Background
On March 3, 1999, Bell Canada reached an agreement with MCI WorldCom that provided it with Canadian rights to offer MCI WorldCom’s products and gave the US company broader access to Canada. A day later, AT&T Canada announced that it was merging with Metronet, Canada’s leading Competitive Local Exchange Carrier (CLEC). On March 24, BCE announced that it was selling a 20% stake in its telephone operating company holdings to Ameritech, the US RBOC formed from the former “Baby Bell” companies in the American rust belt states of Michigan, Illinois, Indiana, Ohio and Wisconsin. In May of 1998, Ameritech and SBC (of Texas) announced a $57B (US) merger.
Dialling for Dollars
BCE gets $3.4B (US) for the 20% stake in its telecom portfolio which includes: Bell Canada (including Nexxia, ActiMedia directories and the MTS investment), 65% of BCE Mobility (cellular), 21% of Teleglobe, and holdings in 6 regional companies (including all of the Atlantic provincial companies). Ameritech secures a foothold in Canada, the most significant trading partner for US traffic. The US and Canada exchange more minutes of traffic than any other pair of countries on the planet.Bell’s Nexxia unit already has fiber (acquired from Ledcor Industries) running through Ameritech territory, providing a southern leg to a ring connecting Canada’s west to Bell Canada’s core Ontario markets. Nexxia will be in an interesting position to provide international and inter-LATA services to Ameritech customers, allowing Ameritech a back door into the long distance business in its home territory. The US FCC restricts Ameritech from entering the long distance business in its home market until it satisfies certain requirements for emerging local competition. Indeed, the Bell brand is well known in Ameritech territory; its former telephone company business units all operated under the Bell moniker – Michigan Bell, Illinois Bell, Ohio Bell, etc. While Ameritech only acquires a small stake in Teleglobe through this transaction (indirectly less than 5%), Teleglobe could be a beneficiary of improved relations with Ameritech’s extensive investments in European carriers. The partnership needs global connectivity beyond North America – Teleglobe provides that capability, although the MCI Worldcom alliance raises possible options or conflicts in this area.
Who is next?
Canadian telecom companies are clearly in season for foreign investors. Bell’s former alliance partners in the west, BCT.Telus is already 26% owned by GTE (and Bell Atlantic). Videotron, the largest cable company in Quebec, announced on March 23 that it was seeking an investor partner to exploit its network assets. Rogers, Canada’s largest cable company has been the subject of equity investment talk over the past number of months. Four years ago, in the early days of competition in Canada, many of the telephone companies heralded their Canadian heritage against the foreign new entrants. BCE’s sale of part of Bell Canada “breaks the ice” for the remaining Canadian communications icons to go global. Ironically, among major companies, only government owned Sasktel remains 100% Canadian.