Sizing up potential suitors for Call-Net’s infrastructure and customer base

Analysts expect Call-Net Enterprises Inc to be sold in whole or in part very soon, as the CLEC moves to make itself attractive to potential buyers. Already it has retreated from high risk and low margin residential long distance markets. The telco, which markets its services under the Sprint Canada name, replaced most of its board of directors and senior management last year when Crescendo Partners invoked its option to dismiss the board. Call-Net has also been struggling to turn a profit, saying high contribution payments are to blame. The company's shares began trading heavily in mid-January amid rumours the telco was the target of a takeover bid. Names like Telus, BCE Inc, AT&T Canada and GT Group Telecom Inc were all bandied about as possible purchasers. Several industry insiders suggest the new management team is doing everything in its power to insure beleaguered shareholders get the best possible price. Call-Net, they note, is saddled with a huge debt-load and must get its financial house in order before it can be sold. Dump-ing residential service is a means to that end. "They do bring a lot to the table if you look at the network facilities that they have in Canada and the U.S., both long haul and some of the local co-locations that they have," says Mark Quigley, senior analyst with the Yankee Group in Canada. He points out that the company still has a substantial consumer base, despite the moratorium on new clients, and its business market is healthy. "From that point of view do they have something to offer? Most definitely," says Quigley. "Is there a Canadian player out there that is terribly interested in that, in all of it? I'm not entirely sure." Part of the problem, he adds, is that large companies like Telus and AT&T already have fibre runs along the same routes as Sprint. It does open up the possibility some smaller CLECs will be after those networks. He also suggests that Call-Net may be sold off in pieces. In addition to the fibre runs going to small CLECs, the residential market could be bought by a company like Primus Telecommunications Inc. Primus earlier purchased AT&T Canada's residential clientele. Call-Net has blamed most of its financial woes on the high contribution payments competitors are forced to pay established telcos (NL, Dec. 13/99). Quigley isn't convinced by the argument. "I look at all the fuss that's being kicked up by AT&T and folks and really wonder what they're complaining about," he says. "Perhaps there is overpayment there but if they're trying to convince the world that a hundred million bucks is going to make the difference between all these companies being profitable or not; I don't think so." Of all the prospective suitors being suggested, Telus seems the most likely to advance a serious bid. The telco, an ILEC in Alberta and British Columbia and a CLEC in the rest of the country, has been slow in its rollout. It would increase its residential customers by about 40,000 should it buy Call-Net. (Sprint is continuing to provide local service to the homes already signed up. It is not accepting new customers, however.) BCE certainly has the money to entertain an offer. But it has been active—some would say hyperactive—in the markets lately, and purchasing another large industry player might even make the Competition Bureau sit up and take notice. Group Telecom is a small firm but it has cash to play with, having just issued its IPO. The shares were issued at $20.40 per share, with a total of 18 million shares being put on the market. The Call-Net crisis first began to fester last summer with the Crescendo assault on the incumbent management. Then-president Juri Koor talked a good fight, trying to assure anybody who would listen that things were just fine. But his assurances didn't convince Call-Net's more powerful shareholders. Koor and most of his board were replaced with some new faces, including Kevin Bennis as the new president. Koor is now suing his former employers for wrongful dismissal.

Sizing up potential suitors for Call-Net’s infrastructure and customer base

News | 04/25/2000 4:00 am EDT

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us