Head of new Bell/MTS venture predicts solid growth for western CLEC

The head of Bell’s reconfigured western-based CLEC is betting heavily that it can double its current market share by stealing customers from its competitors. While the BCE Inc. strategy is certainly aggressive, some believe the company may be overstating its projections. "We’re not releasing actual numbers ," Bell West Inc. president/CEO Randy Reynolds tells Network Letter. "But we are committed to doubling our share to around 20 per cent within three years." That strikes Mark Quigley, research director at the Yankee Group, as optimistic. "If you take a look at local telephony and the business side of the equation, you find that in Bell Canada territory, since about 1997 and the onset of local in 1998 the competition has about 14 or 15 per cent of the market in three or four years," he explains. "So to get 20 per cent would certainly be very aggressive indeed." The CLEC was born three years ago when MTS Communications Inc. and Bell Canada formed Bell Intrigna (NL, Feb. 1/99). At the time, the Manitoba telco took majority ownership, with Bell Canada holding a third (NL, June 28/99). It was at this time that Bell took a stake in the provincial ILEC. Under the new regime, Bell will hold 60 per cent of Bell West, with MTS owning the other 40 per cent. In 2004 MTS can sell its stake, or Bell can buy out its partner, for a minimum floor price of $650 million. Three years after that, the price changes to fair market value minus 12.5 per cent. The non-cash transaction involves the conglomerate bringing its Intrigna stake and the western assets of its fully-owned Bell Nexxia division to the table and combining it with MTS’ 66 per cent, Reynolds explains. (Bell Nexxia’s holdings in the rest of the country are not affected by the merger. Nexxia will continue to operate as usual in eastern Canada.) Lawrence Surtees, senior research analyst for telecommunications at IDC Canada, is less sanguine about the prospects for the new/old CLEC. He tells Network Letter the move is merely reorganization necessitated by the current market structures, rather than a bold new initiative. He doubts the sales figures will jump by the levels Reynolds predicts. Quigley agrees that the telco was forced into the restructuring. Bell wasn’t happy with the results Intrigna was showing and wanted the company to be more forceful. "I think a lot of it has been exacerbated by the fact that Telus has been very, very aggressive in Ontario and Quebec. They’ve been very aggressive price-wise, for example, in an effort to take some market," he explains. When the Bell West deal was first announced, some analysts opined that the monetary maze would ultimately result in a change in Bell’s minority stake in MTS. Depending on whom you listened to, Bell would either sell its shares in the provincial telco or would swallow the company up entirely. Both Reynolds and Surtees dismiss that notion. "They’re not connected at all," the Bell West president asserts. "There are things like call options and put options, but those are unrelated to the Bell West venture." Bell Intrigna already had significant projects underway in western Canada. It was awarded the contract to deploy the infrastructure for Alberta’s SuperNet network (NL, Nov. 6/00). Earlier this year, it inked a deal with the Calgary Stampede to provide telecom services (NL, Jan. 14/02). In British Columbia, it is supplying Centrex services to SaskTel subsidiary Navigata Communications (the former RSL Com Canada). It is also supplying the Surrey School District with local, LD, data and wireless service. The creation of Bell West has spurred the CLEC to start hiring. As of April 23, the company was advertising for 21 positions on the Workopolis web site. (Workopolis is partially owned by BCE subsidiary Globe Interactive.) The firm is seeking people to work as financial analysts, in customer service, marketing and engineering, among other disciplines. The jobs available are located in Calgary, Edmonton, and Vancouver. (In a move that’s unlikely to win it any favours in its new territory, Bell West’s positions are listed as being located in some instances in "Vancouver AB" and "Edmonton BC".) The primary target in this battle is Telus Corp.’s ILEC interests in Alberta and BC. As the western telco moved into the eastern Canadian market, Bell was forced to respond in kind. Reynolds points out that the company already competes in the wireless and satellite TV sector. The move to consolidate Intrigna and Nexxia is just one more piece in the puzzle. Surtees agrees that Telus is the company most likely to be hurt by the Bell incursion. "Do the math. Telus has the major portion of the market there. They’re the most vulnerable," he tells Network Letter. Other CLECs affected AT&T Canada, which has also been targeting the business market across the country, could be affected as well. Less likely to be hurt is Call-Net Enterprises Inc., whose Sprint Canada component has been vigourous as the only major CLEC offering local residential service (NL, Mar. 25/02). Bell West has no immediate plans to enter that market. Quigley points out that the new entrants have been scaling back their business plans in the last few months. They have been forced to be price-competitive only where it makes economic sense. He thinks the Bell West move could help AT&T Canada and Call-Net. "Ironically, in some respects, they’ll end up doing okay as a result simply because they’re going to take a much more logical approach to their markets," he says. "They will only do business where it makes bottom line sense for them, where it means that their margins are maintained. So they’ll probably see lower growth but it will be better growth."

Head of new Bell/MTS venture predicts solid growth for western CLEC

News | April 23, 2002

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