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A man stands outside Bell store in Toronto in March.Melissa Tait/The Globe and Mail

BCE Inc. is selling 25 of its data-centre facilities to U.S.-based Equinix Inc. for $1.04-billion, joining an industry-wide exodus from the data-hosting business in a move that analysts say will help the company amass a war chest ahead of a key wireless spectrum auction.

The divestiture comes as Canada’s telecom sector gears up for the critical Dec. 15 auction of 3,500 MHz spectrum, a key band for 5G amid the global race to deploy the newest generation of wireless technology. Analysts expect BCE to shell out between $500-million and $1-billion for the rights to the radio waves, which are used to send wireless signals.

“We expect the auction will be very competitive based on the critical nature of the band for 5G and the demand-supply dynamic," Bank of Nova Scotia analyst Jeff Fan said in a note to clients.

Fifth-generation wireless technology, which promises lightning-fast speeds and a vast increase in the number of devices that can be connected, is expected to power everything from remote surgery to smart cities to driverless cars. Selling its data-centre business will allow BCE to invest more in its networks as it prepares to launch 5G service, Desjardins analyst Maher Yaghi said.

“We believe the majority of the proceeds will go toward funding the acquisition of spectrum in the upcoming auction,” Mr. Yaghi said.

BCE did not respond to a request for comment on the transaction, announced Monday. In a statement, the company said the transaction will help it focus on investing in its networks. The deal is expected to close in the second half of 2020, pending regulatory approval.

BCE’s Bell Canada first got into the business of hosting data for its enterprise clients in 2012, when it struck up a partnership with a group of investors, including the Ontario Teachers’ Pension Plan, to buy data-centre provider Q9 Networks Inc. for $1.1-billion. Four years later, Bell bought out its partners and took full ownership of the business.

The acquisition happened at a time when telecom providers globally were making strides into the growing cloud-computing market.

“The [high-growth] revenue streams that they were dealing with were plateauing, so they had to look for newer, high-growth revenue streams," said Jason Bremner, research vice-president of the industry and business solutions group at Toronto-based market intelligence firm IDC Canada. “At that time data-centre services was quite attractive, so they got into that.”

In recent years, however, a number of telecom companies – including Shaw Communications Inc. and Cogeco Inc. in Canada and Verizon Communications Inc. and AT&T Inc. in the U.S. – have exited the industry, as standalone providers such as Equinix have amassed significant scale.

Telecom companies have come to the conclusion that there is no strategic benefit to owning data centres, as business clients don’t tend to buy connectivity and data-hosting services in a bundle from the same provider, analysts said.

For Equinix, a global interconnection and data-centre company headquartered in Redwood City, Calif., the deal represents a significant Canadian expansion. The company has owned two data centres in Toronto for just over a decade.

“We’ve been looking at different options over the last three or four years on how we can create more of a pan-Canadian presence to really get deeper into the market,” Jon Lin, the company’s president of Americas, said in an interview. “To be able to do this in one swoop is very exciting.”

Bell will continue to serve its data-centre customers in partnership with Equinix, and will also continue to own and operate five other data centres in Calgary, Halifax, Saint John, St. John’s and Toronto.

The 25 facilities it is divesting – spread across 13 sites in eight cities – earned $170-million in revenue and $95-million of earnings before interest, taxes, depreciation and amortization in 2019, National Bank analyst Adam Shine wrote in a note to clients.

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