TekSavvy Solutions Inc. is looking for a new owner, amid a recent wave of acquisitions of independent internet service providers by larger telecoms.
The company, based in Chatham, Ont., has hired bankers and launched a formal sale process, according to three sources familiar with the discussions. The company is at the stage of accepting bids, one of the sources said.
The Globe and Mail is not identifying the individuals because they are not authorized to speak publicly about the matter.
Representatives of TekSavvy did not respond to a request for comment.
Independent internet service providers (ISPs), also known as wholesale-based providers, rent space on incumbents’ networks at regulated rates, then sell service to their own customers.
TekSavvy is the last remaining large internet wholesale provider, as others have been snapped up by bigger rivals in what independent ISPs describe as a challenging regulatory environment.
Roughly half a dozen independent ISPs have been sold since February of 2022. According to BMO Capital Markets analyst Tim Casey, BCE Inc. paid roughly $139-million for Ebox, an internet, telephone and television service provider based in Longueuil, Que., and approximately $335-million for Ottawa-based Distributel last year.
Telus, meanwhile, acquired Altima Telecom and Start.ca for undisclosed amounts, while Quebecor Inc. snapped up VMedia, an independent internet and television provider serving customers primarily in Toronto, in July of 2022. The price of the VMedia acquisition was also not disclosed.
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Montreal-based Cogeco Inc., meanwhile, paid $100-million for Oxio, a Montreal-based provider with 48,000 internet subscribers, Mr. Casey wrote in a research note..
The Competitive Network Operators of Canada (CNOC), an association that represents independent ISPs, has blamed the acquisitions on policies set by Canada’s telecom regulator.
In 2021, the Canadian Radio-television and Telecommunications Commission (CRTC) reversed an earlier decision to reduce wholesale rates, which led to higher costs for independent ISPs.
The regulator is currently reviewing its framework for wholesale internet access, citing a desire to increase competition and reduce prices. The review includes looking at whether the large telecoms should be mandated to provide access to their fibre-to-the-home networks, which offer faster speeds.
In its submission to the CRTC on Thursday, TekSavvy called the framework “broken and in need of urgent relief.”
“Swift, significant regulatory changes are needed to save what remaining wholesale competition is left, and to restore confidence in the regulator’s ability to perform its core mandate: ensuring telecommunications pricing in Canada is just and reasonable,” TekSavvy’s filing reads.
BCE’s chief executive Mirko Bibic has cautioned that if the rates are set too low, companies such as his will be forced to curtail their investments, particularly in rural communities.
Operators such as TekSavvy have been losing clients to incumbent telecoms, with their market share now at 6 per cent, down from 10 per cent in 2019, Mr. Casey wrote in the research note.
“Unless there is a dramatic change away from facilities-based regulation (which we view as highly unlikely), we do not expect wholesalers will capture meaningful market share going forward,” he said.
“Network management, be it wireline or wireless, is a scale game,” said Mr. Casey. “Given the relative size of the incumbents and their ability to bundle services, we think wholesalers will remain relatively small and focused on price-conscience market cohorts.”
TekSavvy has been bleeding customers to incumbents for years, and had to increase its prices during the pandemic in order to stop losing money.
In 2021, the company scrapped its plans to enter the wireless market, pulling out of an auction for spectrum – airwaves used to transmit wireless signals. The company blamed the CRTC’s controversial reversal on wholesale prices, calling it a “tombstone on the grave of telecom competition in Canada.”
Alexandra Posadzki
Andrew Willis