		(0.63	)		(0.51	)		0.15		0.04		0.66


	Year ended December 31, 2003 compared with year ended December 31, 2002. As a result of “fresh start” accounting, certain financial and operating results have also been presented on a pre- and post- reorganization basis, where appropriate.


	*Quarterly data [in millions of Canadian dollars, except for per-share data]*



	Year ended December 31, 2003 [unaudited]


	Pre-
	reorganization				Post-reorganization


			Q2

	Q1		April		May & June		Q3			Q4

	$		$		$		$			$
Revenues		133.5		44.2		95.5		146.2			151.4
Net income (loss) applicable to Class A and class B non-voting shares		35.3		10.3		10.7		(5.1	)		(17.8	)
Basic earnings (loss) per share		0.15		0.04		2.92		(1.35	)		(4.42	)
Diluted earnings (loss) per share		0.15		0.04		0.66		(1.35	)		(4.42	)



	Year ended December 31, 2002 [unaudited]


	Pre-reorganization

	Q1			Q2			Q3			Q4

	$			$			$			$
Revenues		140.1			145.7			154.5			150.8
Net loss		(95.3	)		(199.2	)		(152.3	)		(123.7	)
Basic and diluted loss per share		(0.40	)		(0.83	)		(0.63	)		(0.51	)


	Eight months		Four months		Twelve months		Twelve months
	ended		ended		ended		ended
	December 31		April 30		December 31		December 31
	2003		2003		2003		2002

	$		$		$		$
Services		357.5		170.2		527.7		566.7
Equipment sales		35.6		7.5		43.1		24.4

Revenues		393.1		177.7		570.8		591.1


	*Costs and operating expenses [in millions of Canadian dollars]*