So “They” Want To invest My Pension Fund Monies in Bell Canada, eh?

At the same time Skype is reporting its first quarterly profit, we are observing the end play for Canada’s largest legacy phone company, Bell Canada, which is in turmoil due to its poor share price performance.. Lots of rumors here after it was announced yesterday the BCE Inc., Bell Canada’s parent entity, was being put up for sale. Seems like a few Canadian public pension funds want to get in on the act; buffered by KKR who does have recognized turn around expertise. (By law, BCE must have a majority of Canadian shareholders; thus, the pension funds partnering with KKR on a potential deal to take BCE Inc. private.)

Mark Evans has taken one approach to analyzing their business but I would also include the following:

Local Landline telephone: two of my three offspring only use a wireless phone. For the younger generation, mobile is "Cool". Local landline’s gradually receding into the tank, especially on the residential side. On the other hand, apparently they are doing well with their Wire Care program (insurance for your in-house wiring) as a value-added service.

TV: not something to hold your breath waiting for. The IPTV technology has a long way to maturity; it’s only been deployed by smaller telcos such as for Maintoba Tel. And my engineering sense questions whether it has the potential capacity to handle 200 channels of high def. Its biggest issue is finding a "customer pain" that would cause a significant number of cable customers to switch. Ben Geller, Senior Manager, Industry Marketing for Motive, Inc. summarizes a wide range of other issues in Broadband Bananas:

Around the world, leading telcos are postponing the rollout of IPTV services because of the complicated issues associated with content acquisition, network build-outs, back-office operations, and customer service and support. Compounding these challenges are consumer expectations that IPTV services should "just work" at least as well as, if not better than, traditional services available today.

Wireless: Bell, the original Canadian phone company, is third ranked by number of users in the Canadian market. They do benefit when kids go solely to wireless but when you have CDMA/EV-DO, etc. as your protocol, you rule out a wide range of platforms, services and market share. Bell wireless phones cannot be used in Europe. not to overlook the fact that GSM can handle both voice and data concurrently Both Nokia nd RIM (Blackberry) focus on GSM versions as their first platform for any new device (see Blackberry Pearl and 8800); in fact Nokia is downplaying any CDMA platforms — all their N-Series devices are solely GSM. Apple’s forthcoming iPhone is GSM only. Only Rogers gets to share in the roaming space when Europeans visit Canada. Full protocol migration required here if they want to play in these various markets.

Long Distance: well it seems to be going "local". In fact, do I see them studying the Skype business model strategy with their unlimited free calling subscriptions? Are they starting to subscribe to Voice 2.0 Manifesto’s "The Meter is Off"? Not to mention the impact of plans such as TalkPlus or Truphone, should they come to fruition in the Canadian market..Here there future is being bet on the same type of subscriber plan that Meg Whitman spoke so highly of in answer to a question related to Skype’s Unlimited North America and Skype Pro plans at yesterday’s investor conference call.

Conference Calls: with Skype equipped to handle up to 10 participants and services such as High Speed, a service that used to run at $0.55 per minute per participant is now down to the "free to $0.10 per minute" range.

Satellite: the rural market may have some growth but then it’s got rural demographics and population densities. They shut down their Internet by satellite service, hoping to replace that service by broader deployment of their Inukshuk-based "Network Unplugged" where they have commitments to the Canadian regulatory authorities for annual increases in coverage levels.

High Speed Internet: can DSL move up to the speeds potentially available for cable and have the channel bandwidth required for future video? Can they take Network Unplugged into the countryside (see previous item)?

Enterprise: Factors to consider: Skype, Asterisk, and a wide range of Voice 2.0 applications for business such as OnState’s ACD for Call Centers that totally disrupt the traditional Call Center model.

Enterprise Data: when they figure out Voice 2.0, they may be able to start up a strategy for new revenue generation from applications layered onto the copper wire (or fibre). But this requires a command and control business to understand the "open" environment of leveraged partnership businesses (See Microsoft, Oracle for examples)

Not a pretty picture; needs a focused turn around strategy that defines their offerings based on their strengths and transitioning their communications activities into a Voice 2.0 world. Frankly, their biggest business asset is their existing customer base. This bidding activity is the best chance to get out while the price is up. And, is there a reason we see no Canadian truly private equity involvement (non-government pension funds)? (Canada Pension Plan, one of the apparent bidder partners, is a compulsory government run plan for all Canadians.)

(Full Disclosure: I bought a minimum amount of shares when they spun off Nortel a few years ago; even today’s share price does not recover my purchase price.)

The joys of being a legacy 21st century telco in the market where the first long distance call was ever made (by AGB in southern Ontario) in 1876!

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About Jim Courtney

Bringing over thirty years' experience in the sales, marketing and management of cutting edge technology businesses.
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