The telecom boom and bust cycle repeats itself

While researching an article on Allstream president John A. MacDonald, your Network World editor took a trip down memory lane.

MacDonald, who was president and chief operating officer at Bell Canada in 1999 and took the helm of Allstream (then called AT&T Canada) in 2002, is scheduled to retire Dec. 1.

Back in 1996, when you couldn’t hook a cell phone on your belt without looking like Batman, Bell Canada put an ad, in the form of a huge mural, on the wall of a building on the north side of Adelaide St. west of Yonge St. in Toronto. The ad had tick marks for everyone who had switched back to Bell Canada from their alternative long-distance provider. At the time, Bell was running into serious competition from alternative long-distance providers, after spending more than a century enjoying a virtual monopoly.

But over the next couple of years, local competition – along with carriers such as MetroNet, Call-Net and Group Telecom – were launched in Canada. It wasn’t long before MetroNet merged with AT&T Canada, which also picked up Internet service provider Netcom.

From the perspective of a tech journalist, the year 2000 seemed like a gold rush for CLECs. It was difficult to go more than a few days without getting a press briefing from a new CLEC offering either facilities-based services, reselling the incumbents’ service or offering voice over DSL. But there were storm clouds on the horizon as early as 1999, when Call-Net president Juri Koor resigned after an institutional shareholder tried to impose a sale of assets. At the time, Call-Net’s debt was $2.2 billion.

AT&T Canada’s debt was nearly double that in the summer of 2002, shortly after John MacDonald was hired. Like Call-Net, AT&T Canada was forced to restructure its debt, and emerged as Allstream, to reflect that fact that AT&T Corp. no longer had a controlling interest. MacDonald had an impressive resume as former president of Bell Canada and years of experience at NBTel.

Since MacDonald took over, Allstream has found a niche as the enterprise division of Manitoba Telecom Services, offering voice and data services to major Canadian companies.

Now that technologies like High-Speed Packet Access and EV-DO are providing a wireless alternative to wireline voice and data services, it remains to be seen whether the spectrum auctions will spawn a new gold rush. Shaw, Videotron, Globalive, Data and Audio-Visual Entertainment and others spent more than $4 billion last summer to buy spectrum licences, intended to provide greater competition for users.  All they get for that $4 billion is permission from our political masters for their customers to use certain frequencies for calls. That’s before spending a single cent on towers, networks, marketing, call centres or public relations agencies to hound yours truly for press coverage.

The intent of this auction, with frequencies reserved for new entrants, is to apply intense pressure to keep prices low, will they accumulate debt and end up dying or getting acquired by the big boys? We’ll see in a few years.

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