Manitoba Telecom Services Inc. has announced it would buy Allstream for $1.7 billion, effectively creating a company that could more readily compete with Bell and Telus.

MTS, Manitoba’s telecom carrier, sought a national telco with an enterprise customer base, executives said last month.


company will, quite simply, shatter the status quo in Canadian telecoms,”” said MTS president Bill Fraser.

The announcement comes less than a year after AT&T Canada changed its name to Allstream following a debt restructuring plan, and created a $20-million branding campaign to oversee the transition. The Allstream name will remain, and the company will operate as either a division or a subsidiary of MTS. Allstream will keep its Toronto headquarters and MTS will remain in Winnipeg.

It is a natural pairing, said Iain Grant, principal at Montreal consulting firm The Seaboard Group.

“”MTS is going to become a much more vibrant player on the national scene,”” he said. “”From Allstream’s point of view . . . it’s really important. Allstream was making its numbers, executing its business plan, but that business plan didn’t show a lot of vision about where to take it next.””

Allstream could never quite take advantage of its position as a national provider, since it was always No. 2 in any territory it played in, added Grant — second to Telus in the West, second to Bell in central Canada. And with Telus and Bell making inroads into each others territory in recent years, Allstream was always going to be playing catch-up.

Bell’s Western push was actually led by MTS. Bell Canada and MTS formed a new company called Bell West from the remnants of Bell Intrigna and Bell Nexxia in 2002. In February of this year, that partnership was dissolved and Bell bought out MTS’s share of the company for $65 million. That $65 million will be put towards the $1.7 billion Allstream offer, Fraser said.

The connection has not been completely erased, since BCE still owns 21.7 per cent of MTS. Fraser said that Bell executives serving on the MTS board of directors abstained from last month’s vote to purchase Allstream. BCE issued a statement saying that it was “”assessing the proposed transaction,”” and that “”the balance between the risks and rewards of its underlying business strategy and its regulatory implications is highly complex.””

Telus, which could experience new competitive pressures as a result of the transaction, had no comment on the deal.

MTS’s purchase of Allstream may force Bell’s hand, said Fox Group Consulting president Roberta Fox, based in Markham, Ont. Without BCE selling its stake in MTS, the Canadian Radio-television and Telecommunications Commission (CRTC) may not give the merger its blessing, since Bell would be seen as having undue influence on the market as a whole.

The nature of the market has changed dramatically in recent months, due in large part to the rise of Internet Protocol (IP) telephony, said Fraser.

“”The competitive landscape has changed; potentially the capital requirements have changed; and certainly the regulatory uncertainty has changed all within the last three or four months,”” said Fraser.

“”The consumer marketplace out there is going to become the hotbed of competition in the next 24 to 36 months,”” added Allstream vice-chairman and CEO John McLennan. “”The way to go into those markets is with a very serious competitive advantage.””

Last November, Allstream, along with partners Microcell and Delaware-based NR Communications, announced plans to start a wireless broadband company serving the small business market. Those plans will continue under MTS ownership, said executives.


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