Despite some big mergers, the
telecom field in Canada remains crowded
With more than $3 billion in mergers
and acquisitions in Canada's telecom sector during the past three months,
one can be forgiven for believing
a grand consolidation scheme is underway. Or, worse, with the potential
elimination of three of the largest competitive carriers--Allstream,
GT Group Telecom and Microcell Telecommunications--that we're returning
to the bad old oligopoly days that deregulation in 1992 sought to remedy.
Rest easy, industry analysts advise. "Each of the individual deals
is not driven by some sort of global trend-setting," says Iain Grant,
managing director of SeaBoard Group, a Montreal telecommunications analyst. "It's
merely business as usual, taking advantage of opportunity."
Individually, the deals make a lot of sense for growth-strapped incumbents.
Telus's hostile intentions to take over Microcell in a $1.1-billion deal
would eliminate an annoying competitor and make Telus the largest wireless
company in the country. Bell Canada's US$205-million acquisition of the Canadian
assets of 360networks (Group Telecom) helps it more quickly penetrate western
markets. And Manitoba Telecom Services' merger with Allstream is an attempt
to find growth outside of its provincial stronghold.
Not only are the incumbent telcos stretching into each other's traditional
turf, there are still dozens of viable alternatives for customers who want
to avoid dealing with them. Want cheap long distance? Try Call-Net (a.k.a
Sprint Canada), Primus or Yak Communications. Internet access? Rogers, Shaw
and hundreds of small ISPs offer consumer or business high-speed service. "The
competitive landscape has seemingly dramatically changed, because we've lost
a lot of the big players, but there still exists robust competition underneath
all of it," says Mark Quigley, research director at the Yankee Group
And the industry's not done yet. One wild card could be SaskTel. While it's
the only provincially owned telco left, SaskTel is an innovative company
that has managed to deliver high-speed broadband access to every community
across Sas-katchewan with more than 200 residents. It's also one of the big
suppliers of voice over Internet protocol (VoIP) technology to transmit phone
calls. "SaskTel is the one providing all these little startups who are
trying to make life difficult for Bell and Telus, giving them the arms and
ammunition, and teaching them how to do it," says Grant. In one fairly
wild scenario, Grant imagines SaskTel merging with MTS-Allstream and Microcell
to create Prairie powerhouse MicroSaskManStream.
Aside from existing telcos merging, the potential is there for plenty more
competitors to enter the market. A decade ago, getting into the telecom game
would have cost at least $30 million in equipment--a significant barrier
to entry, says Grant. As a result of high capital costs, yesterday's players
almost all went into bankruptcy protection. Those that emerged are now being
bought. But today, just about anyone can be a long-distance provider or in
the local telecommunications business--without spending a dime on equipment
until customers are found by partnering with existing companies and using
new technologies such as VoIP.
At the same time, cable and utility companies are looking to use their existing
networks to provide phone services. At Rogers' annual general meeting in
May, the communications giant reiterated its intention to enter the local
telephone market next year using the Internet. And utilities such as Hydro
Ottawa have formed telecom divisions to see if they can use their existing
fibre networks for phone service. The only thing that is certain in the telecom
game is that the wheeling and dealing will continue.