By Ahmad Hathout
Bell announced Thursday that it has struck a deal with one of Canada’s largest pension funds to invest over US $1.5 billion to help Ziply Fiber, a soon-to-be Bell subsidiary in the United States, build its fibre infrastructure in new markets.
The long-term strategic partnership will see the Public Sector Pension Investment Board (PSP) own 49 per cent of Network FiberCo, which will focus on new last-mile fibre investments in “growth markets” outside Ziply’s existing footprint of two million locations. Bell will own the rest of the equity in the partnership and all of Ziply’s operations, subscribers and financials.
While Ziply has a wholesale business that leases capacity to other service providers, Ziply will be the sole tenant of the portion built by Network FiberCo.
Bell previously said it was open to working with third parties on the Ziply investment, and PSP has an infrastructure investment portfolio that already includes Ziply.
The partnership, which precedes the closing of Bell’s acquisition of Ziply, is expected to assist in the financing of the near-term development of roughly one million fibre passings in Ziply’s existing states. The goal is to get to eight million locations – two million in territory, six million out – over the long term.
The expectation is that Ziply will be able to get to three million homes by 2028, half by the time Bell closes the $7-billion deal announced last November, largely in the Pacific Northwest states in which the company already operates. Bell is funding the conversion of another 500,000 copper lines to fibre by the 2028 target, leaving the other one million near-term locations to be funded by the partnership, which will utilize a debt financing vehicle.
Bell executives pitched the partnership as a more cost-effective way of handling the Ziply fibre expansion in a country offering the advantage of being relatively less penetrated than Canada, providing it with more growth opportunity. Bibic said it expects the Ziply asset to generate a rate of return of 20 per cent or higher.
“There are one or fewer gigabit capable competitors in 93 per cent of Ziply Fiber’s operating footprint, no multi-gig capable competitors and relatively less overbuilding activity in the Pacific Northwest than in some other U.S. regions,” Bibic said Thursday. “The U.S. has attractive fiber economics with a low cost to build and strong ARPU growth.”
Because the money from the partnership will flow over time, Bell says it expects the freeing of $1 billion in cash over the 2026-2028 period.
Bell expects to close the Ziply buy in the second half of this year. It expects to close the Network FiberCo deal shortly after that.
The telco expects to be North America’s third-largest fibre internet provider with approximately 16 million passings when all is said and done.
Bell has made a couple of key moves to manage its leverage and to pay for the Ziply asset – which it calls “leverage neutral” – including selling to Rogers its 37.5 per cent stake in Maple Leaf Sports and Entertainment (MLSE), valued at $4.7 billion, and selling telecom subsidiary Northwestel to an indigenous consortium for $1 billion.
Bell executives said Thursday that it has launched two processes for additional divestitures.
And it isn’t the only telecom making similar moves to better manage the books. Rogers recently sold a minority stake in wireless infrastructure to pay down debt, while Telus has been eyeing a similar deal.
Bibic also said Thursday that the telco has been reaping the benefits of its focus on fibre in Canada, with over 60 per cent of its base on speeds of a gigabit or more. “Where we have fibre, our market share has grown 18 per cent to 48 per cent,” Bibic said. “Where we’ve had fibre for a longer time, our market share is above 50 per cent.
“Moreover, where we have fibre, our mobility and internet bundled sales continue to grow and now comprise more than 50 per cent of our total residential households,” he added.
Bell saw far fewer net new internet activations in Canada this quarter, at 9,515 compared to the 31,000 it added in the same quarter last year. It’s total internet base declined 1.8 per cent to roughly 4.42 million.
On wireless, the company lost 9,598 postpaid subscribers, compared to a gain of roughly 45,250 last year for a total base by quarter-end of roughly 9.5 million – 1.7 per cent more over the year.
The telco, however, added 9,000 net new prepaid customers, compared to a loss of 20,000 in the same quarter last year, for a total base of 767,000 – down 9.1 per cent over the year.
The company also lost 16,000 IPTV customers in the quarter, compared to a gain last year of 14,200, for a total base of 2.2 million – up 1.5 per cent.
Bell also added 36,000 connected device customers in the quarter, down from 66,400 last year, for a total base of roughly 3 million – up 10 per cent.
Bell Media revenues were up seven per cent to $775 million, driven by higher subscriber, advertising and other revenues, including higher year-over-year digital revenues of 12 per cent.
Bibic said Thursday that the company has a multi-pronged strategy to grow the media segment, which includes growing streaming service Crave from four million subscribers today to six million by 2028, maintain its breadth of sports content, accelerate conversion to digital inventory – as illustrated in its acquisition in March of a stake in Sphere Abacus – and extend content value and monetization.
Bell’s overall revenues were down 1.3 per cent to $5.9 billion because of lower product service revenues from fewer device sales to government, reduced consumer electronics sales from the closure of The Source stores and conversion to Best Buy Express. That was balanced out by higher wireless upgrade volumes and higher contract activations.
Lower service revenues were attributed in part to bundle discounts on wireline residential services and lower landline and satellite TV revenues, lower demand for TV advertising, and higher competition in the wireless space.
Net earnings were up about 50 per cent year-over-year to $683 million, attributed largely to early debt redemption gains.
