Competitive carriers will 'tread water' in next 12 months
Call-Net boss bill linton
Mark Evans
National Post
Monday, July 08, 2002
National Post
Bill Linton, Call-Net's CEO, says the CRTC's price-cap move will force the carrier to slow its growth plans.
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Even though Bill Linton believes the telecommunications industry is "treading water," Call-Net Enterprises Inc.'s president and chief executive remains optimistic about his company's prospects.
A big part of his confidence has to do with the fact Call-Net has nearly completed a restructuring that saw it eliminate more than $2-billion of debt and shed hundreds of employees.
While painful, the exercise has put Call-Net ahead of the curve on the likes of AT&T Canada Inc. and GT Group Telecom Inc., which are struggling with high debt loads.
"I think we are treading water for at least a year," he said in an interview. "By treading water, I mean the financial markets are basically closed for us and pretty tight for the incumbent carriers. Everyone is cutting back and there is no capital spending. Everyone is retrenching."
Given this bleak environment, Mr. Linton concedes Call-Net, which markets its products using the Sprint brand, has been forced to modify its strategy for growth.
Its plans, for example, to expand aggressively into the local telephone market have been scaled back, highlighted by the decision not to move into Edmonton and Quebec City.
This does not mean, Mr. Linton said, that Call-Net will not grow. Instead, the carrier must pick its spots carefully and make sure its costs reflect market realities.
Since moving into local markets, which are dominated by Bell Canada and Telus Corp., Call-Net has picked up 110,000 customers. Mr. Linton said his goal is to have 400,000 to 500,000 customers, or 4% to 5% of the market.
Call-Net's plan, however, were dealt a major blow when the Canadian Radio-television and Telecommunications Commission froze local telephone rates in May. In a research note, TD Newcrest analyst David Lambert said the decision means Call-Net will win 3% of the local market over the next three years, compared with earlier estimates of 5%.
While Call-Net is waiting for the telecommunications market to recover, Mr. Linton expects the company will become cash-flow positive within the next six months. This, he hopes, will attract more investors to Call-Net, which has seen its shares plummet to about 60¢ -- a far cry from its 52-week high of $29.40 in July, 2000.
While Mr. Linton said he does not check the stock price every day, he concedes it is important that it rebound. He said a key issue is optics because many customers look at the stock as a barometer for the business. Then, there is the investment community, which has shown less interest in the firm as Call-Net's losses widened and the telecom market lost its lustre.
"I worry about disinterest in our company," he said. "At a point, people aren't bothering to look at us, and we are an $800-million to $900-million company in a big industry. I can't have a complete de-focus of investor interest."
Among the people that Mr. Linton has to win over is TD Newcrest's Mr. Lambert, who downgraded Call-Net to a "hold" from a "speculative buy" in late-May, while lowering his 12-month stock price target to $4 from $10.
"Call-Net still has a number of opportunities it can address, including the bundling of local services with its existing long-distance and data businesses to overcome the cost advantage," he wrote. "However, we suspect that Call-Net could soon become a takeover target by a larger telecom partner."
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