Manitoba Telecom Services Inc.’s purchase of Allstream Inc. will provide greater competition in the telecommunications marketplace Iain Grant, managing director of The SeaBoard Group, told Network Letter earlier this year (NL, March 31/04), but now the analyst says in a report that the merged entity may face an uphill battle. The combined MTS/Allstream (referred to as ManStream in the report) will require additional partners if it is going to be competitive in the Canadian communications market, he writes in Field(s) and Stream: Expanding the MTS-Allstream Reach and Depth. The report acknowledges that, together, the combined company is stronger and will be a healthier competitive threat to the larger incumbents, but questions about the ability of the merged MTS and Allstream to provide real competition without additional resources are coming to the fore."We see weakness in the mid-term in MTS’ numbers. MTS market share in its core Manitoba market has only one direction to take, down, and the Manitoba economy is not about to become a powerhouse to fuel economic marketplace growth … A weak business plan for MTS combined with weak growth prospects for Allstream doesn’t necessarily add up to a stronger combined competitive force in the short term. In the mid-term, say four to six years, the company may well be able to exploit Allstream’s market knowledge and broader markets to reinvent itself. It just needs to ensure that it can survive (until) those transformations are implemented and gain momentum," reads the report. MTS can expect a heated competitive response to the merger from Bell Canada, particularly in Western Canada where the two companies were once partners in Bell West, writes SeaBoard, adding that MTS/Allstream "may be ill-prepared for the hot breath of Bell West competition along the streets and back lanes of Winnipeg. The empire can be expected to strike back." MTS sold its 40% stake in Bell West late last year (NL, Dec. 22/03). The research brief notes that despite creating a larger company with complementary focuses, the merged MTS/Allstream still needs to get bigger. SeaBoard suggests that SaskTel is facing some of the challenges MTS is facing: a captive target market, little room for growth and a business focused on milking existing revenue streams. Despite the similar market environment, the research firm notes that SaskTel has done a better job of broadening revenue streams through its Navigata Communications subsidiary and others. SeaBoard indicates that SaskTel could however begin to feel marginalized even more as MTS grows through its Allstream acquisition. "Should it hanker for the bright lights of the national stage a merger of SaskTel with ManStream may well give the additional bulk needed to sustain a national competitive assault," reads the report. As has been suggested in the past, Microcell Telecommunications Inc. appears to be a potential future partner. It already has solid links to Allstream through the joint venture of its Inukshuk Internet Inc. subsidiary and NR Communications. The three companies have already launched fixed wireless Internet access in four Canadian communities, most recently in Cumberland ON, located about 30 minutes east of Ottawa. (See the March 23/04 and Dec. 3/03 issues of Network Letter affiliate publication Report on Wireless.) SeaBoard suggests that a combined MTS/Allstream/SaskTel/Microcell, dubbed MicroSaskManStream, has all the right ingredients for success. "It would have a good position in the national business market - 2nd place, a major share of the business markets in the provinces of Manitoba and Saskatchewan. In wireless, nationally, it would start from Fido’s position at the end of the pack of 4 national alliances - but the transition of MTS and SaskTel customers would give the Microcell business model a welcome boost, and renewed vigour to continue its CityFido challenge in the larger markets of Ontario, Quebec, Alberta and British Columbia." The report also raises the possibility of adding Sprint Canada Inc. and Primus Telecommunications Canada Inc. to the mix but, based on the business models and strategies of those two companies, the SeaBoard Group discounts the possibility of either of those companies joining with MTS/Allstream. The research firm concludes that there are still issues to settle before additional merger or business combinations can be addressed. "The marriage is not yet a done deal. There is a shareholder meeting to get through; one that promises a certain amount of excitement. Voices will be raised. Teeth may well be bared. High sticking and roughing are not out of the question," writes the SeaBoard Group. The firm is referring to the considerable support for the conversion of MTS into an income trust, which would have proven to be a financial windfall for some investors, but was ultimately rejected when it agreed to acquire Allstream.