Telus’ bid for BCE: An industry reacts

A merger between telecom giants Telus Corp. and Bell Canada Enterprises (BCE) will likely have a negative impact on the battalion of products and services available to enterprises, said one analyst.

Businesses are right to be concerned given service levels will drop and prices will rise, according to Iain Grant, managing director of Montréal-based SeaBoard Group. “They are the ones who right now have at least three choices, usually, of vendor, equipment and/or service – that will be reduced to two.”

Telus announced Thursday its decision to place a bid to acquire archrival BCE, a possible move that will merge two of the largest vendors in the telecommunications space that also includes Rogers Communications Inc.

Elroy Jopling, research director with Gartner Inc., agreed that the effect of a possible merger on the enterprise will be significant due to overlapping portfolios and an ensuing rationalization of products and services. “That will take a fair amount of time to accomplish.”

According to Grant, innovation, too, will suffer as a result of lessened competition in this space. “This will actually have a negative impact on innovation and therefore a negative impact on products and services.”

The deal hinges on the approval of the Canadian Radio-television and Telecommunications Commission (CRTC), which may require the companies to divest some of their wireless business to sustain competition in the market.

In a conference call, Telus president and CEO Darren Entwistle, responded by saying the company recognizes the “regulatory and competitive processes that arise from a proposal of this size and nature… and believes there are clear remedies to ensure vibrant and sustainable competition without divesting the mobile networks of either company.”

Telus said it’s being “proactive” by devising “remedies” to ensure exactly that. It intends to set aside some of its wireless spectrum for new entrants in this space to “ensure that Canada continues to have a third network competitor.”

Jon Arnold, principal of J. Arnold & Associates, said this move isn’t surprising given the merger only really works for Telus if the company keeps its wireless business. Besides, he said, “Telus will have a lot of duplication of [wireless] coverage, and could have a lot of excess capacity on their hands.”

As for BCE, Arnold believes an acquisition is inevitable, be it by a public or private entity, given the company’s lag behind Telus and Rogers in the stock market. “It can either take itself off the market or get bigger somehow if it’s allowed to – and that’s what Telus is offering.”

There are advantages to BCE remaining a public company, according to Jopling. “If private equity gets in there, they can make some short-term changes for short-term gain.”

Telus did not disclose details of the intended bid, only saying it had begun talks with BCE in mid-May. However, Grant estimates the value of the merger would be in the order of $32 billion.

Actually, Grant believes that the possible acquisition by Telus will have a positive impact on the two companies’ outsourcing services. “I think it would gain immense traction because of Bell’s much deeper relationship in a much larger part of corporate Canada. So this would be a big leg up for that part of the business.”

The remaining competitors in the telecommunications space will benefit in the short term, Jopling said, “because the merged company will have so many things it will have to do, and rationalize – and quite frankly, they would not be on the ball.”

But in the longer term, he added, it brings up the issue of how smaller telcos will manage to compete against a much larger supplier.


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