Teleglobe Inc. announced Wednesday that it is axing 850 jobs. In total, the company is expected to lose half of its U.S. workforce along with 15 per cent in Canada.
Teleglobe, the long-distance communications unit of BCE Inc. said that the job cuts would leave it with 950 workers. The company, under the Companies’ Creditors Arrangement Act, will seek the court’s protection from its creditors.
Operating under a massive debt, the company will close several areas of its business operations including Internet hosting services and a chunk of its data transmission business to reduce costs.
The hosting business provided technology and services to support corporate Web sites and commercial data storage while its data transmission business helped organizations transmit data over the Internet.
But as a company spokesperson said, its core business of providing voice and data services to other telecom carriers will remain intact.
“The job losses are a difficult but necessary action to ensure Teleglobe can focus its resources on operations that are financially strong, including our core business,” said John Brunette, the company’s vice-president, in a prepared statement.
This portion of the business raked in US$750 million of the company’s total US$1.3 billion in total revenues for last year.
With Teleglobe’s apparent exit from the hosting and data transmission business, one industry insider said it would be unlikely that another Canadian telco would be looking to buy.
“If anyone was going to buy its hosting centres which are primarily in the U.S., it would probably be a carrier from that country, but not a Canadian firm,’ said Elroy Jopling, principal analyst at Gartner Dataquest in Toronto. He added that even rival Telus, already a large player in the U.S. data hosting market, would be reluctant to take on those facilities. Overall, finding any telco to purchase those hosting facilities won’t be an easy sell, he speculated.
Jopling added that the writing was already on the wall for Teleglobe after BCE announced several weeks ago that it would end any long-term funding after it had agreed to dish out $125 million to the battered company. But he nonetheless remained certain that the company would be leaving the hosting market.
“They will look to get out of the hosting business, that’s pretty well defined,” he added.
And while bankruptcy protection is never a positive reflection on any organization, Mark Quigley said that Bell bought Teleglobe when the market was near its peak and it coincided with a time when companies were trying to decide what they were willing to pay for data services while carriers looked to justify its own voice and data costs.
“Revenues haven’t justified markets that were expected to show growth, such as data centres and hosting haven’t,” said the research director at the Yankee Group in Canada in Kanata, Ont.
And with the telco sector already operating under unstable market conditions, the Canadian radio-television and Telecommunications Commission (CRTC) is set to make its ruling on May 31st on price cap regulations that are intended to assess the Canadian telecommunication industry’s overall competitiveness.
“I think we’ll continue to see more bad news (for the telcos) and a lot depends on the price cap ruling from the CRTC. Depending on how that goes there may be some Canadian ramifications,” Jopling said.
Teleglobe became the latest casualty behind competitors Vancouver-based 360 networks and U.S. based Global Crossing, who both filed for bankruptcy protection for restructuring purposes.
Yankee Group is online at http://www.yankeegroup.com
Gartner can be reached at http://www.gartner.com
Teleglobe is at http://teleglobe.com
