MONTREAL - Regional telecom operator Bell Aliant wants to increase the number of TV subscribers and its revenues with a $350-million expansion to the Atlantic phone company's advanced broadband network in 2011 and 2012.

Halifax-based Bell Aliant has about 37,000 TV customers and expanding its fibre optic-to-the-home network will help "dramatically accelerate" subscribers, president and CEO Karen Sheriff said Wednesday, a day after the company reported slightly lower quarterly profits.

"It a very cost effective thing for us to build and it gives us the opportunity for revenue growth," Sheriff said in an interview.

"It does that because it lets us pretty significantly expand our television footprint, to offer television to way more people than we do today because it's an IPTV (Internet-based) solution," she said.

The fibre optic network allows faster downloads of data such as music or movies and the ability to share video and photos faster. It is also used for digital TV services such as high definition television and high-speed Internet.

Sheriff said the high-bandwidth network allows users to watch HD TV and download large Internet files at the same time, for example, and it wont' "impact" its performance.

"It will allow us to support the growing bandwidth of our customers out through time."

The network expansion should also increase high-speed Internet subscribers, she added.

By the end of 2012, more than 600,000 homes and businesses will have access to the advanced broadband network, Bell Aliant said.

Sheriff said some of the network expansion will be in Central Canada but added that she couldn't give geographic locations for competitive reasons.

Bell Aliant Regional Communications Income Fund (TSX.BA.UN) has already said it will spend about $95 million by the end of this year to expand the fibre optic network to about 140,000 homes and businesses, primarily in New Brunswick.

The Halifax-based company competes with cable and telecom operator Eastlink, Quebec's Videotron (TSX:QBR.B) and Rogers Communications Inc. (TSX:RCI.B) in Atlantic Canada and in Ontario and Quebec.

Sheriff said she expects broadband to be the main driver of Bell Aliant's growth for about the next five years.

The network expansion will primarily done via Bell Aliant's aerial network where it has telephone poles because it's less expensive than putting it underground and also cheaper to maintain, she said.

RBC Capital Markets analyst Jonathan Allen wrote in a note to clients that the network expansion is a "prudent move" for Bell Aliant.

He said it helps Bell Aliant remain competitive in cable TV and expands its IPTV service, as well as reducing future maintenance costs.

Bell Aliant, partly owned by BCE Inc. (TSX:BCE) has also announced it will cut its distributions to unit holders at the beginning of next year after it converts to a corporate structure.

Chief financial officer Glen Leblanc said Bell Aliant had no choice but to cut its distributions when it converts to a corporation because it will face a tax bill of between $130 million to $140 million on Jan. 1, 2011.

The fund will pay $1.90 per share when it converts to a corporation, down from distributions at the current annual rate of $2.90 per unit through the balance of 2010.

Leblanc said the change will represent a 7.5 per cent dividend yield.

Allen said there is potential for modest dividend growth down the road.

"We believe a dividend increase from $1.90 to $2.00 in 2013 is possible (73% pay out) with five per cent growth in the years beyond," he wrote.

Bell Aliant unit holders are expected to vote on a conversion to a corporate structure at the fund's annual meeting on June 16.

The fund reported Tuesday a first-quarter profit of $63.2 million in its latest quarter or 48 cents per diluted unit for the quarter ended March 31. That compared with a profit of $66 million or 51 cents per diluted unit a year ago.

The fund's operating company, Bell Aliant Regional Communications Holdings LP, earned $778.6 million in revenue, down from $818.3 million a year ago.

In trading on the TSX, Bell Aliant units rose 39 cents to close at $25.58, a gain of 1.6 per cent.

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