The federal government has rejected Accelero Capital Holdings’s proposed acquisition of Manitoba Telecom Services Inc.’s Allstream division on unspecified national security grounds. The rejection, allowed under the Investment Canada Act, came even after MTS and Accelero worked closely with the government to ensure the deal would be approved.
What is MTS Allstream?
Allstream is a division of Manitoba Telecom Services Inc. that serves business customers with a fibre-optic backbone that stretches 30,000 kilometres, from coast to coast. It has a rich history that dates back to 1846, when it was the Montreal & Toronto Magnetic Telegraph Company, and has gone through various permutations since – changing its name, along with its ownership, from CNCP Communications to Unitel Communications to AT&T Canada and finally to MTS Allstream. It offers telecom solutions to businesses and governments, in competition with BCE Inc. and Telus Corp.
Why is it on the auction block?
For years, Allstream has been the alternative provider to Bell Canada and Telus, said Mark Goldberg, a Toronto telecom consultant who once worked for Unitel. It has struggled in recent years: Its business makeup, which lacks mobile, consists of mainly land-line services. Though its network is extensive, it does not have the presence in cities that Bell and Telus have, so it is often forced to offer services at a discount, he said. “They don’t have the universal presence that the phone companies have … . It’s not making money, at the end of the day.”
Who wants to buy it?
MTS has been open about selling the division, and the loosening of foreign ownership rules would allow for an easier approval, but there are few natural suitors for Allstream’s assets. Any likely deal between Allstream and Canada’s so-called Big Three could reduce the level of competition in the enterprise space, and would likely attract rigorous scrutiny from the Competition Bureau. The national fibre backbone would be attractive to struggling wireless firms, such as Wind Mobile, which was originally backed by Egyptian telecom billionaire, Naguib Sawiris, who is also behind Accelero. However, it’s unlikely any of the new firms could afford Allstream. In research notes Tuesday, several analysts speculated that, with Accelero denied, Allstream has no other viable suitors.
What is the plan for Allstream now?
In an interview Tuesday, MTS chief executive officer Pierre Blouin said the company will spend the coming days and weeks meeting with its advisers to discuss options. The company launched an eight-month strategic review last fall, which culminated with the $520-million Accelero proposal in late May. Revisiting options from that strategic review may not be easy because the foreign investment rules remain “unclear,” he said.
“Until the government clarifies its policy and position in terms of foreign investment, it is going to be very difficult to attract investment from anywhere outside the country. So that would limit options to Canada only …,” Mr. Blouin said. “Right now the focus is, ‘Let’s run the business. Let’s get [it] to a stronger performance level.’ ”
In February, MTS announced plans to connect more than 300 buildings to its fibre network in 2013.