BCE | Ian Andrew Bell

Telecom in British Columbia

Ian — Tue, 30 Apr 2002 18:05:14 +0000

http://www.biv.com/article1.html

2001 a roller coaster for telecoms Sector remains a big driver in B.C. high tech even after a rough year

by Glen Korstrom

A turbulent telecommunications sector has changed the face of this year’s list of B.C.’s 100 biggest high-tech employers.

While former market darlings have fallen on tough times and off the list, perennial chart-topper Telus Corp. remains at the head of the pack, new players have arrived and several upstarts have jumped a few rungs. (See page 18 for the full 2002 list of biggest high-tech companies in B.C.)

Newcomer Bell West, created April 11 from the merger of the former Bell Intrigna and Bell Nexxia, has burst onto BIV’s list at number 39, with 175 local employees.

Bell will likely make further inroads in BIV’s tech list in coming years, as its divisions with B.C. employees include:

cell phone provider Bell Mobility;

home satellite group Bell ExpressVu;

media division Bell Globemedia (which includes employees at CTV and the Globe and Mail);

retail stores under the Bell World banner; and

Web portal VancouverPlus.ca.

In total, Bell’s parent company BCE has more than 700 employees in B.C., said Bell West sales director Garrett Ungaro.

Bell West’s Vancouver-based general manager John Stoddart said the merger eliminates some duplication in the two Bell arms, which provide services in the voice and data sectors, including high-speed Internet.

But he does not expect layoffs to result from the merger because growth will be sufficient to keep everybody busy.

While much has been made of Bell’s foray into Telus’s backyard, telecom analyst Eamon Hoey of Toronto’s Hoey and Associates said B.C.’s largest high tech company has no reason to shake in its boots now that its prime competition has restructured.

Although Hoey praised Bell West’s management as having “more juice” than the previous team at the two former divisions, he sees the emergence of Bell West as healthy for Telus because it forces Telus to provide good service for low cost.

“There’s nothing worse than having inferior competition,” said Hoey.

Telus has no intention of relinquishing its top spot among B.C. technology employers anytime soon. Past growth in the province has come from acquiring Vancouver companies such as Web design firm Columbus Group, and Telus spokesperson Doug Strachan said that growth strategy is likely to continue in the future. “We made it clear from the beginning that we intend to defend and grow our home markets,” Strachan said.

Other recent successes include Alcatel, a telecom equipment giant with 99,000 employees globally. It makes its debut appearance on BIV’s tech list this year, at number 22. Although the company is based in France, it has 270 B.C. employees, engaged mainly in research and development. Its latest product, the 7670 RSP media gateway, was developed jointly by Alcatel’s Ottawa and Burnaby staff. That product expands the delivery of data services to businesses and consumers, providing video-on-demand and online business transactions among other services.

Alcatel Canada’s ceo Hubert de Pesquidoux explained that much of his company’s B.C. growth can be attributed to the fact that this is where Alcatel employees want to live. “People love B.C. and Vancouver.”

He said he had tried to promote some top performers in the Burnaby office by offering them stints in Europe, but they turned him down because they didn’t want to leave B.C.

Alcatel is new to BIV’s list because the company declined to provide staff numbers in 2001. Telecom equipment provider Glentel Inc. similarly provided numbers for the first time this year and jumped onto BIV’s 2002 list at No. 17.

Other telecoms provided figures previously, but declined to get specific this time around. 360networks, which has had to scale back its ambitious plans to build a worldwide fibreoptic network, said it had 200 local staff last year and 1,500 worldwide. The company, now under creditor protection as it tries to restructure, would not provide figures this year, but in a recent court filing said it now has 172 workers in its Canadian and Atlantic offices.

Similarly, Redback Networks refused to provide updated figures after telling BIV that it had 230 employees in Burnaby last year.

The U.S.-based manufacturer of broadband communications systems has suffered job cuts and a steep revenue drop over the past year.

