I notice quite a spike in Call Net in the last couple of trading days:
Canadian telecommunications industry on verge of consolidation, analysts say
DAVID PADDON
Canadian Press
Monday, November 11, 2002
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TORONTO (CP) - At least one of Canada's five national telecom carriers - and possibly two or three - will likely close, be taken over or merge before the troubled industry stabilizes, analysts say. Several think GT Group Telecom (TSX:GTG.A), currently operating under court protection from its creditors, will probably sell its assets, primarily its fibre-optic network, and not continue as an independent company.
The future for AT&T Canada, the largest of Canada's three national challengers to former monopolies Bell Canada (TSX:BCE) and Telus Corp. (TSX:T), is also unclear once it emerges from court protection.
Merrill Lynch Canada said Monday that AT&T Canada will be an "attractive acquisition target" once it is freed of $4.5 billion in debt.
"In our view, Telus is the most likely acquisitor, despite the financial constraints it faces," the brokerage said in a research note, adding that Telus could use $2 billion in tax losses that AT&T Canada will have after reorganization.
But Ian Angus, president of Angus TeleManagement, said a merger between AT&T Canada and Sprint Canada could make just as much sense, because they have different and complementary segments of the market.
"They could potentially shake up the industry quite a bit," Angus said.
Both Telus and AT&T Canada have been trying to win a share of the corporate market in Ontario and Quebec from Bell Canada which, in turn, is expanding in the West through a partnership with Manitoba Telecom Services.
AT&T Canada's base is in corporations with a national and international presence. Sprint Canada, owned by Call-Net Enterprises (TSX:FON), is focused on small and medium-sized businesses and residential customers.
"Together, they could make a fairly sizable company," Angus said.
Both companies have been losing money since at least 1999, when they spent heavily to acquire data communications companies in an effort to expand beyond their base as long-distance phone carriers.
Angus agreed with Merrill Lynch that it could make sense for western-based Telus to buy AT&T Canada, which has a client base and network infrastructure in Central Canada.
But Rory Buchalter, an analyst with Dominion Bond Rating Service, said federal regulators might balk if Telus attempted to take over one of the smaller telcos, thereby reducing competition in the industry.
However, Buchalter also said AT&T Canada will have a hard time surviving on its own - especially without AT&T Corp. as a shareholder and without the AT&T brand name to distinguish it from the competition, as is planned after its reorganization.
Bondholders owed $4.5 billion by AT&T Canada have tentatively agreed to exchange the debt for ownership of the Toronto-based company and $200 million in cash.
Buchalter said one complication is that most of AT&T Canada's debt is probably held by U.S. institutional investors, but federal rules prevent foreign ownership of more than one-third of a Canadian telecom service company.
Meanwhile, there is speculation that a price war could erupt once the surviving alternative carriers emerge from under their debts.
Already the data communications business has been softer than expected this year.
And the rejuvenated carriers, free of debt, will be able to lower their prices and undercut their rivals, said Richard Mack, vice-president of KMI Research in Providence, R.I.
This, Mack said, will "further the strain on the industry's recovery."
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