In a deal tagged at $275 million, Bell Canada Enterprises Inc. (BCE) announced in May it has agreed to purchase the Canadian assets of Vancouver-based 360networks Corp., including the assets of 360’s subsidiary, GT Group Telecom Services Corp.
Under the deal — which is set to close by September 2004 — Bell said it plans to keep 360’s business, facilities and customer base in Western Canada, but has opted to sell off portions of the retail customer operations and some network assets in the eastern part of the country including Ontario, Quebec and Atlantic Canada to Call-Net Enterprises Inc.
The pieces of 360networks Bell will hold on to will operate as a division of Bell Canada but will retain the 360networks and Group Telecom brands, the company said.
While 360networks’ chairman and CEO Greg Maffei said the company is disappointed to be exiting the Canadian market, he said that being presented with an opportunity to eliminate debt was “compelling.” The company has plans to focus on developing its U.S. business which includes a long-haul network footprint and a Western U.S. regional network.
“I think it is a smart move on BCE’s part to extend territory physically but also more importantly to buy the feet on the street with that booked customer value,” said Roberta Fox, president of Markham, Ont.-based Fox Group Consulting. “Professionally I think it was bought more for the people and the booked customers than for the network. It is harder to build the organization and the customers.”
Fox said she was surprised to discover Bell plans to sell aspects of 360networks to Call-Net. She said it is likely a move to reduce the amount of capital BCE has to borrow to purchase 360.
According to Mark Quigley, senior telecom analyst with Ottawa-based The Yankee Group Canada, the whole deal sheds light on a positive future for Bell.
“(BCE) gets some kind of customer base out West — about 1,000 customers or so — which helps build their presence and brand equity,” he explained. “But, most important is this buy gives them network assets in Vancouver, Calgary, Winnipeg and that is vital. They now have gobs of fibre going into a number of buildings in those centres. They don’t have to rely on Telus for any wholesale action at all.”
Quigley said that a major point that was overlooked by the industry is Bell’s new presence in Manitoba as a result of the buy. Bell recently contested the purchase of Allstream Inc. by Manitoba Telecom Services Inc. (MTS). MTS announced it would purchase Allstream in April. With its new presence in Manitoba, Bell, which owns 21 per cent of MTS, now has the ability to compete with the carrier directly in MTS’s territory.
“At the end of the day, MTS enjoys about $850 million revenue from business in Manitoba,” Quigley said. “For Bell to have some kind of networked access there gives them the ability to go in and offer services to business and potentially consumers in that market. Without that they have to rely on MTS for the wholesale part of it.”
Brownlee Thomas, senior industry analyst with Forrester Research Inc. in Montreal, agreed with Fox’s suspicions that BCE is looking at selling its newly acquired assets to Call-Net as a cost recovery.
In terms of the deal itself, Thomas said she thinks a smart move has been made by all parties.
“Canada is a very small market,” she explained. “In the U.S. market, it is a lot easier to make the same revenues at a lot less expense. Canada buyers are more conservative, the sell cycle is longer and this conservatism leads to looking around and saying ‘Do we really want to take a risk with smaller players?’ I am a bit surprised that 360 just clued in that they were not able to work in this tiny market.”
Yankee’s Quigley agreed and said since 360 was not receiving the traction it was looking for from customers nor the exposure the company needed, there was little choice but to bow out of the market.
At press time, 360networks was advising customers to continue working with their contacts within 360networks and Group Telecom for inquiries regarding product, service, billing and technical issues.
Early this month Bell Canada announced a separate acquisition of Richmond Hill, Ont.-based Infostream Technologies, a provider of turnkey and networking solutions for Voice over IP (VoIP), storage area networks (SANs) and network management services for enterprise customers.
The purchase enables Bell to round out its offering of end-to-end enterprise communications services, as well as offer the storage and management of voice, data, image and video in wireless and wireline environments
“If you look at Bell Canada from a holistic perspective, they are spending more time and effort exploring the whole world of managed services,” Quigley said. “The realization is there that if they don’t do that, perhaps they then get relegated to the role of just providing pipe in the door. I think this may be part of that philosophy that they have to explore the market.”