Embattled telecom Nortel Networks Corp. had 270 staff in Richmond in September 2000. For the past two years, the company, which has also cut jobs, refused to provide local employee figures.

Meanwhile, Convedia Corp., a local developer of Internet voice and video technology, has jumped 16 spots in the list, moving to 82 from 98 last year. That company netted US$20 million in venture funding in September 2001, and soon after hired 13 additional staff. It now has 70 employees. Convedia CEO Peter Briscoe added that he intends to hire more technical and business development employees.

Motorola Canada Ltd. jumped three spots to take the number 17 position.

Other local players in the telecom sector have felt the impact of a global slowdown in telecom spending. Argus Technologies, GT Group Telecom, Rogers AT&T Wireless and Microcell Telecommunications (branded as Fido) all dropped down the list.

Telecom turmoil spurs movement

B.C.’s biggest telecom firms ranked by number of employees..

Company 2002 2001 Local employees Telus 1 1 13,154 PMC Sierra 8 5 600 MDSI Mobile Data Solutions 13 12 360 Glentel Inc. 17 NR 300 Motorola Canada Ltd. 17 20 300 Alcatel 22 NR 270 Rogers AT&T Wireless 22 19 270 Argus Technologies 32 27 215 Alpha Technologies Ltd. 34 43 202 AT&T Canada Corp. 35 38 200 GT Group Telecom 39 28 175 Bell West 39 NR 175 Microcell Telecommunications 41 40 172 Spectrum Signal Processing 44 48 158 Radiant Communication Services 61 NR 110 Convedia Corp. 82 98 70 Sprint Canada Inc. 82 82 70 Norsat Int’l 82 NR 70 NR = Not Ranked

Source: BIV TOP 100 LIST

Is Teleglobe Toast?

Ian — Fri, 19 Apr 2002 18:16:51 +0000

http://www.GlobeAndMail.CA/servlet/GIS.Servlets.HTMLTemplate?tf=tgam/search/ tgam/SearchFullStory.html&cf=tgam/search/tgam/SearchFullStory.cfg&configFile Loc=tgam/config&encoded_keywords=Teleglobe&option=&start_row=1&current_row=1 &start_row_offset1=&num_rows=1&search_results_start=1

>From globeandmail.com, Wednesday, April 17, 2002

BCE should just walk away from Teleglobe

ERIC REGULY

Could the safety of BCE’s dividend be determined by a few telecommunications executives in Bonn?

Bonn is the home of Deutsche Telekom, Europe’s biggest phone company. Deutsche Telekom, like France Telecom and other European rivals, blew its brains out making overpriced acquisitions and buying overpriced wireless licences in the past couple of years. For its sins, it is expected to sell assets at a discount, one of which may be VoiceStream Wireless of the United States, which it bought near the height of the market a year ago for a lofty $30-billion (U.S.).

VoiceStream is the subject of much speculation at the moment. Just about everyone in the telecommunications industry — executives, analysts, fund managers — expects the profitless wireless sector to consolidate; the six big players probably will shrink to four or three. One of the companies that is expected to do the consolidating is SBC Communications of Texas, which controls Cingular Wireless, the second-biggest name in the business. Recently, Edward Whiteacre, SBC’s CEO, said the “wireless industry is ripe for consolidation,” adding that mergers will “probably begin some time this year.”

VoiceStream, whose parent company is anxious to reduce debt, would seem a natural candidate for the auction block. It also uses the same technology — GSM — as Cingular, making the two natural partners.

This is where BCE might enter the international portfolio shuffle. SBC owns 20 per cent of BCE’s Bell Canada unit and has the option to “put” it back to BCE at fair market value plus 25 per cent. The option opens in July and closes at the end of December. It reopens during the same period in 2004.

SBC has not revealed whether it intends to exercise its Bell Canada put, but the body language suggests it will. It is on record saying consolidation is coming and, as one of the stronger names in the industry, the expectation is that it will prey on the weak — VoiceStream or possibly AT&T Wireless (which also uses GSM technology). To do so, it would have to raise a lot of money in a hurry. As luck would have it, it has a piggy bank north of the border.

