MTS communicates strategy to analysts at recent meeting

Although Telus Corp. recently became the second Canadian telco this year to announce an income-trust transformation plan, it seems MTS Allstream Inc. won’t follow the same path, even if it seemed headed that way a couple years ago. "It’s not attractive for us," said Pierre Blouin, MTS’s CEO. He was speaking at an MTS-held event in September, designed to improve communication between the Manitoba incumbent telco and the telecom industry analyst community. Blouin explained that MTS is in a favourable tax situation that doesn’t lend itself to income trust status. In 2004 industry observers expected MTS to become an income trust, but the firm ultimately decided against that route and acquired Allstream Inc., a national CLEC, thereby extending MTS’s reach beyond Manitoba’s borders and confounding competitors and investors. The acquisition lent MTS access to about $3 billion of Allstream tax losses, which lets MTS off the tax-payment hook for a while and potentially helps the carrier increase dividends to shareholders and invest in expanding operations. But others have chosen the income trust way. Earlier this year BCE Inc. spun off its Aliant properties and regional networks in Ontario and Quebec into an income trust. Last month Telus Corp. said it would turn itself into an income trust as well. Finally, BCE’s Bell Canada division will convert to an income trust as outlined in an October 11 announcement. Blouin noted that MTS is unique not only for its tax situation, but also for its corporate structure: it’s the only telco that acts as both an incumbent and as a CLEC. This double status, he noted, "does free us to make decisions for the good of the business overall." For instance, MTS is one of the few incumbents questioning the federal Industry Minister’s recent proposed policy direction to the CRTC, which, if enacted, would oblige the commission to take a more hands-off approach to telecom regulation (NL, Aug. 17/06). MTS has argued that deregulation may be all well and good in the retail sector, but wholesale services require a deft regulatory approach, otherwise CLECs that rely on wholesale products from incumbents might find it difficult to pay their bills. Wholesale deregulation without rules could be disastrous, Blouin said. "That’s what we’re relaying to the government, and I think they accept it." Blouin also touched on the aim of its national division. He said the Allstream arm would "focus on specific markets and business where we think we can beat the incumbent," although he didn’t offer details of the particular target markets. Blouin and other MTS representatives noted often during the analyst conference that they wouldn’t go into specifics because the firm is undergoing an operational and financial review. Blouin said MTS wouldn’t chase just any new-business contract. The company means to bid for RFPs that represent serious return on investment for the provider. Although this tactic could hurt MTS’s revenues in the short term, it’s good in the long run. "The market is extremely competitive and…irrational," Blouin said, explaining that a few large providers have been killing their own margins trying to attract business, and it’s not healthy. "We are more and more focusing on where we think we will be profitable." John MacDonald, president, enterprise solutions, said the Allstream organization now operates with a new service delivery mindset. Instead of focusing on network connectivity, Allstream is peddling a service suite that combines collaboration applications and communications-management tools to impress business customers. "I’m not talking about the OSI stack anymore," MacDonald said, pointing out that the traditional network model doesn’t apply. Application delivery is the name of the game. Networking plays a role, but that shouldn’t dictate a network-specific frame of reference. MacDonald also noted that businesses increasingly request CPE-based communications solutions, wherein network equipment resides on the customer’s premises, not on the carrier’s property. CPE platforms let businesses customize their communications systems to best support unique requirements, MacDonald explained. However, some industry observers have said that hosted communications systems have their place in the market – hosted is well suited for companies that lack internal IT expertise, for example.Touching on another hot industry topic, MacDonald said the deal that will see Microsoft Corp. and Nortel Networks Corp. collaborate on unified communications platforms counts as an opportunity for his firm. "It solidifies our strategy," he said, noting that Allstream integrates applications and network technologies, just as the Microsoft-Nortel partnership aims to do. Speaking for MTS’s consumer markets division, Kelvin Shepherd said it’s extending its reach to assume responsibility for the national SMB strategy. Expect to see "focused marketing initiatives" in this vein, he said, but added that it’s too soon to discuss specifics. Meanwhile, MTS is bringing its fledgling TV operations closer into other corporate activities. When MTS launched its IPTV service in 2003, it kept the new unit separate because it was so different from other MTS services, which are largely based on traditional voice and data communications infrastructure. But now that MTS has captured a quarter of the Winnipeg TV market, the company is joining IPTV with its service siblings, and cost efficiencies in marketing and customer care might result. In September MTS acquired Valley Cable Vision, which provides TV and high-speed Internet to southern Manitoba communities such as Morden and Winkler. Asked if MTS would expand its TV offerings outside of the province, Shepherd said the company has considered it, but "it is a very infrastructure-intensive service….I can’t see a real opportunity to do that on a broad scale." Judging by comments from MTS representatives, one of the company’s main challenges is integrating its acquisitions into a single corporate entity. Regarding the Allstream purchase, Blouin said that when he came aboard late last year, "I found that we had two companies, with not a lot of leveraging and working together. We’ve changed that." In February MTS amended its structure such that the former "Manitoba" and "Allstream" divisions went away, replaced by "Consumer Markets" and "Enterprise Solutions." The goal is to further integrate the erstwhile separate operations, Blouin said.

MTS communicates strategy to analysts at recent meeting

News | October 13, 2006

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