The future direction of Toronto-based Call-Net Enterprises Inc. was thrown into doubt on June 15 when the firm announced it was in negotiations with Vancouver-based 360networks Inc. to sell fibre optic infrastructure in both Canada and the U.S. to 360.
At press time, both Call-Net and 360 were declining to elaborate on the June 15 announcement. But a pair of Canadian analysts offered opposing views on what the announced fibre sell-off signifies.
Iain Grant, managing director with the Brockville, Ont.-based Yankee Group in Canada said that Call-Net’s demise has been greatly exaggerated and that he sees no reason why the fibre sale will not go through. He said the fibre sale might seem like an extreme measure, but the Yankee Group is taking an optimistic view of what Call-Net is trying to do.
“I think they’ve got a number of assets that are desirable,” he said. “They still have a significant, although tarnished name in Sprint, [and] we see the Sprint brand being revitalized now that Sprint and WorldCom are not going together – that augers well for Sprint Canada.”
“On the second side they have a new focus on small and medium business which they’ve managed to take from 40,000 small and medium businesses, according to management, to 120,000 – a threefold increase. They’re stretching a lot more money out of the business sector than they have before. With most of the CLECs operating in that same business segment focusing on Toronto, that leaves the geography pretty well clear for Call-Net in the rest of the country.”
Grant sees the proposed fibre sale as a swapping of resources, where Call-Net’s international, cross-border fibre is more of a surplus than a benefit and by selling it the company will obtain some breathing space.
“We’re looking at 360 and at least Call-Net swapping one set of international fibre, which is surplus to Call-Net’s needs, for local [Canadian] fibre,” he said. “I don’t see it as impacting Call-Net at all, and 360 is quite properly focused on the market which is south of the 49 th Parallel, and that’s where 360networks is going to capitalize.”
But Jordan Worth, an analyst with Toronto-based IDC Canada Ltd., saw the proposed fibre sale as “a bad omen.”
“They’ve made some fairly fundamental errors in strategy,” he said, citing the long-distance wars and most recently a misstep by Call-Net trying to offer residential, local service, which they subsequently walked away from.
“They’re raising the price for local service for any residential customer they still have by six dollars a month in addition to the two dollars a month they raised it five or six months ago,” he said. “They’re trying to realize two optimum scenarios: By raising the price six dollars for residential customers they’re either going to make money on it or alternatively they’re going to disenfranchise their customers by forcing them back to Bell because of the high price.”
Worth characterized the potential fibre sale as Call-Net “trying to keep their head above water.
“Their prospects, frankly, look shaky,” he said. “They’re just trying to keep it going until they can either turn it around or make themselves look attractive enough for a possible purchase, but that’s pretty far-fetched under the current foreign ownership restrictions. I don’t know of anyone in Canada that would be willing to take on their debt.”
He added that Call-Net’s competitors will gain access to more fibre if the fibre sell-off goes ahead, and that the company will be “giving away a real valuable future resource in the hopes of surviving so they may fight another day. 360networks will just resell fibre to their customers or other carriers – they might lease it back to Sprint Canada. As long as they own the plant, they own the infrastructure, they’re thrilled.”
For more information on Call-Net, Sprint Canada or 360networks, visit their respective sites at
www.callnet.ca
,
www.sprintcanada.ca
, or
www.360networks.com.
