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July 21, 1999
Call-Net branches out,
acquires stake in
Cybersurf
Mark Evans
Technology Reporter
Wednesday, July 21, 1999
Call-Net Enterprises Inc. moved into
the fast-growing free Internet access
market yesterday by buying 10 per cent of
Cybersurf Corp. for $12-million.
Call-Net, which owns the country's largest
alternative long-distance telephone
provider, Sprint Canada Inc., said it
acquired 1.72 million Cybersurf shares
and warrants to buy seven million more
shares at $5 each over the next three
years. If the warrants are exercised,
Call-Net's stake in the Internet service
provider (ISP) would climb to 26 per
cent.
Brian Harrison, an analyst with Rogers &
Partners Securities in Calgary, said the
deal gives the free Internet market a
significant endorsement and shows how
well Cybersurf is positioned to capitalize
on its growth.
"Cybersurf had this idea a couple years
ago, and Call-Net sees this as a great
opportunity to get market penetration in
Toronto," he said.
Cybersurf offers service in Edmonton and
Calgary but plans to enter Toronto and
Vancouver by year-end and the United
States next year.
It is unclear how Call-Net's investment in
Cybersurf will affect Call-Net's Sprint unit,
which charges $22.95 a month for
unlimited Internet access. About half of
Cybersurf's 115,000 customers in Calgary
and Edmonton have come from fee-based
Internet service providers.
Jim Hardy, an executive vice-president
with Toronto-based Call-Net, said the
investment complements its Sprint unit,
which has 160,000 customers.
Call-Net, he said, sees the access market
dividing into different economic models:
those that generate revenue from monthly
fees and those funded by advertising and
electronic commerce revenue.
"Some Internet users will pay more to
have high-speed access and better
functionality, and some people will want
access to the Web but are not in a
financial position to do so in terms of a
$20 to $25 commitment a month," he said.
A different view, however, comes from
Paul Mercia, Cybersurf's president and
CEO. "When you're paying $15 to $20 a
month for the service and your neighbour
is getting it for free, why pay for it?"
As part of the deal, Call-Net will become
the national supplier of network services
to Cybersurf and have two seats on its
board. Of the $12-million, Cybersurf will
use $7-million to buy network service
from Call-Net.
Call-Net posted a loss of $125-million or
$1.38 a share for the second quarter
ended June 30, compared with a loss of
$84.7-million or $1.57 a year earlier.
Revenue rose 25 per cent to
$323.2-million from $258.5-million.
The company attributed the loss to
increased spending for its new local
service networks, as well as further price
declines in the long-distance market.
Report on Business Company Snapshots
are available for:
CALL-NET ENTERPRISES INC.
Mark Evans
finance
CallNet Enterprises
Inc
Cybersurf Corp
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