Canada telco giants get second wind as minnows die
By Ian Karleff
TORONTO, April 17 (Reuters) - After only three years,
Canada's upstart local phone operators are running out of cash
and filing for bankruptcy, giving established ex-monopoly
players the chance to win back the customers they were loath to
lose when local phone services were deregulated.
AXXENT , with 35,000 high-speed data, Internet and
voice services business customers, warned on Tuesday its cash
will only last until the end of May, at which point it will
likely seek protection under creditor protection laws.
The Toronto-based firm, created after regulators opened the
local phone market to competition in early 1998, is only a
short step away from the fate of bankruptcy protected C1
Communications, MaxLink Communications Inc. and Cannect
Communications.
"They're dropping like flies," said Mark Quigley, an
analyst with telecom research firm Yankee Group in Canada. "But
this is more a reflection of the economic climate than their
underlying business plans."
There are now about 30 competitive local exchange carriers,
or CLECs, operating in Canada, all setting their sights on
lucrative business customers.
C1 filed for bankruptcy protection in early April, and has
since been rescued through an acquisition by GT Group Telecom
, itself an emerging telco that analysts see as one of
a handful still on a strong financial footing.
Quigley said telecom companies are finding it next to
impossible to find funding to build ambitious new networks
while even the strongest of bellwether firms, such as Cisco
Systems and Nortel Networks, warn of a severe slowdown.
Call-Net Enterprises , which operates under the
Sprint banner in Canada, has been laboring under a mountain of
debt and a dwindling customer base. Its shares traded at 50
Canadian cents on Tuesday, down from a March 1999 high of
C$14.25.
UBS Warburg analyst Stuart Isherwood said that, other than
privately owned Norigen, for which no financial information is
available, GT Group Telecom and AT&T Canada are the
only emerging telcos likely to weather the current storm.
Canadian alternative phone carriers are not alone.
U.S. based WinStar Communications said on Tuesday
it was considering filing for bankruptcy after defaulting on
debt payments.
International emerging telco XO Communications Inc
has seen its stock price wither to $2.61, from a year high of
$47, as investors fret about rising debt and rapid cash burn.
WHY BUY - JUST WATCH THEM DIE
Established phone carriers like TELUS Corp. and BCE
Inc. , have watched many of their best business
customers gravitate to the discount services offered by
emerging telcos. But now the tide is turning.
"A lot of these small CLEC's are losing funding and going
belly-up, such as AXXENT...certainly this is one of the big
positives for incumbent operators and therefore for BCE," added
Isherwood.
The elimination of some of the weaker local carriers will
not only ease pricing pressure that has trimmed profit margins
for the group, but it will also mean more market share for
those who survive, said Isherwood.
And there is little incentive for companies like Telus,
with a recently stated goal of making acquisitions outside of
western Canada, to bother acquiring the withering emerging
telcos, when it can just wait for them to die a natural death.
Telus has made bold strides into BCE's backyard over the
past year with the purchase of cellular phone firm Clearnet
Communications and two smaller purchases earlier this year. But
analysts said emerging telco bankruptcies will benefit BCE more
than Telus because it was BCE's customer base in Quebec and
Ontario that the new entrants cherry picked the most.
AXXENT said on Tuesday it had looked for buyers but none
emerged. Isherwood said if AXXENT, which is valued at about
C$20 million, couldn't find a buyer, it is unlikely other
emerging telcos will make attractive acquisition targets.
"It's hard to believe that other companies like GT Group
Telecom will get bought with an enterprise value of C$2.5
billion," said Isherwood.
GT's shares have fallen to a year low of C$6.75, down from
C$28.85, giving it a market capitalization of about C$800
million with another C$700 million in debt.
($1 = $1.56 Canadian)
REUTERS
Rtr 18:38 04-17-01 |
