A tale of 2 acquisitions

Last week, two acquisitions in the Canadian telecom sector were met by very different reactions.

The first was Quebecor’s purchase of VMedia, a wholesale-based internet service provider with bundled TV offerings. As described by the Toronto Star, “The deal is part of Quebecor’s push to expand outside its home province”.

The other was Beanfield’s acquisition of Vancouver-Based Urbanfibre. Beanfield operates what it calls the largest independent fibre-optic network in Toronto and Montreal; Urbanfibre is a similar company operating in Vancouver.

About its acquisition of VMedia, Quebecor told the Toronto Star, “VMedia is now one of the key partners that will help accelerate Quebecor’s plan to create greater competition in Canada through advantageous bundles of services, giving Canadian consumers more choices at better prices.” The deal drew a mixed reaction from other internet service providers. According to the Star, the Competitive Network Operators of Canada (CNOC) called the VMedia deal an “exciting possibility” for competition. On the other hand, Teksavvy characterized the deal as “another blow to the market and consumer choice”, referencing Bell’s acquisition of EBOX earlier this year.

Of course, these deals don’t reduce consumer choice. None of the deals could be termed as a ‘fire-sale’ with desperate ownership. In each case, the combined entities will be better funded, and better positioned to offer an expanded array of choices to consumers across a wider geography. As VMedia’s co-founder told the Star “We’re going to be able to provide even better deals for consumers and be even more competitive than the ISP space has been. I think that’s going to bode very well for consumers.”

Economist David Stinson recently wrote:

There are two issues which, in telecom markets, are all too often conflated — i) the number of retail market competitors, and ii) the scope of competition. By “scope of competition”, I mean the proportion of network and service components that are subject to competitive market forces.

In telecom markets, which necessarily involve substantial economies of scale and scope and significant proportions of costs which are insensitive either to traffic or the number of customers or both, the number of socially optimal and sustainable facilities-based providers will be far less than a superficial, Econ-101-based notion of perfect competition would imply.

Consolidation in telecom does not necessarily result in a reduction in competition for consumers. In each of last week’s transactions, consumers will still have access to competitive choice, with a stronger, more sustainable service provider complete with stronger financial capacity to invest.

These acquisitions result in a more competitive marketplace.

That’s good for consumers.

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