By Gary Norris, The Canadian Press

TORONTO - Bell Canada parent company BCE Inc. (TSX:BCE) has reported a 46 per cent rise in first-quarter net profit to $377 million, and also announced Thursday it is buying the half-interest it does not already own in Virgin Mobile Canada.

The profit increase was attributed to rising cellphone activations and increased home Internet connections, but investors were unnerved by signs of weakness in the overall mobile phone operation, and BCE stock fell 4.5 per cent.

Canada's largest telecommunications company said it is paying $142 million in cash for the youth-oriented Virgin operation, which has been running since 2004 on the Bell Mobility network.

The deal includes a long-term licence to use the Virgin brand, and Virgin Group chairman Sir Richard Branson stated that the deal "will help to expand the Mobile business more quickly and allow even more Canadians to enjoy the unique wireless service and product experience Virgin created."

Branson said U.K.-based Virgin will continue efforts to build its brand in Canada with entertainment businesses such as Virgin rock festivals and Virgin Radio.

BCE also announced an agreement with Telus (TSX:T) under which Telus will distribute Bell satellite TV service in Alberta and British Columbia under the Telus brand. Details were not made public.

BCE's $377 million in first-quarter net income amounted to 48 cents per share, up from $258 million or 32 cents per share a year earlier. The bottom line benefited from reduced restructuring costs, which amounted to nine cents per share in the latest quarter compared with 25 cents per share a year ago. Adjusted for one-time items, earnings per share were unchanged at 57 cents.

Operating revenue dipped to $4.34 billion from $4.36 billion on declines in traditional local and long-distance phone service and equipment sales and rentals. On the positive side, Bell noted a sixth consecutive quarter of declining losses of traditional landline connections, shedding 78,000 in the first quarter compared with 106,000 a year ago.

BCE said its profit improvement was driven in part by a 25 per cent increase in postpaid wireless activations to 35,000.

Total net activations were 30,000, as Bell lost 5,000 prepaid clients, and average monthly revenue per unit slipped 80 cents to $51.52 "as aggressive pricing in the highly competitive discount segment and increased economic pressures more than offset data revenue growth of 36 per cent," BCE stated.

The number of residential Internet customers rose 2.3 per cent from the first three months of last year.

"The softer economy has led to more cautious consumer spending and reduced business investment," CEO George Cope noted.

"However, increased video, residential Internet and wireless postpaid activations and improved total revenue per household in the quarter underscored both the resiliency of much of Bell's business and the progress we're making in executing on our strategy."

BCE maintained its quarterly dividend at 38.5 cents per share, following a five per cent increase in February.

BCE shares fell $1.17 to $24.90 on the TSX, down from $40 just before the collapse late last year of the proposed $42.75-a-share leveraged buyout led by the Ontario Teachers' Pension Plan.

Cope, who took over as CEO from Michael Sabia in July, said taking full ownership of the Virgin cellphone business "will allow Bell Mobility to be uniquely flexible in the competitive wireless marketplace, maximizing network, handset, distribution and global roaming efficiencies, and enhancing the growth of the No. 1 youth brand in Canadian wireless."

Virgin Mobile Canada will continue to have distinct branding and distribution, but it and Bell Mobility "will realize enhanced operational efficiencies from shared network infrastructure, handset acquisition and common distribution in high-traffic retail locations such as The Source."

The Virgin deal follows BCE's move in March to buy The Source, a 750-store national electronics retailer, out of bankruptcy proceedings for an undisclosed sum.

BCE also said it completed a buyback of 40 million common shares between December and May at an average price of $24.65 per share. It also has arranged a new three-year $1.4-billion unsecured credit facility with a syndicate of financial institutions, and plans an early redemption in June of $650 million of 7.35 per cent notes due in October.

First-quarter capital investment was up 5.7 per cent at $482 million.