Call-Net reducing cost of providing service through wireless and 360networks deal

Call-Net Enterprises Inc. is looking to bolster its business case by substantially reducing the cost of providing services to both its residential and business segments. On the residential access side, the company’s Sprint Canada Inc. subsidiary has turned to wireless local loop technology from the Inukshuk Internet Inc., Allstream Corp. and NR Communications joint venture as a potentially more cost-effective alternative to leasing hard-wired loops from the incumbents. In the business segment, it has agreed to acquire 360networks Corp.’s eastern Canadian customer base from Bell Canada, an agreement that also grants Call-Net the right to acquire certain network assets in two years. In a conference call announcing the agreement with Bell, Call-Net president and CEO Bill Linton said the deal was doubly attractive in that not only does the company gain access to 1,000 more buildings, it secures the right to assets that could significantly reduce its leasing costs. "This financially attractive transaction will greatly increase our business customer base, will allow us to more rapidly and cost-effectively expand our local, fibre and IP networks in eastern Canada, further reducing our reliance on leased facilities. "Should Call-Net acquire these assets, it would substantially increase the size of its distribution network in Ontario, Quebec and Atlantic Canada, and provide for some substantial reductions in carrier costs across its business segments," Linton explained. To buy the customer base, Call-Net has agreed to pay Bell about $12.5 million over two years. The company has also entered into a two-year services agreement under which Bell will operate the network for Call-Net in exchange for 70% of the expected $50 million in annual revenue. That could be upward of $35 million per year, which includes carrier costs, provisioning, billing, customer care and other forms of support. Linton stated during the call that it is still too early to talk about the cost of acquiring the assets in two years. "We’re not going to know that until we’ve completed all the due diligence on this network, and until we’ve decided exactly which assets we want to buy. There’s obviously going to be savings to delivering services to this space. What is not known is how much savings this can provide across our total base, and we will not be able to provide that information until the time of closing in a few months." While the company gains a significant foothold in the eastern Canadian small- and medium-sized business market, the key to the deal is fibre access to the buildings. "That glass isn’t going to go away," Linton explained. "You can put different electronics on either end of it, but the real key asset here is owning your own access and that’s going to be valuable in two years and in 10 years." Summarizing how the company’s various technologies all play together, Linton said: "When and if we acquire these assets, there is the potential that some or all of the backhaul that we currently pay to telephone companies could be put on our own network that we would acquire at the end of this. In the business area, our strategy is very targeted towards small and medium enterprise, which this customer base is, and providing services to cross-border customers through Sprint (Corp.). We get advantage by having reduced network costs and the ability to service these customers less expensively and having a larger customer base. Fixed wireless for us as for many people I believe is something that we are looking at and testing, and over time it has the potential if the economics work and the quality works to replace some of the local loops potentially that we rent from Bell or to extend the access network that we are acquiring through this transaction." Wireless key to residential access In an interview with Network Letter, Duncan McEwan, president and COO of Sprint Canada, wouldn’t provide details about the potential cost savings of using wireless equipment, only to say that a costing analysis is already underway. "Fundamentally this is going to come down to whether or not this is a sufficiently low-cost alternative to conventional access technologies," he says of Sprint Canada’s decision to trial the technology near its offices in Toronto. "The technical performance is something we have to test out. I don’t know if we’ll see any surprises there, but the real question is going to come around the economics of the proposal once we look at it versus existing access technologies." Nick Kauser, head of NR Communications, touted the benefits of wireless equipment from NextNet during a March 4 conference call announcing the launch of the network in Richmond BC. He said the cost of building out a network based on this type of wireless local loop technology on a per subscriber basis could be in the $200 range. This scenario is dependent on a service provider capturing about 5% penetration in a particular market, Kauser added. Kauser was referring only to the first-generation of the equipment, which doesn’t yet include Voice over IP capabilities. While it’s unclear what the capex per subscriber costs will be for equipment with VoIP features, it will likely be higher. McEwan tells NL that the financial impact of this wireless technology on the competitive telecommunications landscape won’t be known until a costing analysis is finalized. "We wouldn’t be doing this if we weren’t interested, but we’ve got to work out the economics of it," he says. For more information on Sprint Canada’s trial of wireless technology, refer to the June 1 issue of Network Letter affiliate publication Report on Wireless.

Call-Net reducing cost of providing service through wireless and 360networks deal

News | 06/08/2004 4:00 am EDT

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