Stagnant ownership rules are another reason why SBC might exercise its put option this year. Last autumn, there was talk that the foreign ownership cap, currently at about 47 per cent, would be relaxed or eliminated. Since then, momentum to overhaul the ownership legislation has stalled. Part of the problem, it appears, is differing agendas. The cable companies would like to see the restrictions watered down. Bell Canada, though, is sending out mixed signals. In theory, it would like easier access to foreign capital. In practice, it would fear losing its independence. If SBC comes to the conclusion that it will have no opportunity anytime soon to leverage its minority interest in Bell Canada into a control position, it might just head for the exit.

Putting aside one nagging question — what was BCE thinking in 1999 when it agreed to give Ameritech, now part of SBC, the right to cash out at a fat premium? — the issue is how much financial damage SBC’s put option could inflict on BCE. Assume “fair market value” translates into a sale price of six times Bell Canada’s EBITDA (earnings before interest, taxes, depreciation and amortization). That would value SBC’s 20-per-cent stake in Bell Canada at $5.2-billion (Canadian). Add the 25-per-cent premium, and you’re up to $6.5-billion. If you assume Bell Canada is worth seven times EBITDA, the total price rises to $8.1-billion. That’s a lot of money, even for a company the size of BCE.

BCE wouldn’t necessarily have to give SBC cash immediately. It could issue a promissory note, but that would only delay the inevitable. A promissory note is a form of debt. Add this to the impact of consolidating 100 per cent of Bell Canada’s debt and all of a sudden BCE is up to its call centres in leverage, which in turn would put its debt ratings under pressure. In the end, paying cash or issuing promissory notes are equally unappetizing.

The bigger question, though, is whether BCE wants to risk dealing with another crisis — figuring out how to pay SBC — when it’s in the middle of an ample one in the form of Teleglobe. Teleglobe is a genuine meltdown and the banks and bondholders are gearing up for a fight to recover about $2.5-billion (U.S.) in debt. So far, it appears that BCE is willing to make some sort of offer to the debtholders. Even if it’s only 20 cents on the dollar, that’s $500-million, not to mention the funding requirements to keep Teleglobe’s capital expenditure program alive.

Would BCE be able to afford to satisfy the Teleglobe debtholders, fund Teleglobe, pay off SBC and still pay its 5-per-cent dividend?

Unlikely. Something would have to give. BCE should assume that SBC will exercise its put option this year and make plans accordingly. Eliminating one expense — Teleglobe — by walking away from it seems the sensible solution.

ereguly [at] globeandmail [dot] ca

FW: Good article on Price Cap hearing, AT&T, and more…

Ian — Sat, 13 Apr 2002 19:01:15 +0000

—— Forwarded Message From: Shiuman Ho Date: Wed, 10 Apr 2002 22:15:49 -0700 Subject: Good article on Price Cap hearing, AT&T, and more…

This article summarizes some of the possible outcomes of the Price Cap hearing and their impact on the competitive landscape in the Canadian telecom market.

Shiuman

=================================================

>From globeandmail.com, Monday, April 1, 2002

Stakes high as telcom rules revised CRTC must balance competing interests PATRICK BRETHOUR

Call it the Lotto-CRTC.

Hundreds of millions of dollars — not to mention the future of local telephone competition in Canada — are at stake as the Canadian Radio-television and Telecommunications Commission unveils the new rule book for the industry later this month.

AT&T Canada Inc., weighed down by deep losses and falling credit ratings, says “sustainable competition” is at risk. Call-Net Enterprises Inc. is more blunt, saying that without major regulatory changes, it and other new entrants won’t last the decade it will take to start turning a profit.

“The financial markets aren’t going to let us hang around that long,” says Jean Brazeau, senior vice-president of regulatory and government affairs at Call-Net, which operates under the Sprint Canada brand.

