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Why foreigners are interested in Canada’s tiny telecoms

A Rick Mercer Report spoof of the Canadian wireless industry earlier this year poked fun of the Canada’s telecom concentration, which is among the highest in the Western World.
A Rick Mercer Report spoof of the Canadian wireless industry earlier this year poked fun of the Canada’s telecom concentration, which is among the highest in the Western world.

The skit imagined a dating site called “Conglomermate” for Canadians, which paired singles based on their dissatisfaction with their wireless provider.

“All Canadians are somewhere on the Bell Rogers anger continuum” crooned the parody voiceover. “only Conglomermate makes sure you’re matched up with someone in the same phase as you are…”

In 2010, a report commissioned by MTS Allstream presented to the Director General, Telecommunications Policy Branch of Industry Canada showed what a lot of us already intuitively know, “The market is highly concentrated…” said the report, ” ….with Bell, Telus and Rogers owning 96% wireless market share and telecom incumbents owning 73% wireline market share.”

The document said Canada’s telecom market represents $41 billion or 1.4% of global telecom revenues.

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Earlier this summer, long rumored amendments to Canada’s Telecommunications Act provided a foreign ownership rule exemption to carriers which represented less than 10% of total Canadian telecom industry revenues. A back of the napkin calculation means this applies all carriers with less than $4.17 billion in annual revenue. Bottom line: all carriers other than Bell, Rogers and Telus can now be 100% foreign owned.

Today, Terago (TSX:TGO) announced it was initiating a strategic review to take advantage of these new rules. The company said it had engaged US investment bank Houlihan Lokey and Canadian bank Canaccord Genuity as financial advisors in the process.

The Thornhill-based company, which operates a carrier-grade, fixed wireless, Internet protocol communications network, says it provides services to more than 6000 customer locations across 46 geographic markets. The company posted a topline of $44.92-million in fiscal 2011.

Today’s move by Terago follows a June announcement that Manitoba Telecom had hired Morgan Stanley to find a buyer for its MTS Allstream division. Globe and Mail reporter Rita Trichur today reported that some analysts suggest MTS could command as much as $900-million.

And last month, New York Stock Exchange Listed Primus Telecommunications (NYSE:PTGI), which posted just under a billion dollars in revenue last year, announced it had acquired the 54.4% of Canadian Competitive Local Exchange Carrier Globility Communications Corporation that it did not own, which gave the Virginia-based company full ownership.

The most interesting piece of the amendment to the Telecom Act, which was introduced On March 14th by Industry Minister Christian Paradis, is this: unless they merge with or acquire another company, providers such as MTS Allstream, Terago and Globility and others will continue to be exempt from foreign ownership as the their market share grows.

This means Canada’s $41-billion dollar industry is likely to start fragmenting ahead of the upcoming auctions of the 700 MHz spectrum band, which is expected to take place in the first half of 2013 and of the 2500 MHz spectrum expected to happen early in 2014.

“The main goal for the government” Industry Minister Paradis told attendees of the Canadian Telecom Summit in Toronto this past July “Was to have a fourth player in each licence area,”

The bad news for those three companies not exempt from the foreign ownership changes is this: the fourth player in each the license area will almost certainly command the resources of a much larger and better capitalized entity than they have dealt with to date.

The goods news for consumers is that the telecom dating pool is soon likely to expand well beyond the scope of current “Conglomermate” offerings.

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About The Author /

Nick Waddell
Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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