Allstream sale alters telecom landscape

Analysts speculate on a possible combining with Wind Mobile

Canada’s turbulent telecommunications landscape shifted again Friday when Manitoba Telecom Services Inc. announced a deal to sell Allstream to a billionaire foreign investor, news that delivered many of the dramatic elements industry watchers love to pore over.

For one, although the Winnipeg-based company maintains it is focused solely on closing the transaction, a slimmeddown MTS, finally rid of its enterprise telecom unit, could become a takeover target itself.

The deal also sparked interest due to the buyer: Egyptian telecom magnate Naguib Sawiris, founder and non-executive chairman of Accelero Capital Holdings, which plans to pick up Allstream in a deal MTS said values it at $520 million.

Sawiris is the former head of Orascom Telecom Holdings SAE, which was one of Toronto-based Wind Mobile’s original backers.

Wind’s current foreign owners are looking for a buyer for the wireless startup, according to sources, and Accelero Capital is said to be interested.

Allstream has 30,000 kilometres of fibre network across the country and that strength in what is known as “backhaul” could make for a compelling combination with Wind’s wireless network.

MTS chief executive Pierre Blouin said Friday the deal will allow the company to focus on expanding the footprint of both its wireless and broadband businesses in Manitoba.

The Allstream unit operates nationwide in contrast with MTS’s regional strength in that province offering residential and small business services including wireless, broadband Internet and television.

Blouin said the deal will also deliver capital MTS can use to finance purchase of wireless spectrum in a government auction later this year and help clean up the pension funding liabilities on its balance sheet.

He said MTS is not considering a strategic review of the rest of its business, noting in an interview, “The process to get [the Allstream] transaction to closing is still an extensive one. We’re focusing on that.”

Some speculate that one of the country’s dominant telecom players such as BCE Inc. or Telus Corp. could consider buying it down the road.

Allstream has been the subject of a review since last September after the federal government liberalized the rules on foreign investment in telecoms with less than 10 per cent of the Canadian market.

“We were looking for a strong Canadian telecom opportunity and Allstream does fit the profile,” Ossama Bessada, managing partner and co-founder of Accelero, said in an interview Friday, adding that the opportunity to get into the IP (Internet protocol) space was compelling.

Bessada, who is based in Toronto, would not comment directly on Accelero’s interest, if any, in acquiring Wind Mobile.

The Allstream deal still requires regulatory approval including the green light from Industry Canada, which will consider the net benefit to Canada of the foreign investment.

“This is a very positive development for the competitive landscape,” Anthony Lacavera, Wind’s original Canadian founder, said Friday of Accelero’s investment in Allstream. He declined to comment on his plans for Wind or business dealings with Accelero, but said, “I think [the Allstream deal] validates foreign interest in the Canadian telecommunications market.”

“The incumbents are saying there’s no foreign interest in Canada and that’s not true,” Lacavera said.

MTS acquired Allstream in 2004 for $1.7-billion.