Steve --
Talk about AT&T stirring the pot!
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AT&T: Telus confirms talks
THURSDAY MARCH 26 1998
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By Scott Morrison in Toronto
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Canada's telecommunications industry is in upheaval after Telus, the Alberta-based local telephone company, confirmed it was in talks to form a "business combination" with AT&T Canada Long Distance Services.
Reports suggested that Telus could acquire two-thirds of AT&T Canada, which a telecoms analyst valued at C$1bn (US$704m).
However, it is likely that such a combination would be the first move in a wave of consolidation in Canada's telecoms sector, which comprises 11 local service providers and several long-distance competitors. Analysts say the fragmented industry is not able to achieve the economies of scale experienced in more mature telecoms sectors in other countries.
Analysts believe that Bell Canada, the country's largest phone group, will respond to the talks by launching a bid to acquire Telus to keep intact the 11-member Stentor alliance of local telephone carriers. Bell Canada, wholly owned by BCE, has conceded that the alliance "will need to be realigned" and indicated it was in talks with other members to determine how best to respond.
"If this deal goes through, Stentor will break up unless BCE can buy out the members," said Dvai Ghose of James Capel Canada.
However, BCE would not comment if it had approached Telus in the wake of the Telus/AT&T announcement.
The prospect of sector consolidation lifted Canadian telecoms stocks for the second day. BCE was up C$2 at C$59.25 in early trading yesterday, while Telus had gained C$2.65 to C$43.05.
Even if the merger talks break off, analysts believe developments have permanently damaged the relationship among Stentor members, which have operated under an unwritten agreement that they do not encroach on each other's territory. An operational merger between Telus and AT&T Canada would pit the Alberta carrier against other Stentor members.
Telus, Canada's third largest local service provider, has signalled it is unsatisfied with its position in the Bell Canada-dominated alliance. An operational merger between Telus and AT&T would create a formidable provider of local and long-distance service, enabling the combined company to operate outside Alberta.
Telus would immediately obtain a national high-speed network with which it could attack the Ontario long-distance market. That would put it into direct competition with Bell Canada, its alliance partner. AT&T, which is one-third owned by its US parent and two-thirds owned by three Canadian banks, would gain access to a local exchange with 1.8m phone lines which would form a solid client base for its long-distance service.
Teleglobe, the Canadian overseas network operator 23 per cent owned by BCE, would also suffer as a result of a Telus takeover of AT&T Canada. Teleglobe is scheduled to lose its monopoly on overseas calls in October and while it recently signed three-year agreements guaranteeing it a minimum amount of traffic from Stentor members, it would eventually suffer the loss of Telus' long-distance traffic if the "combination" happens.
Analysts say consolidation could involve Canada's cable television companies. Should Bell Canada face a Telus/ AT&T alliance, it could pursue Shaw Cable in a bid to acquire its broadband network in Alberta.
Analysts suggested regulators would be likely to approve a Telus acquisition of AT&T Canada, because it is consistent with the government's aim to foster more competition in the sector. A Bell Canada bid for Telus, however, could pose problems for regulators.>>> |
