Sprint Canada prepares for the long haul, but may be affected by parent’s takeover

The current market upheaval in telecom services is forcing Call-Net Enterprises Inc to reassess its business plan. Changes in the domestic market and the international scene could see the Sprint Canada parent reinvent itself. At the firm's AGM in late June, president and CEO Kevin Bennis said, "I believe that the company has the right combination of ingredients to drive us to sustainable growth." While the telco has been threatening to abandon the residential market, it is persevering. It even recently introduced a new LD pricing plan. "We're certainly assessing whether we want to remain in that business given where rates have gone," regulatory affairs senior VP Jean Brazeau told Network Letter, "but we still have a number of customers and a fair amount of revenues generated from those customers." Call-Net's CFO conceded the fight for profits is tough. "In the long distance arena, the industry as a whole was highly competitive," Randy Benson told shareholders. "This generally lowered prices... the company's revenue from consumers fell by 23 per cent to $419 million. We, however, remain Canada's largest alternative provider." Revenues grew for the first time in five quarters, while operating expenses declined for the first time in three quarters. Revenue in 1999 increased by five per cent over the same period a year before. This is the thirteenth year that revenues have shot up. The discontinuation of unprofitable products and services led to sales increases and a hike in EBITDA. Revenue from data exceeded $250 million, and the company is now repositioning itself as a data and Internet firm. "Call-Net is in the midst of a transformation from a pure transport company to one that provides Canadian businesses with end-to-end solutions," Bennis said. At one point Call-Net was in so much turmoil, it had put itself on the block as a takeover target. It has now dropped those plans. At the same time, its corporate cousin, Sprint Corp in the United States, has seen its proposed merger with WorldCom hit choppy waters. Most observers expect the companies will shortly call off the marriage. That could put Sprint in play. There is talk that minority partners Deutsche Telekom of Germany and France Télécom, each of which hold 10 per cent of the American telco, could launch takeover bids. Another suitor could be Japan's Nippon Telegraph and Telephone. "We're always affected by anything that impacts Sprint U.S.," Brazeau notes. "They have some tough decisions to make vis-a-vis that transaction in the next little while. If they do decide to end the transaction, then they will have to refocus on their core business and I think we're part of their core business." Those words echo the president's remarks. "Over the last six months, Sprint has helped us shape our future direction," Bennis said. "For instance, we have shared market research and reviewed opportunities for product launches in the Canadian marketplace. Sprint has provided access to scarce technical resources in emerging markets, and included us as one of their strategic partners. This only scratches the surface of the potential synergies between our two companies." Talk has abated that the American company will become part of BellSouth, which lost the initial bid to WorldCom. If BellSouth does re-enter the bidding, it could cause problems for Canadian regulators. BellSouth has business arrangements with SBC Communications, which in turn holds 20 per cent of Bell Canada. Call-Net also plans to move aggressively in the backbone market. Bennis told the AGM the firm expects to have local fibre in most major Canadian cities. At the same time, it is shedding network capacity it no longer needs. It has already sold some fibre networks to Metromedia and is currently in discussions with Vancouver's 360networks Inc to unload some more.

Sprint Canada prepares for the long haul, but may be affected by parent’s takeover

News | July 4, 2000

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