Savings, simplification cited in BCE takeover of Bell Aliant

Saving money, simplifying operations and creating a stronger telecom competitor in Atlantic Canada were among the reasons cited for why BCE Inc. is seeking ownership of all parts of Bell Aliant Inc. it does not already own. BCE announced Wednesday it intends to purchase 127.5 million shares of Bell Aliant for $3.95 billion in cash and stock. BCE holds about 44 per cent of Bell Aliant now, according to Bell Aliant's 2013 annual information form, though it controls the company with a majority of seats on Bell Aliant's board of directors. "The privatization of Bell Aliant dramatically simplifies BCE's corporate and operating structure, eliminating the requirement for two duplicate public companies and the costs associated with operating those companies," Bell CEO George Cope said during a conference call on Wednesday. Gerry Wall, president of Ottawa telecommunications consulting company Wall Communications Inc., said BCE's takeover of Bell Aliant will lead to more efficient operations throughout the two companies. "The decision-making is going to be centralized now, as it should be, I think, in terms of investment and pricing decisions," he said in a phone interview. Wall added: "It makes a lot of sense. You're going to get rid of some head office duties. ... In terms of centralized decision-making, it will all move to Montreal at the head office." Bell Aliant provides telecommunications services in the Atlantic provinces, as well as rural parts of Ontario and Quebec. Maher Yaghi, telecom analyst with Desjardins Securities, said Bell's estimate of $100 million in annual pre-tax efficiencies created by the transaction is probably a "conservative number," and that it could be twice as much. He said the deal will help BCE and Bell Aliant compete in the Atlantic by creating opportunities for more efficient bundling of the Bell Mobility wireless service with Bell Aliant's home-phone, Internet and TV services. "It will be easier to bundle without the inter-company costs, charging and inter-segment operations," Yaghi said in a phone interview. "It simplifies the way you price products." Yaghi said the arrangement will help Bell compete with Eastlink, which offers "a quadruple bundle" of wireless, home phone, television and Internet services. Cope addressed bundling opportunities during the conference call: "We have always done some bundling with , but obviously, the complexity of where the revenues lie and the costs lie go away here. So our ability to execute quicker in a highly, highly competitive market is one of the real benefits." Bell said approvals from Industry Canada and the CRTC are not needed for this deal to proceed because it already controls Bell Aliant and no transfers of spectrum are involved. The transaction is dependent, however, on more than 50 per cent of publicly held common shares being tendered. Bell said it expects the transaction to close by Nov. 30 this year. Bell made three separate announcements Wednesday that focused on the Atlantic region. BCE said in one of its press releases it would expand LTE wireless service to more than 100 additional communities in New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island by the end of 2015. The company said it is using spectrum purchased in this year's 700 MHz auction to expand LTE to smaller communities and rural areas across Canada. It said its LTE network currently covers 81 per cent of the Canadian population, and it is aiming to grow that to 98 per cent. BCE spent $565.7 million in the 700 MHz auction this winter, the third most of any company. Rogers Communications Inc. spent $3.29 billion, and Telus Corp. spent $1.14 billion. BCE bought 700 MHz licences in every region of the company, including some so-called prime blocks in all four Atlantic provinces. Bell said in a third press release Wednesday it has bought two customer call centres in New Brunswick. The centres are in Saint John and Moncton and will be operated by Bell subsidiary Nordia the company said. "More than anything, they're saying, 'We're going to treat area as part of our overall national strategy and plan,' " Wall said of all the Atlantic-centric news from Bell on Wednesday. Iain Grant, telecom analyst with the Seaboard Group, said in an email: "I see no apparent reason for a special Bell corporate focus on the Maritimes. That said, upgrades to the LTE network are probably a response to the challenge presented by Eastlink. ... As for New Brunswick call centres, doubt that that was part of a cunning master plan; just business as usual." Yaghi said having these announcements come at the same time is a way for Bell to signal to its employees and other stakeholders in the Atlantic that the operations there remain important to the company. "It's an indication by the company that they're not buying Bell Aliant and then moving everybody important to Central Canada," he said. "They're going to keep their operations running from Atlantic Canada." Bell said in its release Wednesday that it would maintain Bell Aliant's Halifax headquarters, and that $2.1 billion would be invested in Atlantic Canada over the next five years to expand broadband wireline and wireless services. Cope said during Wednesday's teleconference that an estimated $200 million in added annual cash flow created by the Bell Aliant takeover is among the things that make it possible for Bell to make this kind of commitment. "The ability now to efficiently allocate our capital across only one company is a significant productivity-enhancing element of this transaction," he said. "The best example I can give you ... is we will no longer be required to invest in two different billing platforms and instead can reallocate that saved capital in broadband services for consumers and businesses." Cope and Bell Aliant CEO Karen Sheriff said during the conference call that there are no plans to phase out the Bell Aliant brand. "I think George has been pretty clear on this one, and I find the commitment from BCE had been quite impressive to helping us maintain our local presence," Sheriff said. "The Bell Aliant brand will stay where it is." Cope said: "The Bell Aliant brand will continue in the Atlantic territories." — With reporting by Derek Abma at dabma@thewirereport.ca and editing by Peter Henderson at phenderson@thewirereport.ca

Savings, simplification cited in BCE takeover of Bell Aliant

News | July 23, 2014

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