Allstream’s fibre network supports Accelero’s plans for Wind: analysts

Accelero Capital Holding's deal to purchase Allstream from Manitoba Telecom Services Inc. will give the company a cross-country fibre network that would provide backhaul support for mobile wireless services and bundled Internet, voice and mobile wireless contracts in the business market. That is, of course, if Accelero, based in Paris and co-founded by Egyptian billionaire Naguib Sawiris, succeeds in its offer to purchase Wind Mobile from VimpelCom Ltd. “In Canada you can give an advantage to yourself, radically, if you own your own infrastructure,” Brownlee Thomas, a telecom analyst with Forrester, said in a phone interview. “Anywhere you need fibre, it's going to be very attractive pricing because it's your own.” Sawiris said last week he is re-entering the Canadian telecom market—after originally backing Wind Mobile's entry into Canada—with a “long-term commitment” and the purchase of Allstream from MTS in a deal valued at $520 million. Allstream, MTS' business services division, has a national, 30,000-kilometre fibre-optic network, and provides Internet, wireline phone, and other IP services to more than 50,000 large, medium and small-sized companies. Accelero, if it succeeds in buying Wind Mobile, could connect its mobile wireless cell sites to the Allstream fibre network, significantly reducing its costs. The company would not be required to lease that infrastructure from competitors like BCE Inc. and Rogers Communications Inc. Accelero has not announced or publicly discussed any possible deal for Wind Mobile, though the company has submitted an offer for it in a partnership with outgoing Wind Mobile CEO Anthony Lacavera, The Wire Report reported in April. Dvai Ghose, a telecom analyst with Cannacord Genuity, agreed in a phone interview that the Allstream fibre network would support cell sites, though some incremental capital expenditures may be necessary to extend fibre lines to them. Ghose questioned how many large businesses, such as banks, would migrate their telecom services to Wind Mobile, which would have to try to “pry away” existing business customers from competitors, he said. RBC telecom analyst Drew McReynolds said in a research note to clients Monday that Accelero's deal for Allstream increases the probability that the investment firm will try to acquire Wind “given the likely synergies on backhaul and in the wireless business market.” He said Accelero acquiring Allstream and Wind Mobile would be “slightly negative” for the incumbent providers though “we do not view a recapitalized WIND Mobile with Allstream as a game changer for the wireless sector.” McReynolds said investment in Allstream could mean more competition for the incumbents, noting that BCE now has an “outsized share” of the business market. “Furthermore, this scenario could prove constructive for all wireless stakeholders versus the alternative of potentially more punitive wireless regulation,” McReynolds said, referring to speculation that Industry Minister Christian Paradis may announce stronger roaming and tower sharing rules as well as financial incentives to help new entrants. Paradis aims to ensure the presence of four wireless competitors in each region of the country, leading to speculation that the minister could block the sale of Wind to an incumbent to allow Accelero's offer for the new entrant carrier to proceed. “We want to ensure that there is a fourth player in every region of this country,” Paradis said Monday during the House of Commons’ question period. He said Industry Canada policies intended to foster competition have worked, leading to lower pricing for consumer wireless services. “This is an accomplishment and we will continue to do so,” Paradis said. Thomas said Accelero's deal for Allstream, if it is intended to support mobile wireless services, would be part of a strategy to operate as an integrated service operator in the business market, offering bundled mobile, Internet, wireline phone, and IP hosting services to a wider array of companies. “The play is they want to become an integrated carrier, which is doing fixed line and wireless,” Thomas said. “ take it down to mid-market and even to small business.” Thomas said Accelero, if it succeeds in purchasing Wind, could offer bundled business services to small, large and medium-sized companies along Allstream's national fibre corridor, competing in the business market with Bragg Communications Inc. in Atlantic Canada and BCE and Quebecor Media Inc. in Quebec, among others. One person with knowledge of the talks for Wind Mobile told The Wire Report that the Accelero offer is in the range of $500 million to $600 million. Bloomberg, citing one anonymous source, reported Friday that Accelero's offer ranges from $500 million to $700 million. Incumbent carriers BCE, Rogers and Telus Corp. are also potential suitors for Wind, The Wire Report reported this month. A question now among observers is whether Accelero's deal for Allstream means the company is ahead of a government announcement that could deny or restrict further purchases of new entrants and their spectrum holdings by the incumbents. Telus said last week that it had reached a $380-million deal to acquire new entrant Mobilicity, operated by Dave Wireless Inc., and its roughly 250,000 subscribers. The deal must be approved by Industry Canada and the federal Competition Bureau. Observers and analysts said last week that Paradis may block Telus' deal to purchase Mobilicity to support his policy aim of four competing wireless carriers. Thomas said she believes the government could approve both Telus' deal for Mobilicity and Accelero's potential purchase of Wind, and that the move would be consistent with Paradis' four-carrier policy. Denying an incumbent's purchase of Wind would ensure a fourth, independent carrier, and approving Telus' deal for Mobilicity would take a fifth or even sixth player out of the markets it operates in, she said. “If the regulators allow Accelero to acquire Wind, then the Telus-Mobilicity deal likely would be allowed as well,” Thomas said. “Wind is an independent fourth carrier the government has indicated they want to ensure more viable competition.” Accelero did not respond to a request for comment for this story by deadline. —With reporting by Simon Doyle at sdoyle@thewirereport.caand copy editing by Nicholas Kyonka at nkyonka@thewirereport.ca

Allstream’s fibre network supports Accelero’s plans for Wind: analysts

News | May 27, 2013

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