Manitoba Telecom Services buys Allstream for $1.7B

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


Manitoba’s premier telecommunications provider with a broad portfolio of consumer products, sought a national telco with an enterprise customer base, executives said.

“”The company will, quite simply, shatter the status quo in Canadian telecoms,”” said Bill Fraser, MTS president and chief executive.

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, said Fraser. 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. There are no immediate plans for staff changes.

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 capitalize on 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 $650 million. That $650 million will be put towards the $1.7 billion Allstream offer, Fraser said.

The connection has not been completely erased, since BCE still owns a 21.7 per cent stake in MTS. Fraser said that Bell executives serving on the MTS board of directors abstained from Thursday morning’s vote to purchase Allstream. BCE issued a statement saying that it was still “”assessing the proposed transaction, 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 when contacted by

MTS’s purchase of Allstream may force Bell’s hand, said Fox Group Consulting principal Roberta Fox, based in Toronto. Without BCE selling its 21.7 per cent stake, the 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 IP telephony, said Fraser. In particular, he spoke of Rogers Communications’ recent decision to enter the consumer voice over IP market.

“”The competitive landscape has changed; potentially the capital requirements have changed; and certainly the regulatory uncertainly 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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