Call-Net Thursday said it will have to put the brakes on its plans to expand its residential service thanks to the Canadian Radio-television and Telecommunications Commission’s price cap review.

The Toronto-based firm was one

of several telecom players disappointed by the CRTC ruling last month, which took a second look at the amount competitive local exchange carriers (CLECs) pay to incumbents like Bell Canada for use of their networks. Though the CRTC offered some reductions of the five-year-old price cap, most CLECs have indicated they were expecting much more.

As a result, Cell-Net president Bill Linton said the company would not expand its local phone service to Quebec City and Edmonton, while slowing down on residential ADSL service. Instead, Call-Net will focus on its small-to-medium enterprise customers, multi-national accounts it serves through Sprint Canada and large accounts. Restructuring will include 350 layoffs and a hold on all discretionary funding, Linton said.

“”It appears that there was a hierachy of interest and that competitive industry was at the bottom,”” he told a conference call for the investment community. “”The CRTC gave little or no credit to us for our entry into the local residential telephone market, and thus did little to support our growth in this area.””

Call-Net had petitioned the CRTC for approximately $100 million in relief, Linton said. Although it planned for less, it got about $15 million, or a seven per cent reduction in charges its pays to incumbents. With AT&T Canada laying off 1,000 people and Group Telecom seeking creditor protection, Linton said the price cap review was already hurting competition.

“”We at Call-Net are often lumped in this financially challenged CLEC group in spite of our differences,”” he said. “”We are not like Group Telecom or AT&T Canada. We do not have the millstone or data around our neck and we don’t have a banking group breathing down our backs.””

Call-Net was having problems well before the CLEC market began to suffer. The company has gone through at least three senior management teams in the last two years. It was put up for sale, then taken off the market when a potential buyer couldn’t be found. Despite the odds, it may be one of the few to make it through the market downturn, said Eamon Hoey, an analyst with Hoey Associates Telecommunications in Toronto,

“”Call-Net’s got survivability built into it; it’s almost bullet-proof for some reason,”” he said. “”Shareholders can be at war with each other and the business goes on. There seems to be an uncanny ability at the core employees at Sprint Canada (which owns Call-Net) where they’ve got significant resilience.””

Linton said Call-Net has $600 million of long-term debt due in 2008. That’s lower as a percentage of revenue than Telus, let alone AT&T Canada, he added. It also has $150 million in cash to pay employees, suppliers and otherwise execute its business plan.


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