GT wins controversial Centrex deal

After a contentious regulatory battle and some unconventional marketing tactics, service provider Group Telecom Inc. (GT) has landed two contracts that add $6 million to the company’s coffers.

The Toronto-based firm in June announced it had won a contract to supply Memorial University in St. John’s, Nfld. with Centrex telephone service. As well, GT will provide the Avalon East School District (AESD), also in St. John’s, with voice and data services.

“One of the areas we try to target is educational facilities,” said Tal Bevan, GT’s president, business operations. “It gives us a sense of community, but just as importantly, because we can generally offer quality service at lower cost, [the education] market lends itself well to that kind of pricing strategy.”

The Memorial agreement, however, follows a fight involving the university, GT, Newfoundland’s incumbent telco Aliant Inc. and the Canadian Radio-television and Telecommunications Commission (CRTC).

According to a document from the CRTC (Telecom Decision 2003-23), Aliant won the contract to provide Memorial Centrex service in the spring of 2002. But GT, which was vying for the university’s business, complained to the Commission that Aliant offered lower prices than what the CRTC allowed to win over customers. As an incumbent, Aliant is supposed to adhere to CRTC-approved prices for services like Centrex.

GT said Aliant bucked the rules. After an investigation into the matter, the Commission generally agreed. It said Aliant’s “actions in this instance are non-compliant…anti-competitive and undermine fair and sustainable competition,” and ordered the telco to add a clause in future business contracts explaining that all prices are subject to government approval. The incumbent must also include with business agreements a list of Commission-sanctioned prices.

The CRTC went even further, pointing out in a public notice that Aliant’s actions were merely the latest in a long line of anti-competitive missteps among Canada’s incumbent carriers. The Commission said it would crack down on errant telcos, hereafter prosecuting service providers for future follies.

During the regulatory kerfuffle, GT managed to win Memorial’s business.

“When they looked at our cost and value compared to what the incumbent was providing, they chose to go with us,” Bevan said, pointing out that Aliant’s Commission-approved prices were higher than GT’s prices.

Wilf Bussey, director of computing and communications at Memorial, said the school’s decision to switch over to GT was based almost completely on price.

“To us [the switch to GT] is simply a piece of business. We were paying a particular price to Aliant for their service….GT could offer a price benefit, and that’s exactly what we went after.”

Aliant could not be reached for comment. The telco and GT are still going at it, however. As of mid-June the firms were arguing about GT’s access to Aliant’s wires on the Memorial campus. In a document to the CRTC, GT complained that Aliant wanted too much money for the lines that GT needs to provide Centrex service. Aliant responded to the Commission that it is operating according to the rules.

Alongside the Memorial win, GT announced an agreement with the AESD. Bevan said the school district would get videoconferencing, which “makes access easier between schools and allows them to be a little more productive.”

GT got the ball rolling last year when it sent an unsolicited proposal to the AESD, in which the service provider laid out reasons why building new communications infrastructure would allow the school district to better serve students and teachers.

Elroy Jopling, a Toronto-based principal analyst with Gartner Inc., said the contracts signal that GT is regaining its focus since Vancouver-based long-haul service provider 360networks Corp. acquired the company earlier this year. He added that one of GT’s functions will be to keep “the major carriers, the incumbents, honest.”

According to Mark Quigley, research director of The Yankee Group Canada in Ottawa, GT may well have won two contracts, but it hasn’t necessarily won the war.

“It’s great that they can go in and get $6 million in contract work, but what does that mean in terms of generating margin from the company?” he said. “Was the only reason they got the contracts because they were able to come in at prices that were much lower than the competition? Is this business good for the company beyond the ability to issue press releases, and the ability to generate some top-of-the-line revenue?”

Bevan said the Newfoundland contracts are profitable. “Both of these deals are written at above 50 per cent gross margin. Many of our competitors would envy gross margins in that neighbourhood.”

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