In 1998, the federal regulator set up the “price-cap” regime, replacing the previous system that guaranteed the phone companies a return on capital. The price cap was designed to curb the power of incumbent telephone companies — Bell Canada, Telus Corp. and smaller regional players — and thereby spur local competition.

Four years on, full-blooded local competition seems no closer. Smaller new entrants, such as Axxent Inc., tumbled into receivership last year as capital markets dried up, and larger competitors, such as Call-Net, AT&T Canada and GT Group Telecom Inc., have been hamstrung by huge losses.

Consumers should expect their monthly bills to rise, whatever the specifics of the CRTC decision, says Brian Sherwood, senior associate with the Seaboard Group, a Brockville, Ont., telecommunications consultancy. “We’ll end our years of going down.”

The stage is set for a substantial renovation of the structure of competition, but the CRTC will need to strike a balance between four complex issues: the price cap; the spread between the monthly bills of consumers in low-cost urban areas and high-cost areas; the contribution pool that all players pay into to defray the cost of providing service to high-cost areas; and the fees that new entrants pay to use the incumbents’ networks.

Price cap

Two things the telecom industry can agree on are this: The price cap system doesn’t work, and consumers’ monthly bills need to rise.

Under the current system, the savings from the declining cost of an incumbent’s network have to be split with consumers. The effect has been to drive down prices in the residential market.

In the face of falling prices, new entrants, which have higher costs, have been hard pressed to make any substantial foray into the local market.

Incumbents Bell Canada and Telus both want to do away with the “productivity offset” that forces them to reduce prices as their costs fall. Essentially, the two companies are seeking the right to set prices the way an unregulated business does, trading off maximizing profit per customer and overall revenue.

“It would be a business decision, how you share that,” says Robert Farmer, Bell Canada’s vice-president of regulatory matters.

On the other side of the issue, AT&T Canada and Call-Net are seeking to keep the regulatory handcuffs on their bigger competitors. Call-Net wants the productivity offset increased, which would cut into the amount of cash the incumbents get from local services. But the company also proposes that the offset be used to reduce the fees it pays to the incumbents, rather than reducing residential bills.

AT&T Canada, for its part, wants the CRTC to strip the incumbents of the ability to decide in which markets prices fall, arguing that Bell and Telus have pushed down rates in areas where they face competition, while leaving rates untouched in non-competitive regions.

Urban versus rural rates

Currently, the rates in high-cost areas — rural Canada, towns and smaller cities — are roughly on par with those in denser urban areas, even though it is much less expensive to provide service to consumers in large cities.

That parity would end under proposals from Bell and Telus, with rates in high-cost areas moving sharply higher than those in urban areas, where rates would simply keep pace with inflation.

The new entrants are aiming to trim the amount of cash that the incumbents get from high-cost areas, in order to prevent what they see as subsidies flowing to competitive areas from non-competitive ones.

Contribution pool

Last year, the CRTC sharply reduced the pool of money available that all industry players pay into in order to defray the expense of providing local service to high-cost areas. Both Telus and Bell Canada want the contribution pool — slated to be $350-million this year — to be increased, although they say they accept that it will be less than the $1-billion fund of 2000.

A deeper contribution pool is a key aim for Telus, says Jim Peters, executive vice-president of corporate development. If the CRTC doesn’t increase the contribution pool, Telus will be out of pocket around $1-billion, Mr. Peters says — impeding its effort to expand eastward to compete with Bell Canada. “That’s a billion dollars less that Telus will have to expand into Guelph or Gravenhurst.”

Network access fees

For AT&T Canada, the make-or-break element of the CRTC decision will be the amount it and other new entrants have to pay to use the facilities of the incumbents. AT&T Canada said it paid $450-million in such fees last year, the largest part of the $600-million to $700-million the entire industry paid.

