Was Bell Canada’s decision to divest its holdings in Northwestel due in part to a regulatory-driven restructuring?
Last week, we learned Bell was selling Northwestel to Sixty North Unity, a consortium of Indigenous communities from the Yukon, the Northwest Territories and Nunavut. The acquisition price is one billion dollars, representing approximately 7.5 times EBITDA ($135M) and the deal is expected to close late this year. The transaction results in Northwestel becoming the world’s largest Indigenous-owned telecommunications company. CRTC approval is not required for the deal.
Two years ago, Northwestel announced the sale if its Yukon fibre to the home assets to a group of 13 Yukon First Nation development corporations.
A number of financial analysts observed that the transaction will reduce regulatory burdens for Bell and dispose of a business unit that is not materially contributing to revenue growth at Bell. Keep in mind, most of Northwestel’s services are still heavily regulated. Even retail internet access service is regulated in Northwestel territory. This meant that CRTC approval was required before the Connecting Families low-income broadband savings program could be introduced.
Over the past year, I have pointed to the potential for regulatory-driven restructuring of major telecom service providers. In “Ending regulated cross subsidies”, I wrote about the CRTC setting wholesale rates paid by Videotron to Rogers below cost. At the time, the CRTC said the financial shortfall could be made up “through other telecommunications services”. In “Cross subsidies cost consumers”, I discussed Corus receiving preferential regulatory dispensation compared to the broadcasting units of Bell, Rogers and Videotron. I observed that the CRTC believed the vertically integrated broadcasters can sustain financial losses, propped up by profits in other segments.
In each of those instances, I wrote “A rational business will restructure, or shut down those units that have no opportunity to climb out of the red.”
Specific to Northwestel, last month the CRTC discontinued a $20 per month surcharge that was applied to customers who subscribed to DSL internet without a residential phone line.
- The Commission notes that it can consider rates to be just and reasonable even if the rates are non-compensatory, for a specific service within a set period of time. In the specific case of removing the surcharge, the Commission considers that the rates may not fully recover the cost of providing the service, based on the financial information submitted by Northwestel. However, the surcharge impacts Northwestel’s capacity to recover its costs to a very limited degree relative to Northwestel’s total revenues from terrestrial Internet services.
Translation? Even though the CRTC regulates almost all of Northwestel’s rates, the Commission thinks it is OK for the company to lose some money for a little while on this line item. They’ll make up for it somehow. Except they really won’t.
The unwritten subtext is that the CRTC expects Northwestel’s shareholders to eat the cost of the Commission’s generosity. When the shareholder is a multi-billion dollar company like Bell, the CRTC decision is an easy political win. The Commission is seen as a consumer champion. Would the CRTC come to the same determination with the new owners of Northwestel?
Three and a half years ago, the CRTC launched its “Review of the Commission’s regulatory framework for Northwestel Inc. and the state of telecommunications services in Canada’s North”. Perhaps fittingly for Northwestel’s geography, the review has moved at a glacial pace. The oral hearing phase took place 10 months ago. The only decision to have emerged is the $20 surcharge elimination described above. “The Commission continues to review other issues raised in Phase II of the Telecommunications in the Far North proceeding and will address those issues in a future decision.”
Sixty North Unity has announced significant capital investment plans, for growth and enhancing digital connectivity across the North, including
- Doubling Internet speeds to 1 Gbps (gigabits per second) for fibre customers;
- Expanding high-speed Internet availability to meet the CRTC’s universal service objective of 50/10 Mbps to more than 97% of homes in the Yukon and the Northwest Territories;
- Offering Low Earth Orbit (LEO) satellite technology to deliver 50/10 Mbps speeds to eight satellite-served communities in the Northwest Territories and 25 satellite-served communities in Nunavut;
- Investing $4 million to build the Great Slave Lake Fibre Project, bringing critical resiliency to the Yellowknife capital and South Slave regions of the Northwest Territories and further safeguard against the impacts of wildfires and other natural disasters.
As an Indigenous-owned independent service provider operating in the far north, Sixty North Unity will likely have access to a wider range of government programs as it looks to fund these projects.
Is this a regulatory-driven restructuring? Regardless of the trigger, the transaction should lead to increased investment, and improved funding for customer service and operations.
At the end of the day, that should make this deal a win for consumers.