Bell’s future still unclear

In the middle of last month’s frenzied bidding war for Bell Canada, telecommunications consultant Roberta Fox decided to do something she thought was simple: cancel her Bell fax line and move it to another circuit.

She’d ordered similar switching when working for an IT company several years ago and the move took about an hour. But this time “it took me five hours talking to 11 people,” she said – not including the time it took to undo a mistake she made Bell employees overlooked. That error would have not only cut the fax line but also her Mount Albert, Ont., company’s high-speed Internet access.

She blames the experience, which she called “bloody awful,” partly on the uncertainty in the Bell sale for distracting employees in their work.

“There has already been a customer service effect because (Bell) people don’t know what the future is,” she maintains.

But whether the $51.7-billion sale to a private equity group lead by the Ontario Teachers Pension Plan finally makes the utility an efficient and competitive telecommunications force across the country isn’t clear.

While industry analysts note a privately held Bell not worried about quarterly reports to shareholders could spend more freely and creatively, it will be saddled with billions in debt the Teachers’ group borrowed to pay for the acquisition.

The deal still has to be approved by shareholders and regulators, which the parties expect could take six months. In addition, at press time there was speculation Telus or another of the private equity groups would make a counter bid and Teachers has yet to publicly spell out its plans for reforming Bell.

Deborah Allan, Teachers’ director of communications and media planning, said her group had a “fundamental plan” when it made its offer. “Now we will get down to brass tacks on strategic business planning, but to share competitive information (publicly) like that would not be very prudent.”

There will be private discussions on strategy with some customers, she added, but couldn’t say when.

Some industry analysts, including Fox, believe that until the Bell ownership situation settles, telecommunications services buyers may be leery of signing long-term contracts with the utility.

“This type of uncertainty makes it difficult to win new customers and hold on to existing ones,” said Josh Holbrook, an analyst who specializes in enterprise telecommunications services at the Yankee Group.

Analysts also believe competitors from MTS Allstream and Rogers Communications down to smaller service providers might pick up business from jittery buyers who either want to temporarily avoid Bell altogether, or at least spread some of their service purchases around.

On the other hand, Don Conaby, president of Oshawa, Ont., infrastructure and wireless integrator Conpute, which resells Bell services, said the headlines about the sale have been a “non-event” among his customers, who are largely small and mid-sized organizations.

“There doesn’t seem to be a lot of concern,” among them, he said. “It’s basically wait and see. I think the expectations are its going to be business as usual regardless of what organization picks them (Bell) up, because it’s still a highly-regulated industry.”

That wild week in June when Telus was officially in the running did more than push Bell onto the front pages of the nation’s dailies with talk of the possibility of a “Bellus” telecommunications monopoly. Industry analysts also thought the fortunes of MTS and Rogers immediately brightened because many organizations would turn to them to spread their telecommunications risks as the second biggest provider depending on the part of the country.

Nor, observers said, was Telus’ departure good news for customers. While most felt a Telus-Bell merger would have meant the prices of its products and services wouldn’t be as competitive as they are now, a Bell burdened by debt from a private equity buyout shouldn’t be cheered by telecommunications services buyers.

“This is probably not good news for them,” said analyst Iain Grant of the SeaBoard Group. “A Bell which is highly leveraged is a Bell which won’t have the ability to invest in newer technologies. It will be a Bell very interested in the highest possible margin, and I would see prices going up and service levels going down.”

However, Holbrook says it’s equally possible a private owner will invest in longer-term initiatives than Bell did when it was a publicly-traded company.

If it comes to slash and burn, Fox believes first to be cut by the new owners will be Bell’s X25 packet technology, used by retailers for dialup point-of-sales systems (which, she said, Bell has been urging customers to convert to high-speed service for several years) and its Data Route digital data radio offering, used by financial institutions in rural areas. Even if Telus bought the company these would be in danger, she said, but private equity owners will dump them faster.

On the other hand, they may also want to sell off Bell’s local loop infrastructure, Fox said, which may not have much book value but would be of tremendous interest to Telus as it would bring it the so-called last-mile to customers.

As for what telecom buyers should be doing until the dust settles, Fox, Holbrook and Grant suggest caution.

Any new Bell buyer could sell divisions it believes are unproductive, which will leave buyers wondering whether the new owner will continue service, or increase prices. Enterprise-sized organizations, Fox said, have the leverage when buying from Bell to ask for protection in the case a service is discontinued – say, demand a one-year extension plus an offset of out-of-pocket costs for shifting to another product. SMBs, however, don’t have such power.

But anything, including more bids, could happen.

“I’m not sure the slightly obese woman has yet sung,” said Grant.

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