The company says it uses the facilities of Bell Canada, Telus and other incumbents for more than half of its traffic — and will continue to depend on those firms for the “foreseeable future,” despite having invested $500-million annually in infrastructure over the past four years.

Chris Peirce, AT&T Canada’s senior vice-president of regulatory and government affairs, says the incumbent firms had nearly a century to construct their infrastructure — and did so under the protective umbrella of a regulated monopoly. “A company like Bell didn’t just decide to build a network across the country.”

AT&T Canada is asking for a 70-per-cent discount (a reduction worth more than $300-million using last year’s payments), a figure it arrived at by estimating how much it would cost to serve its customers if it built its own mid-sized network. Call-Net is asking for a smaller reduction of 40 per cent, basing its calculations on the incremental cost of supplying each service.

Not surprisingly, the two main incumbents, Bell and Telus, strongly oppose reductions. Telus says the “huge discounts” would mean that it would not even cover its costs when supplying services to new entrants. Bell Canada says the discounts are “extreme proposals.” BCE chairman and chief executive officer Jean Monty had a sharper-tongued assessment of the idea last June: “As far as I’m concerned, it’s a bit of sour grapes from a loser who’s crying wolf.”

What might seem surprising is that another new entrant, GT Group Telecom, opposes reductions to network access fees, arguing that any cut will merely drive down already slim profit margins. Not coincidentally, the company depends less on the incumbents to complete its calls; it would be helped by discounts, but its rivals would be helped more.

“We aren’t asking for huge subsidies,” says Fiona Gilfillan, the company’s vice-president of regulatory affairs.

The local competition

The Canadian Radio-television and Telecommunications Commission decision on competition in the local phone market will tackle four main issues

AT&T Canada:

John McLennan, vice-chairman and CEO

Price Cap

Strip ILECs of ability to decide where to reduce prices as costs fall

Rural versus urban rates

Freeze rates for high-cost areas in real terms; for low-cost areas, CRTC should ensure services aren’t priced below cost

Contribution pool

Satisfied with current level, reduced in 2001

Network fees

70% reduction in fees paid to incumbents, with rates to be set at what the cost incumbents incur to supply themselves.

BCE:

Jean Monty, chairman and CEO

Price Cap

ILECs to decide whether to cut prices or boost profits as network costs fall

Rural versus urban rates

Rates in urban areas should rise by rate of inflation; in higher-cost areas, rates could rise by $8 a month over four years to a maximum $29.95 monthly charge

Contribution pool

Reflect current cost of servicing high-cost areas, but keep current formula; effect would be to increase contribution pool

Network fees

Retain a markup for essential and near-essential services in order to contribute to overall fixed and common costs; for other services, reductions only for “avoidable costs” specific to retail market

Call-Net:

William Linton, president and CEO

Price Cap

Increase productivity offset to 6% from 4.5%, reducing cash benefit to incumbents; use offset to reduce network fees rather than retail prices

Rural versus urban rates

Rural and urban rates must rise or fall in tandem

Contribution pool

No position

Network fees

40% reduction in fees paid to incumbents, with rates to be set at the cost of supplying specific service

Group Telecom:

Dan Milliard, CEO

Price Cap

Current system has driven down profit margins “unnecessarily quickly”

Rural versus urban rates

Freeze business rates in real terms; no position on residential rates

Contribution pool

Contributions should be based on “incremental costs” of ILECs, which would tend to shrink pool of cash available

Network fees

Opposes reductions, although would reap savings if AT&T/Call-Net proposal accepted

Telus:

Darren Entwistle, president and CEO

Price Cap

Any productivity improvements in low-cost areas could be kept as profits

Rural versus urban rates

For high-cost areas, prices to rise by up to $3 a month each year over five-year period to a maximum $35 monthly charge. For other areas, market forces to determine prices.

Contribution pool

Contribution should be higher than current $350-million, but lower than the $1-billion in 2001, to better reflect costs of servicing remote areas.

Network fees

Opposes reductions as a distortion of market forces

—— End of Forwarded Message