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Manitoba Tel's tune to change for the better Add to ...

Giving up on growth might be the best thing to happen to Manitoba Telecom since the invention of the phone.

For months, BCE has been trying to work a trade with its 20-per-cent owned subsidiary, Manitoba Telecom, over ownership of Bell Intrigna -- sometimes the toughest deals to negotiate are the ones between friends.

Manitoba Tel's Intrigna arm has been taking the fight for local phone customers into British Columbia and Alberta, home turf of BCE's archrival Telus. And Intrigna has been getting its head kicked in.

Under Manitoba Tel, Intrigna's market penetration in western Canada has been underwhelming, at best. No big surprise here: Stealing customers from incumbent phone companies has been a disappointing and expensive proposition for upstart local phone competitors, or CLECs, right 'round the world.

Manitoba Tel used to trumpet Intrigna as a key ingredient in its recipe for future growth. Now the Winnipeg-based company says it hopes to exit the CLEC business by the end of this month.

However, BCE wants to continue the fight with Telus. Conventional wisdom, guided by statements from both companies, has BCE handing back all or part of its 20-per-cent stake in Manitoba Tel in exchange for control of Intrigna, which would then be wrapped up with Bell's Nexxia unit.

Such a move would show how much the rules have changed in Canada's telecom chess game.

In 1999, BCE paid $336-million for its 20-per-cent stake in Manitoba Tel. Part of the rationale for the move was freezing Telus out of the province, the true centre of Canada. It's now clear Telus never actually wanted to own a local phone service in the slow-growth Manitoba market.

Under CEO Darren Enwhistle, Telus focused on building a high-growth national mobile phone network. It also took the local phone and data network fight to BCE, with focused forays on the conglomerate's home turf in Quebec.

By putting a priority on Intrigna, rather than an established phone service, BCE is signalling that it sees growth in much the same areas.

As a free agent in the Canadian market, Manitoba Tel will be forced to tell a different tale to investors. Conservative dividend yields will be in vogue. Gone from the lingo will be the CLEC-based growth pitched when Intrigna seemed promising.

The change in tune will likely be embraced by the market. Telus cut its dividend last year as part of a shift to growth, and the stock initially tanked. BCE is suffering the same fate: As grandiose global expansion plans fall short, the dividend has come into question and the stock has nosedived.

In contrast, Manitoba Tel has boosted its dividend by 35 per cent in the past five years. That record of stable growth is going to attract far more interest from this income-hungry market than an unproven CLEC venture.

And if BCE does bow out as a minority shareholder, Manitoba Tel becomes a free agent in a deregulating sector that may see foreign telecom companies allowed to buy Canadian phone companies in the not-to-distant future. Parting with Intrigna looks to be a winning proposition for Manitoba Tel's shareholders. Weston skips marketing George Weston offered further proof yesterday that above all else, chief financial officers want certainty when they do equity offerings.

Weston, the grocery and baking conglomerate, paid down debt taken on last year by selling $265-million in preferred shares yesterday. Rather than spend time marketing the stock -- a process that exposes the issuer to market risks such as a spike up in interest rates -- Weston simply sold 10.6 million shares at $25 each to a syndicate of brokerage houses led by RBC Dominion Securities.

Other companies that also opted for bought deals over the past week include TVX Gold, Hemasol and aerospace play MacDonald Dettwiler and Associates. Look for Nortel offering Clear the path for another massive convertible bond offering from Nortel Networks.

Canada's flagship tech stock listed further yesterday, as credit rating agencies downgraded Nortel's debt to junk-bond status. While not unexpected, the move is expected to further chill renegotiation over a one-year extension on a $1.75-billion (U.S.) line of credit from a syndicate of banks. There are rumours that lenders want to reduce their exposure.

Nortel will need money, though, which brings speculation that the company will come to the market with another convertible bond offering. It raised $1.8-billion with such a financing in the summer in a deal led by Credit Suisse First Boston and J.P. Morgan.

A convertible issue would hurt Nortel's stock -- the bonds dilute existing shareholders and create selling pressure as hedge funds buy the bonds and short the stock. But the cash will keep the company rolling. Canadians raid Wall Street CIBC World Markets has landed a new head of its U.S. equity trading business in Bruce Turner. This hire spotlights the growth stock orientation in the dealer's U.S. investment banking business.

Mr. Turner, you see, comes from the Nasdaq Stock Market, where he was an executive vice-president and a key figure in the growth-stock focused exchange's development of a new trading system called SuperMontage. awillis@globeandmail.ca

Report on Business Company Snapshots are available for:
BCE INC. MANITOBA TELECOM SERVICES INC. GEORGE WESTON LIMITED

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