TED ROGERS TURNED TO AN old friend this week to expand his telecom empire, but was a little unclear whether or not he’ll use his new hammer to nail his cable friends while building local telephony across the country.
Today, Rogers Communications announced it would purchase Call-Net Enterprises, which does business mainly under the Sprint Canada name, in a $330 million all-stock deal. Still a money-losing competitive local exchange carrier (its net loss in 2004 was $78.4 million), Call-Net did book revenues last year of over $818 million and EBITDA of $105 million.
Call-Net CEO Bill Linton is a former Rogers employee and executive. He started with the cable company in the late ’70s and stayed for 16 years, moving up through the cable and wireless (then Rogers Cantel) hierarchy to vice president and chief financial officer of RCI when he left in the mid-1990s.
During this morning’s conference call to discuss the purchase with media and analysts, Rogers and Linton made clear their friendship and that the two have been in touch often since Linton’s departure from RCI (which probably means the recent media speculation about Telus acquiring Call-Net was always off-base).
“Over the years I’ve sought and received lots of advice from Ted – some of which I’ve taken,” said Linton.
When asked how long the deal had been discussed by the two parties, both Rogers and Linton said they talked so often that it would be hard to pin down just when it got really serious. “He phoned me on the day I started there,” in 2000, added Linton.
While the deal will add a substantial number of residential and business customers (including 200,000 within the Rogers Cable footprint) to the RCI database, it also makes Rogers a competitor for the first time with other Canadian cable companies, most of whom are launching or have already launched, their own voice product.
During the call, Ted said he had already contacted the heads of the other three largest MSOs, Jim Shaw, (Shaw Communications), Pierre Karl Peladeau (Quebecor Media/Videotron) and Louis Audet (Cogeco Cable) to inform them one of their voice competitors is now him, but that they need to talk and maybe work a few things out.
Rogers stressed he doesn’t foresee any further consolidation coming in the short term – ostensibly closing the door to trying to acquire any of the above companies for now – and was non-committal on what he might do in competition with other cable companies and their voice products. (Sprint Canada offers local telephony to customers in 33 Canadian municipalities.)
Calling the MSOs “partners or potential partners”, since he’s long wanted Canadian cablecos to bundle in Rogers Wireless with their video and data offerings and then sell mobile phones to their customers, Rogers also added, “we will have further discussions,” with the CEOs and that, “we have not made any decisions at this point.
Instead of all-out competing with MSOs across the country, though, Rogers added, “our bias is to consult with partners and potential partners to see what their interests and potential interests are,” referencing wireless and his new wireline assets which could be used by his cable brethren, if they wish.
What that could be pointing towards is the common missing element for all cable companies going after the voice market – a wired link to the business community inside their cable footprint. In short, cable networks were never really built out to cover the various industrial parks filled with offices you see on the sides of expressways. It was built to deliver TV signals to homes. Sprint’s network and existing re-sale agreements via others’ telephone wires covers much of that missing link.
If I was betting (and I’m not) I’d say Rogers, his new company in his tool kit, approaches the other MSOs and includes what it can offer –such as wired connections to those businesses – in a re-sale, wholesale agreement that also includes the bundling of Rogers Wireless in with Shaw, Cogeco and Videotron’s local phone, digital video and data products.
For many reasons (economic and otherwise), I can’t envision Rogers in a knock-down, drag-out competitive fight with his cable friends over voice customers. Ted’s modus operandi has always been to partner and co-operate with Canadian MSOs… and this new acquisition gives those cable operators another reason to want to.
– Greg O’Brien
