Bolstered on the wireless side, Telus apt to snap up fixed line assets, analysts believe

With the ink barely dry on the merger deal between Telus Corp and Clearnet Communications Inc, analysts were already predicting which facilities-based telecom companies could be next for the western telco. For CIBC World Markets, the logical targets are GT Group Telecom and Vidéotron Télécom. Telus is making no secret of its strategy of using acquisitions to accelerate its expansion into eastern Canada. On August 20, the day the takeover was announced, Telus president and CEO Darren Entwistle was quoted as saying "Buying is better than building." The next day, CIBC tabled its predictions. "Yesterday, (Entwistle) made it clear that he will be making acquisitions to accelerate his exposure to Internet protocol and data services," CIBC analysts Dvai Ghose and Darren Robinson wrote in a research paper evaluating the buyout. "We would suggest that the most obvious candidates for acquisition are GT Group Telecom and Vidéotron Télécom." Vidéotron Télécom, a subsidiary of Groupe Vidéotron ltée, is the only telecom division that has yet to be sold off by its cable TV parent. GT Group Telecom’s network is made up of several former cable-owned fibre companies, including one owned by Shaw Communications Inc. There’s no doubt Vidéotron’s telecom unit is an attractive acquisition target. Its 6000-km fibre optic network includes 2,500 km in the Montreal area, and nearly 90 per cent of Quebec’s population. Vidéotron has the largest fibre network in the province, next to Bell Canada. A Telus purchase of either GT Group Telecom or Vidéotron Télécom isn’t a forecast shared by all industry analysts. "With Group Telecom, you don’t get much," Iain Grant, managing director of the Yankee Group in Canada told Network Letter. "You spend a lot of money and you get (cable operator) Shaw’s old fibre assets. But that’s not really scratching your itch." In their advisory, Ghose and Robinson counseled investors to buy Group Telecom as a likely Telus target, but hedged their bets in the next sentence. "We would also argue that given its extremely attractive organic fundamentals, shares of GT Group Telecom should be bought regardless of acquisition speculation." One of the other CLECs currently on the block is RSL Com Canada (NL, July 31/00). Its parent company is looking to unload it, but Grant doubts the Telus president will make a bid. "Only if you want to consolidate your position," suggests the veteran telecom watcher. "I think Entwistle’s view is outwards rather than inwards. They already have 98 per cent of the market in BC. Is it really a magic strike to move that to 98.3," he asks, with just a hint of hyperbole. A more likely scenario, he says, is Telus acting as suitor to another CLEC, such as Call-Net Enterprises Inc. "It strikes me that Call-Net may be the bride left at the altar a number of times but still has a number of the assets that Entwistle should need," notes Grant. "First of all, it’s got a couple of thousand employees spread across the country who’ve been selling telecommunications for awhile. Second of all, it’s got at least a million customers, most of which are in somebody else’s serving territory. It’s got a network which spans coast to coast." The time is certainly right for some action on the Call-Net front. At the beginning of the year, speculators began trading heavily in the company’s stock in anticipation of a takeover (NL, April 25/00). That action died down as new president Kevin Bennis pledged to move the firm in a different direction. Uncertainty over the fate of corporate cousin Sprint Corp in the United States made investors wary of putting Call-Net stock in play. That uncertainty crossed the border when Bennis resigned only months into his term (NL, July 17/00). Further resignations from the company may be in the offing as employees, worn down by years of struggle, seek greener pastures. Call-Net has been hemorrhaging money at an alarming rate, perhaps as much as $1 million each day, and industry insiders expect it will be picked off before too long. If Telus does not buy the Sprint Canada parent, it could be taken over by another CLEC such as AT&T Canada Inc or even Group Telecom itself. Regardless of what firm is next on the Telus acquisition list, the Yankee Group’s Grant expects quick results from Entwistle. "I think if you have a CEO who says ‘I’m not finished yet’ you really have to hold your breath. His sense of urgency would suggest that this is stuff happening sooner rather than later."

Bolstered on the wireless side, Telus apt to snap up fixed line assets, analysts believe

News | September 11, 2000

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