Bell AI Fabric spending is now the biggest single reason BCE Inc.'s (TSX:BCE) free Cash Flow has fallen. It has pushed Capital spending up sharply as a share of Revenue and narrowed the Margin by which cash flow covers the $1.75 annual dividend. BCE's third-quarter 2026 report, released November 5, showed capital intensity of 21.5 per cent, up from 14.7 per cent a year earlier, and free cash flow down 14.9 per cent to $854 million. Capital intensity excluding Bell AI Fabric and Ziply Fiber was below 12 per cent.

How Bell AI Fabric Changed BCE's 2026 Plan

The shift dates to March 16, 2026, when Bell announced a 300-megawatt AI data centre in the Rural Municipality of Sherwood, just outside Regina. Cerebras and CoreWeave were named as tenants. The project carries about $1.7 billion of incremental capital expenditure, about $1.3 billion of it in 2026, funded with Debt and cash on hand. Construction began in spring 2026, and the first stage is expected in the first half of 2027.

On the same day, BCE raised its 2026 capital intensity guidance to about 20 per cent from under 15 per cent. It cut 2026 free cash flow guidance to $2.1 billion to $2.3 billion, a decline of 28 to 34 per cent, from $3.3 billion to $3.5 billion. Revenue, adjusted EBITDA, adjusted Earnings Per Share and the $1.75 Dividend guidance were unchanged. BCE also raised its 2025 to 2028 outlook, lifting its free cash flow compound annual growth target to about 8.5 per cent from about seven per cent, and its 2028 AI-powered solutions revenue objective to about $2 billion from about $1.5 billion.

What the Third Quarter Showed

BCE's third-quarter Operating Revenue rose 2.2 per cent to $6,182 million and adjusted EBITDA rose 0.9 per cent to $2,786 million. Cash flow from operations increased 15.9 per cent to $2,218 million, but capital expenditures jumped 49.3 per cent to $1,330 million. As a result, free cash flow fell. Adjusted earnings per share declined 6.3 per cent to $0.74.

Bell Media was a bright spot, with revenue up 9.7 per cent to $803 million and Crave subscriptions up 21 per cent to 5.15 million. Postpaid mobile churn improved to 1.06 per cent. The U.S. fibre business, Ziply Fiber, contributed $238 million of revenue but used $225 million of U.S. capital in the quarter.

BCE expects total 2026 capital spending of about $5 billion, weighted towards the fourth quarter. Management said Bell AI Fabric could become a Business with more than $500 million of EBITDA, with the first data hall online in the first half of 2027 and all halls running by the end of that year. BCE also signed a non-binding memorandum of understanding to explore up to 900 megawatts of additional capacity in Saskatchewan, which it said could take total capacity to 1.2 gigawatts. It has not disclosed any financial impact.

Where the Dividend Stands

BCE declared a quarterly dividend of $0.4375 per common share, payable January 15, 2027, to shareholders of record on December 15, 2026. That works out to $1.75 a year, the level set on May 8, 2025, when BCE cut its annual dividend from $3.99. The quarterly payment is about 59 per cent of third-quarter adjusted earnings per share of $0.74.

The more relevant test for a telecom is cash. BCE has not published a full-year dividend Payout Ratio on free cash flow for 2026. With 2026 free cash flow guided at $2.1 billion to $2.3 billion, the cushion over common dividends is smaller than it was before the AI build. Once AI Fabric capital spending tapers and the data halls start generating revenue, the reverse should hold, provided contracts and timelines hold.

Debt, Asset Sales and Other Financial Moves

Leverage is the other constraint. Management told analysts net debt Leverage was about 3.7 times at the end of the third quarter, with a target of 3.5 times by the end of 2027. Chief executive Mirko Bibic said in the release, "Our commitment to 3.5x net debt leverage by the end of 2027 remains unchanged." BCE said the Saskatchewan project should be leverage-neutral on a run-rate adjusted EBITDA basis and is targeting about 3.0 times by 2030.

After the quarter, BCE agreed to sell a 49.9 per cent stake in a newly formed wireless tower company to La Caisse for $2.45 billion, with closing expected in the first quarter of 2027, and will keep control of the business. Management also said BCE remains on track for $7 billion of proceeds from non-core divestitures.

Risks and What to Watch

The main risks are about execution. Data centre timelines depend on power, construction and equipment delivery, and returns depend on tenants honouring contracts. BCE says it builds only after contracts are signed and uses Credit protections such as letters of credit and prepayments, but concentration on a small number of AI customers could still be a risk if Demand for compute cools. In the core business, mobile blended ARPU fell 1.7 per cent and high-speed internet subscribers declined 2.1 per cent, so competition and regulation continue to put pressure on the Canadian base.

BCE trades on the Toronto Stock Exchange and the New York Stock Exchange under BCE. Key checkpoints are fourth-quarter capital spending against the roughly $5 billion plan, the closing of the tower stake sale, the first AI Fabric data hall coming online in 2027, and BCE's 2027 guidance, expected with full-year results.

Conclusion

Bell AI Fabric has turned BCE into a heavier capital spender in 2026. It has pushed capital intensity above 20 per cent and cut free cash flow guidance by about a third, while BCE has kept the $1.75 dividend unchanged. Asset sales, including the $2.45 billion tower deal, and the expected AI revenue ramp in 2027 are the main supports for the dividend and leverage targets. Whether coverage improves will depend on BCE delivering the data centres on time and to contract.