Teleglobe shifts focus to data transmission following another disappointing quarter

Executives at Teleglobe Inc tried to put the best face possible on their company’s second quarter financial results, but no amount of spin doctoring could hide the fact that BCE Inc is buying a very troubled company. Teleglobe CFO Michael Boychuk told a conference call of investors and journalists that revenues fell in most parts of the firm. Overall revenues for the quarter ending June 30 of this year were US$594.6 million, down 17 per cent from the $713.5 million of the second quarter of 1999 (all figures are in American funds). Consolidated EBITDA was -$28 million, with component divisions Teleglobe Communications Corp (TCC), Excel Communications Inc, and Teleglobe Business Solutions (TBS) all posting negative results. This follows the decrease of 15 per cent reported for Q1 2000 as compared with Q1 1999. For that quarter, the company announced it had lost $47.8 million versus its profit of $26.5 million last year. BCE is in the process of slashing redundancies wherever it can to improve the bottom line. The final takeover of the overseas carrier is expected to be completed by October. "Although it will take a little longer than we anticipated to turn around Teleglobe, BCE is totally committed to the strategic value of this acquisition," CEO Jean Monty vowed. He reminded financial analysts and reporters audience that the conglomerate has successfully revived Nortel Networks Corp and Bell Canada. Approximately 850 jobs will be cut as the consolidation begins, most of them at TCC’s head office in Reston VA. Many of the corporate customers of TBS have been transferred to Bell Nexxia, with Bell employees assuming the roles of the TBS staff. Some LD workers will be laid off, as Teleglobe retreats from this market. Teleglobe’s government affairs office in Ottawa is scheduled to shut down in September, with the loss of two positions. The firm has also withdrawn its sponsorship of the Formula One Team British American Racing Honda. "All of our head office functions, and that includes regulatory, legal, investor relations, finance, will be consolidated into BCE because there’s no point in having double finance and double investor relations obviously," Philip van Leeuwen, director of corporate communications told Network Letter. About 90 of the 125 jobs at the Montreal head office will be eliminated. "But in the overall scheme of things, even if we look at all the head office people, it represents about two per cent of Teleglobe’s global work force. And of the head office people, there’s quite a number who are going to be joining either Teleglobe Communications or Excel or BCE/Bell. The actual number of employees on a relative basis is not a large percentage." What to do with Excel Boychuk told the conference call that much of the red ink can be attributed to restructuring costs and one-time charges relating to provisions and assets. Consolidation, especially at head office, added extraordinary charges which must be reflected in this and subsequent filings. Initially a crown corporation, Teleglobe was privatized in 1987. It was granted a monopoly on international LD traffic the year before, a monopoly that was extended in 1992. In 1998, Teleglobe’s CEO Charles Sirois asked for and received the end of the exemption. It was a necessary move, he said at the time. "There is no economically developed country that constitutes the base of the new economy with an oligopolistic or monopolistic strategy," he told Network Letter two years ago (NL, September 14/98). "For me, it was an obvious thing. You can decide to build a wall to stop the wave or surf the wave. I decided to surf the wave rather than build a wall." BCE’s wooing of the company has been rocky from the start. On February 15 the telecom giant announced it was prepared to spend $9.6 billion to buy the shares of Teleglobe it did not already hold. (BCE was a minority partner in the firm.) In June, Monty let slip to investors on Wall Street that maybe the price was too high. That caused a run on shares of both companies. A few days later, BCE sheepishly renegotiated the price downward. One of Monty’s major problems in integrating Teleglobe into his colossus is what to do with Excel. Sirois enthusiastically pursued the retailer two years ago, to the surprise of others in the industry. They turned out to be right, since Excel has been a drag on Teleglobe’s earnings ever since. Excel did not anticipate the sharp decline in LD prices. Most observers believe it is only a matter of time before BCE puts a ‘for sale’ sign on the firm. Some speculate that SBC Communications Inc of San Antonio TX could purchase the telecommunications waif. SBC already holds 20 per cent of the shares of Bell Canada. BCE is now concentrating on moving Teleglobe from a voice company to a data company. Recognizing that transformation, the day after the Q2 results were released, Teleglobe signed an agreement with Vancouver fibre builder 360networks Inc. Under the pact, the firm will buy US$100 million wavelength capacity on the 360americas network connecting North and South America. 360networks will provide 10 gigabit-per-second capacity on a 28,000-km network linking the U.S., Bermuda, Brazil, Argentina and Venezuela. When the elimination of Teleglobe’s monopoly was being considered, Sirois called on the federal government to abolish the Teleglobe Act. Cabinet did not concur, but it did make amendments to the law and some parts of the regulatory scheme were overtaken by the Telecommunications Act of 1998. One of Sirois’ harshest critics at that time was telecom pioneer Michael Kedar (NL, December 9/96). The loss of structural separation between overseas carriers and domestic companies could lead to declines for the Canadian telecom market. He even predicted that Teleglobe itself would not survive the battle. The likeliest candidate to swallow up Teleglobe, in Kedar’s scenario? BCE.

Teleglobe shifts focus to data transmission following another disappointing quarter

News | 08/28/2000 4:00 am EDT

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