For sale: Toronto Hydro Telecom

If someone ends up buying Toronto Hydro Telecom, the new owner may want to separate the downtown wireless network from the city-wide fibre optic infrastructure, according to one telecommunications industry analyst.

“I imagine some people would be interested in the Wi-Fi and some people would be interested just in the fibre optics,” said Eamon Hoey, senior partner at Toronto-based Hoey Associates Management Consultants Inc.

Toronto Hydro Corp, the city-owned electrical power distribution company, announced this week it is looking for a buyer for its telecom unit. On Tuesday, Toronto Hydro Corp. said it intends to “solicit expressions of interest from third parties” for a “possible sale” of Toronto Hydro Telecom. Officials at the parent company emphasized this does not mean for sure that the telecom subsidiary will be sold to the private sector.

“There has been no decision to sell,” Toronto Hydro vice-president Blair Perbedy wrote in an e-mail to ComputerWorld Canada. “This process may not result in the sale of the company.”

With more than 500 kilometres of fibre optic cabling, Toronto Hydro Telecom operates a variety of networking services, including Internet access, private lines, metropolitan Ethernet, storage and security. Last year, for example, it launched Managed Firewall, a hosted service designed to protect companies from denial of service attacks. It also recently rolled out Managed Wave, a metropolitan networking service that moves traffic at speeds of up to 10 Gigabits per second (Gbps). On the wireless side, Toronto Hydro Telecom operates One Zone, which is comprised of wireless access points mounted on light poles giving coverage to six square kilometres of the downtown core. The network uses the Institute of Electrical and Electronics Engineers 802.11 protocol, also known as Wi-Fi, which transfers content at rates of up to 54 Megabits per second (Mbps) at distances of up to 100 metres.

“There are two parts to their network,” Hoey said. “One is the wireless Wi-Fi and then the other part to their network is the fibre optics, and they’re separable. You could sever them if you wanted to.”

He added if an incumbent carrier bought either the Wi-Fi or fibre optic network, it would reduce competition in the telecom space. “Depending on who gets it, there could be a lessening of competition in my view,” Hoey said. “All you have to do is look at Fido and if anybody who thinks that knocking off Fido didn’t lessen competition, then I have a bridge to sell them.”

Potential buyers include a wide range of carriers, including Bell Canada, MTS Allstream, Telus Corp. and Rogers Communications Inc., according to the SeaBoard Group, a Toronto-based market research firm.

In a report titled “The Race is On: Toronto Hydro Puts Toronto Hydro Telecom on the Block,” Seaboard speculated Bell (which itself faces a takeover from a teachers’ pension fund) will offer to buy Toronto Hydro Telecom, partly out of fear a rival like Telus Corp. of Burnaby, B.C. might snag it. SeaBoard also expects Telus to “be a serious bidder,” and Rogers regards the One Zone wireless service as a competitor to its own wireless offerings.

“This is Rogers’ back yard,” said SeaBoard analyst Amit Kaminer. “This is revenue that they think should go to them.”

Officials from both Telus Corp. and Rogers Communications Inc. refused to comment.

Although Perbedy would not speculate on a possible price, SeaBoard predicted a sale could put up to $135 million Toronto Hydro’s pockets. Toronto City Councillor Rob Ford said he would favour a sale if it benefits taxpayers.

“If we sell it off and can make some revenue and keep the costs down for the end user, then I think that will be beneficial for everyone, but we don’t know what the outcome of this is going to be.”

Ford added he does not believe the city should be in the telecom business, and Ford isn’t the only one with this view, Hoey said.

“I think it seriously puts into question the city owning assets like Toronto Hydro Telecom,” Hoey said. “There are many people in Toronto who are violently opposed to the city being in any businesses, including hydro distribution. Here we have a hydro distribution system that has about 700,000 connections and each one of those connections is worth, in my view, about $3,000 to $4,000 and yet the city mayor is walking around crying poor when he’s got all kinds of assets sitting around.”

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