Thursday, June 21, 2007
What's really going on with Bell and TELUS?
Who thinks that TELUS and Bell can combine without having to spin out lots of assets?I disagree with Greg O'Brien's assessment in CARTT:
Using year-end 2006 figures, a "Bellus" would own approximately 82.5% of the traditional telco customers in Canada. What's that you say, the telecom field is hyper-competitive with many newcomers like cable and others? Even factoring those in, a Telus-Bell combo would own 77% of all local lines in the country.In my view, Bell and TELUS don't compete today for residential local lines other than where wireless competes for wireline substitution. Each has maintained a regional focus in the residential sector.
As a consumer, those are hard to swallow numbers. Potentially anti-competitive numbers.
It is on the wireless and enterprise side that competition concerns should arise. As such - it seems clear to me that wireless and enterprise will need to be spun out from a combined Bellus, no doubt causing significant upheaval for customers.
That means great opportunities for competitors picking up the pieces; opportunities from buying pieces being spun out and opportunities to win customers unhappy with being traded around like baseball cards.
What kind of distractions would this merger cause for management? What kind of chaos will this cause for national and multi-national enterprise customers?
Let me paint an alternate scenario. Start by looking at the most likely assets to be permitted to be retained by the combined entity. That creates a list of assets that could be sold to TELUS by the victorious acquiring private equity firm and also identifies the assets that would need to be dealt elsewhere.
TELUS and Bell talking to each other helps crystallize a dissolution plan and perhaps helps drive improved valuations from the remaining bidders.
After the dust settles, I'd suggest that telecom in Canada will remain competitive, thanks to Rogers and MTS Allstream on a national level and cablecos such as Shaw and Videotron on a more regional level.
A merger of Bell and TELUS may create an opportunity for someone (or some group) to instantly become a national wireless player buying existing spectrum and with millions of customers.
Are there any un-conflicted investment banking firms left out there?
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Posted by Mark Goldberg @ 6/21/2007 08:34:00 PM 
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I can't believe I'm doing this, but in the name of devil's advocacy, I'll say there seems to be some merit to the argument Telus is reported to be advancing with respect to not having to shed wireless (and, presumably, enterprise) assets as reported in the National Post. Telus is apparently saying to Ottawa that is should be able to keep both wireless (and enterprise?) operations so that, when (not if!!) the foreign ownership rules are lifted, there will be a Canadian company in place of a size that can compete with Verizon and Sprint. Telus is also saying that there is active competition in the soft drink market with only 2 dominant players (Coke and Pepsi) so why can't that happen in the wireless (and enterprise?) market(s). Maybe, if Telus would also commit to "Bellus" not participating in the upcoming AWS auction if it were allowed to keep both wireless (and enterprise?) operations, its argument might gain some traction.
Somethings to think about!!!
Somethings to think about!!!
Posted by 
: 9:27 AM, June 21, 2007
: 9:27 AM, June 21, 2007
Mark,
For the most part I agree with you on this one, with one issue: the parts telus would likely be allowed to keep (and therefore could acquire from the private equity buyers) are the parts it doesn't want.
Telus's stock has done well over the least few years (everyone forgets the 2000-2002 period when Clearnet almost drove it into bankruptcy) because the business is heavily weighted to wireless. Given that wireless in Canada continues to grow rapidly (and Telus has done well relative to the market), the company as a whole has benefited.
The wireline business has done a little better than Bell, but mostly because of the strong economy out west and less aggressive competition from Shaw. The core problems of a declining, legacy voice monopoly haven't changed -- and won't improve by getting bigger.
What Entwistle really wants (at least, I assume so since he is a smart man) is Bell Mobility, not the rest. It would immediately make Telus even more heavily invested in the future (rather than the past) and there are both cost synergies (from combining the networks and reducing competition for customer acquisition) and revenue synergies (from a two-player market).
The interesting move would be a deal by Telus to acquire BCE and then split the combined wireline and wireless businesses. (If such a move were to happen, expect Entwistle to keep the wireless business and spin-off the wireline.)
If they can sell the story that these two new entities would each be both more efficient and more likely to compete with each other, it just might fly. (Although, still a tough sell to the Competition Bureau, particularly on the wireless side. On the other hand, the new wireline business would be an immediate contender in the AWS auction.)
Finally, I hope no one in Ottawa is dumb enough to fall for the "Canadian champion" argument. A big, monolithic Canadian carrier might be able to fend off foreign ownership (although, you might want to talk to the Danes about that), but it would hardly be positioned to compete globally. Unlike BT or DT, it would have essentially no international operations. In Canada, Bell and Telus, in their present forms, are plenty big enough to compete with a start-up effort in Canada by Verizon or Sprint. (The scale that matters in Telecom is not the size of the company, but its size relative to the local market.)
For the most part I agree with you on this one, with one issue: the parts telus would likely be allowed to keep (and therefore could acquire from the private equity buyers) are the parts it doesn't want.
Telus's stock has done well over the least few years (everyone forgets the 2000-2002 period when Clearnet almost drove it into bankruptcy) because the business is heavily weighted to wireless. Given that wireless in Canada continues to grow rapidly (and Telus has done well relative to the market), the company as a whole has benefited.
The wireline business has done a little better than Bell, but mostly because of the strong economy out west and less aggressive competition from Shaw. The core problems of a declining, legacy voice monopoly haven't changed -- and won't improve by getting bigger.
What Entwistle really wants (at least, I assume so since he is a smart man) is Bell Mobility, not the rest. It would immediately make Telus even more heavily invested in the future (rather than the past) and there are both cost synergies (from combining the networks and reducing competition for customer acquisition) and revenue synergies (from a two-player market).
The interesting move would be a deal by Telus to acquire BCE and then split the combined wireline and wireless businesses. (If such a move were to happen, expect Entwistle to keep the wireless business and spin-off the wireline.)
If they can sell the story that these two new entities would each be both more efficient and more likely to compete with each other, it just might fly. (Although, still a tough sell to the Competition Bureau, particularly on the wireless side. On the other hand, the new wireline business would be an immediate contender in the AWS auction.)
Finally, I hope no one in Ottawa is dumb enough to fall for the "Canadian champion" argument. A big, monolithic Canadian carrier might be able to fend off foreign ownership (although, you might want to talk to the Danes about that), but it would hardly be positioned to compete globally. Unlike BT or DT, it would have essentially no international operations. In Canada, Bell and Telus, in their present forms, are plenty big enough to compete with a start-up effort in Canada by Verizon or Sprint. (The scale that matters in Telecom is not the size of the company, but its size relative to the local market.)
A "Canadian Champion"? Bah. It would be bad for competition, prices wouldn't go down, and jobs would be leaving the country. Telus has been taking jobs away from Canadians for two years now...
The basics of supply-and-demand economics require DEMAND. And people who lose their jobs are in no position to DEMAND lower text-messaging rates.
http://itschironboy.blogspot.com/2007/06/telus-and-charm-offensive.html
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The basics of supply-and-demand economics require DEMAND. And people who lose their jobs are in no position to DEMAND lower text-messaging rates.
http://itschironboy.blogspot.com/2007/06/telus-and-charm-offensive.html
Posted by 
Matthew The Astrologer : 5:11 PM, June 21, 2007
Matthew The Astrologer : 5:11 PM, June 21, 2007 << Home
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