Rogers buys into young CLEC

Rogers Communications Inc. has invested $26 million into a young CLEC that has made a name for itself by linking new residential developments in suburbs near Toronto with high speed fibre optic lines, at the exclusion of giant carriers Bell Canada and Shaw Communications Inc.

The deal is part of a $60 million financing Richmond Hill, Ont.’s Futureway Communications Inc. recently completed with several parties. Rogers officials said the deal gives the company about 20 per cent equity in Futureway, as well as 15 years of access to any new fibre laid by the one-year-old carrier (which is affiliated with a residential developer) in greenfield developments.

Both companies also announced a renewable short-term strategic partnership that will see Rogers use Futureway’s fibre to offer customers digital television and high speed Internet services, while Futureway will stick to selling telephony services.

Earlier this year, Futureway gained notoriety after the CRTC ruled its residential development arm did not have to grant right-of-ways that would allow Shaw and Bell to build lines to customers. At the time, Futureway was highly critical of the two carriers for not wanting to take the financial risk of building higher capacity fibre lines to residential customers. In March, Rogers obtained Shaw’s suburban Toronto territories in a swap of assets.

Iain Grant, an analyst with the Yankee Group in Canada in Brockville, Ont., said Rogers’ investment in Futureway was a clever way for the company to deflect criticism.

“It’s an interesting play (for Rogers),” he explained. “A company (Futureway) that has been critical of you and Bell will probably now be more focused in its criticism of the incumbent carrier. That is, they’ll stop saying nasty things about you.”

Len Katz, the national vice-president of sales for Rogers Cable, Inc., a division of Rogers Communications, said the company was eager to access Futureway’s fibre rather than building its own cable co-ax lines because it reduces its time to market.

“We spend more than half a billion dollars a year in capital,” he said. “But the issue isn’t the capital, the issue is timing and build schedules. Leveraging Futureway’s network offers opportunities to get to customers sooner and faster.”

Futureway’s president and CEO, Steven McCartney, said customers in his company’s residential developments share a 10Mbps pipe between eight homes.

“So it’s very possible, that if you’re the only one of the eight (homes that subscribers to the high speed Internet service), you’ve got 10Mbps,” he said. Currently, Futureway passes 3,700 homes and has 1,000 customers actively on-line. The company expects that number to jump to 2,800 by year’s end.

Katz said the decision to effectively lease Futureway’s lines will be transparent to Rogers’ customers, and they will not have to pay a premium for the fibre-based services. However, he did say Rogers was keenly interested in finding out whether Futureway can remain profitable building fibre to the front door.

“I think fibre is still in its evolutionary stages with regard to cable,” he said. “Certainly on the telephony side, fibre has worked and is working well, but I think it’s still unproven on the video broadband side…from a financial perspective.”

McCartney dismissed speculation that Rogers, which is planning to release its own voice-services plan sometime in the new year, might want to use Futureway’s fibre to provide local and long distance telephone services to customers.

“One of the things that we agreed was in those environments where the deal applies, we won’t compete with each other,” McCartney said. “We’ll get to do the phone stuff, they get to do the other stuff (DTV and high-speed Internet).”

Katz agreed, but said Rogers would not be “precluded from doing what we think is right with customers.”