Bruce Telecom bid could hint at Eastlink’s spectrum intentions: analyst

Eastlink’s purchase of a small municipally-owned telecom provider in southwestern Ontario might indicate it intends to buy spectrum there in the 700 MHz auction that got underway last week, said Troy Crandall, an analyst with MacDougall, MacDougall & MacTier. Bragg Communications Inc., operator of Eastlink, has agreed to purchase Bruce Telecom for about $26.5 million, the company’s owner, the Municipality of Kincardine, said in press release issued Wednesday. Bruce Telecom’s website says it serves a number of Ontario communities along the southeast shore of Lake Huron, about 220 kilometres northwest of Toronto, including Kincardine, Southampton, Port Elgin and Owen Sound. Its services include wireless, Internet, television and home phone, and its history as a phone company stretches back more than 100 years, its website says. Crandall said in a phone interview this apparent interest in Ontario from Eastlink could be indicative of its intentions in Industry Canada’s 700 MHz spectrum auction. Industry Canada has said it will announce the results within five days of the auction’s end, which began on Jan. 14, and it will last for an undetermined amount of time. “They may bid for spectrum there as a new entrant in that area … but it’s really difficult to say,” Crandall said. Crandall said that Bruce Telecom currently provides wireless services as a mobile virtual network operator (MVNO), using space on BCE Inc.’s network. If Eastlink bought spectrum in this area, that acquisition could compliment its purchase of Bruce Telecom, he said. “That way they could drop Bell just build some towers in that area,” he said. “And if they got the spectrum, the incremental additional costs wouldn’t be huge for them.” Crandall said that “it’s been shown that MVNO agreements aren’t really that great. They can help retain your customers but you don’t really make money off providing wireless off someone else. … It’s kind of like paying rent versus buying a house.” Kincardine Mayor Larry Kraemer said in a phone interview that Bruce Telecom has about 2,000 wireless subscribers and 15,000 subscribers for all its services. He said that it uses Bell’s network as part of a revenue-sharing agreement, through which Bell also uses some of Bruce Telecom’s wireless spectrum. Keith Stevens, chairman of Execulink Telecom, another small Ontario telecom company, said it is hard to speculate on Eastlink’s 700 MHz spectrum auction intentions based solely on this acquisition. He noted that spectrum blocks in southern Ontario, which includes Toronto, are expensive. “I’m not sure how deep (Eastlink’s) pockets are, but it wouldn’t be just because of Bruce they would make that decision,” he said in a phone interview. “It would be a much different strategy whether they would decide to bid on the spectrum or not for southern Ontario, because it is a pretty big area and spectrum in southern Ontario would not go cheap. It would be a lot more money for the spectrum than what they paid for Bruce, let’s put it that way.” A licensing framework on Industry Canada’s website shows the reserve price for paired blocks of spectrum — the kind that are ideal for two-way transmissions on cellphones — in southern Ontario is $69.3 million, the most expensive starting price of all 14 regions in the auction. Crandall said the main incentive for Eastlink buying Bruce Telecom might be its cable operations rather than the wireless business. “Cable companies are pretty self-sustaining,” he said. “If you can get a hold of one for a decent valuation, they’re pretty good cash cows and they’re pretty stable.” An emailed statement from Eastlink spokeswoman Jill Laing on Thursday said the acquisition “further strengthens our commitment to this region. The purchase of Bruce Telecom complements our existing footprint, providing us with access to new markets while enhancing areas where we already do business.” Eastlink has operations in Atlantic Canada, Ontario, Alberta, British Columbia and Bermuda, according to its website, offering services in television, home-phone and Internet. It does not currently offer wireless services beyond Nova Scotia and Prince Edward Island, Laing said Thursday. She would not comment on Eastlink’s strategy in terms of Bruce Telecom’s wireless business, citing 700 MHz auction rules, which ban companies from talking about plans that could be related to spectrum purchases during the auction. Eastlink spent $25.6 million in the 2008 wireless spectrum auction on AWS licences in the Atlantic provinces, Alberta and Ontario. It launched wireless services in Nova Scotia and Prince Edward Island in February last year. Stevens said Eastlink’s purchase of Bruce Telecom does not necessarily foreshadow a pattern of companies like this — often referred to as small incumbent local exchange carriers (SILECs) — being bought up. He estimated there are about 20 SILECs in Ontario, around 10 in Quebec, and only one outside those two provinces — CityWest in Prince Rupert, B.C., which in December said it was shutting down its wireless business. “There may be some ,” he said. “There always is. The challenge with a small number is it only takes one every few years and the numbers slowly dwindle. But I don’t see this as a movement. … I don’t think very many are looking for buyers.” Stevens said of the small independent telecoms he’s aware of, about a third of are municipally owned like Bruce Telecom, a third are independently owned like his company, and another third are co-ops. Kraemer, the Kincardine mayor, said the sale of Bruce Telecom was made largely because it was getting too difficult for the municipality to operate in an increasingly competitive market against private-sector companies. “Competitors buying local cable companies, that really affected our ability to run the organization,” said Kraemer. Eastlink’s Laing said the transaction would close “in the coming months,” and that it was too early to say whether it would keep the Bruce Telecom brand. — With reporting by Derek Abma at dabma@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Bruce Telecom bid could hint at Eastlink’s spectrum intentions: analyst

News | 01/23/2014 10:01 pm EST

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