Manitoba Tel’s New Wireless Dreams
For all the talk about how Manitoba Telecom and Quebecor want to purchase spectrum so they can create Canada’s fourth wireless carrier is the reality that Manitoba Tel could have already been the fourth wireless carrier if ex-CEO Bill Fraser hasn’t made a major strategic mistake three years ago. In late-2003, Microcell Telecommunications was the Canadian wireless rebel with consumer-friendly (read: aggressive pricing) packages that incensed the Big Three: Rogers, Telus and Bell.
The Big Three made it perfectly clear that in an ideal world, Microcell would disappear so that rational pricing could return to the wireless landscape. And Telus CEO Darren Entwistle started the dominos falling when Telus put Microcell in play with an unsolicited takeover offer. Entwistle eventually got what he wanted when Rogers stepped into fray with a $1.4-billion purchase. The purchase was approved by the federal Competition Bureau with hardly a whimper from consumer, and disciplined pricing (read: no deals) has existed ever since - making analyst, investors and the wireless carriers happy as pie.
The entire landscape could have been totally different if Fraser had adopted a different strategic approach. Intent on making Manitoba Tel a national carrier, he bought Allstream for $1.8-billion. It was a major coup for Allstream’s senior management team, which had recently taken the company out of bankruptcy protection and got it publicly trading. Nevertheless, Allstream was a dog with declining revenue (including less business from its former major shareholder, AT&T) and a network consisting of different technologies.
What still puzzles many people is why Fraser went after a company operating in a highly-competitive, low-margin business rather than getting in the high-growth, high-margin wireless market where penetration rates were just 40%. If he had spent the $1.8-billion to acquire Microcell rather than Allstream, Manitoba Tel’s competitive position and the wireless market would have been completely different. Three years later, Manitoba Tel is trying to get back in the game - having missed out on a three-year period of huge growth and profits.
May 26th, 2007 at 4:42 pm
You left out that Fraser used the Allstream acquisition as a way to avoid converting to an income trust. (Actually, he hinted that he might do so, which pushed the stock price up, and then used the inflated shares to fund the acquisition.)
For MTS to acquire Microcell at the time (when it too was just out of near-bankruptcy and not a “high margin” business) wouldn’t have been easy, but would have been a much better choice than Allstream. The proposed income trust conversion would also have been a better choice than Allstream (and would have left a stronger financial position from which to launch a national wireless service).
Of course, both Bell and Telus could have used Microcell to expand their business and would have obtained a platform to enable the option of a GSM conversion.
However, keep in mind that most financial analysts at the time opposed having Bell, Telus or MTS acquire Microcell. (They favoured removing the 4th player, but thought it was better to let someone else pay for it.)
May 31st, 2007 at 12:35 am
insightful.
it’s obvious now much we are paying for losing the 4th operator, and how badly we need a new one.