Dependence on landline-phone services put Primus in creditor protection: CEO

Too much reliance on landline-phone-service revenue, combined with a heavy debt load, has resulted in Primus Telecommunications Canada Inc. being placed in creditor protection and awaiting court approval of a sale to a U.S.-based service provider, according to its CEO. On Tuesday, Primus applied for and was granted protection by the Ontario Superior Court of Justice, under the Companies' Creditors Arrangement Act. Its court-filed application record indicates it has liabilities totalling $30.4 million and assets worth $145.1 million. Primus CEO Michael Nowlan said in a phone interview that the creditor-protection filing was a condition of sale to Atlanta-based Birch Communications Inc., which does not want to shoulder the full burden of Primus' debt. Asked how Primus got to this point, Nowlan said: "There's a debt load that's there; that's usually why you do these things. There is a high debt load there. "When you look at Primus historically, it grew up and had very heavy concentration in long-distance revenue and local-line revenue, and we all know what's happening to those revenue sources. "They're legacy services and you've got to transition a customer base to your future-oriented growth services, and that's all, basically, high-speed Internet on the residential side and services that hang off of that. And then you've got, on our commercial side —which we do have — hosted PBX and other access services." Nowlan said there was a lack of capital available to make the investments necessary to transition to services seeing growth. Birch, he said, will have more resources to make the needed investments. Birch is a privately held company. Its website indicates it specializes in providing communications services to small- and mid-sized businesses. It said in a press release Tuesday that preliminary results indicate revenue was up 118 per cent, year-over-year, in 2015's fourth quarter. Tim Phelps, a spokesman with Birch, declined in an email to offer any comment about purchasing Primus, beyond saying The Wire Report would be contacted "when we are able to make an announcement." Primus' initial period of court protection lasts until Feb. 18, according the court order, and could be extended. However, Nowlan said the transaction with Birch is expected to be finalized within about four weeks, paving the way for a quick exit from bankruptcy protection. Primus' application to the court said it is "facing severe liquidity issues" as a result of revenue declines, debt and fixed costs that limit its ability adjust to lower revenue levels. It cited a decline in demand for long-distance and local phone service, as well as prepaid calling cards, adding that it lacks the ability to offer mobile services. Its website, however, advertises a wireless service that utilizes the network of Rogers Communications Inc. Nowlan said this aspect of its business is small in volume and is essentially a "referral arrangement" with Rogers. Primus and its related companies employ about 530 people in Canada and the United States, according to court documents. FTI Consulting Canada Inc. has been appointed the monitor in Primus' bankruptcy-protection proceeding, and Primus is seeking recognition of this protection in the United States. On its website, Primus bills itself as Canada's largest independent telecommunications service provider. It provides phone and Internet services to consumers and businesses as a wholesale buyer of space on incumbents' networks. It also operates its own fibre networks in Vancouver and Ottawa, Nowlan confirmed. Bram Abramson, chief regulatory officer with TekSavvy Solutions Inc., said part of Primus' issues are particular to its specific circumstances, though some can be linked to risks inherent to being an independent telecom service provider. "Wholesale rates are just very, very high," Abramson said in a phone interview. "We've seen tremendous change in the telecom industry. We've seen equipment, we've seen bandwidth, we've seen the prices for all kinds of things in the marketplace fall very, very quickly. ... We haven't seen those radical changes reflected in wholesale pricing." Abramson said recent regulatory changes, including the CRTC's ruling that third-party ISPs would get mandated access to fibre-to-the-home networks, have been steps in the right direction but have not happened fast enough for Primus. A sooner implementation of that decision, for example, would have helped Primus transition quicker to services that are seeing growth, he said. He added that because TekSavvy has made different investment decisions, it is less dependent on landline phone services for revenues than Primus and more focused on Internet connectivity. — With reporting by Derek Abma at dabma@thewirereport.ca and editing by Shruti Shekar at sshekar@thewirereport.ca

Dependence on landline-phone services put Primus in creditor protection: CEO

News | 01/21/2016 4:02 pm EST

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