SeaBoard analyst sees offers as high or higher if majors seek WiFi net
A sale of Toronto Hydro Corp.'s telecom unit, which owns fibre optic cables throughout the city and runs Canada's largest WiFi network, could fetch the municipal utility up to $135 million from big-name bidders like Rogers, Bell and Telus, according industry observers.
A recent report by The SeaBoard Group consultants predicts Toronto Hydro could "be pleasantly surprised" by the interest in its subsidiary, Toronto Hydro Telecom Inc., if it decides to go ahead with a sale.
"This will generate a lot of interest," said Amit Kaminer, a SeaBoard analyst, adding the division might fetch more than SeaBoard's estimated value of $112 million to $135 million because of its competitive position in the heart of the country's business centre.
SeaBoard has worked for Toronto Hydro and other telecom firms in the past but said yesterday it is not involved in any hydro project.
Toronto Hydro earlier this week said it "intends to solicit expressions of interest from third parties" for its telecom business, which operates a fibre optics network, of some 450 kilometres, that connects more than 500 buildings throughout the city.
It also operates North America's largest WiFi network, One Zone, which lets customers connect laptops and other devices wirelessly to the Internet in the downtown core.
Greg MacDonald, an analyst at National Bank Financial, agreed that there likely would be interest from the industry's major players because of their urban focus but said he could not offer a valuation for the business.
Toronto Hydro spokesperson Blair Peberdy said yesterday the utility's board of directors does not require city council approval to sell the telecom subsidiary. He said the board decided to seek potential buyers after receiving "a number of informal and positive inquiries" over the past several months.
One potential candidate is Vancouver-based Telus Corp., which SeaBoard said is making progress in growing its corporate accounts in Central Canada, but is "frustrated" by the costs of leasing Bell facilities. "Telus has its own coast-to-coast fibre backbone, and a fibre ring around the GTA – (so) the fit of the (hydro) facilities is pretty much perfect," according to the SeaBoard report.
A Telus spokesperson would not comment.
Another potential bidder is Kitchener-based Atria Networks LP, part-owned by private equity firm Birch Hill Equity Partners. Atria has been scooping up fibre-optic network assets throughout Ontario but its president Tom Pollock declined to comment on a potential bid for the Toronto Hydro assets.
Analysts say Rogers Communications Inc. and Bell Canada Inc. also have an incentive to buy the unit to prevent another player, including phone and cable companies, from gaining a foothold in the key Toronto market. Officials from both companies declined to comment.
SeaBoard's report even suggests Rogers may have exerted pressure on the city to get out of the telecom business because it's a competitor – an allegation Toronto Councillor Gord Perks, who sits on the Toronto Hydro board, flatly denied.
"I want to be really clear about this point. I found out about this from the management of Toronto Hydro, not the other way around," Perks said. "I did not bring this to them; they brought this to the board."
A Rogers spokesperson said it does not comment on rumours.
While any sale of Toronto Hydro Telecom threatens to result in less choice for consumers and firms in Toronto, Perks noted he's not convinced Toronto Hydro is best suited to run the telecom. "Part of the reason I feel comfortable exploring this is because Toronto Hydro is not a telco, it's an electricity and energy company. As a city, we have to ask ourselves if we need to be in every single infrastructure business. I don't think so."