Canada’s big telecoms on buying spree of independent providers, raising competition concerns

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Canada’s biggest telecommunications companies are on a buying spree of small competitors, arguing that the acquisitions will help them expand their footprints and lower-cost offerings. But independent players say the spate of takeovers is a bid to quash competition from smaller firms, which are in a vulnerable state at the moment.

Last week, Montreal-based Cogeco Inc. CCA-T acquired digital internet service provider Oxio, also based in Montreal, the latest in a string of takeovers of independent internet, home phone and TV service providers.

Telus Communications Inc. T-T said in an e-mail that it “integrated” with Start.ca, based in London, Ont., in January and with Saint Laurent, Que.-based Altima Telecom in June, 2022. Sources close to the companies said the deals were acquisitions. The Globe and Mail is not identifying the sources because they were not authorized to speak publicly about the matter.

Last year, Bell Canada acquired EBOX and Distributel, and Quebecor Inc. QBR-B-T bought VMedia Inc. The three had been among Canada’s biggest independent providers at the time.

The industry-wide consolidation is taking place against the backdrop of Rogers Communications Inc.’s RCI-B-T proposed $20-billion takeover of Shaw Communications Inc. SJR-B-T That deal, now awaiting final approvals from Ottawa, has brought increased scrutiny to telecommunications competition in Canada.

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Advocates for small players say the pace of acquisitions has accelerated over the past two years as a result of policies and rates set by Canada’s telecom regulator.

“We are living through an independent service provider mass extinction event that we have been warning the CRTC and politicians about for years,” said Geoff White, the executive director of the Competitive Network Operators of Canada (CNOC), in a statement. The industry association represents independent internet service providers (ISPs).

In the past year, he said, the CNOC has lost a third of its members. The organization’s website currently lists about 20 members. In a typical year before 2021, Mr. White said, there were “no acquisitions, as for a period beginning around 2010 the industry was on an upswing, with market entry and growth.”

Independent service providers, also known as wholesale internet companies, operate by renting space on incumbents’ networks, then selling their own services. In 2021, the CRTC reversed a prior decision to reduce wholesale rates, which raised costs for ISPs.

“For years now, smaller competitors have been hamstrung by inflated wholesale access rates and lack of access to incumbent fibre. Under those conditions, it is no surprise that service-based competitors would be bought up,” Mr. White said.

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Some ISPs have suggested the acquisitions could be part of an opportunistic strategy to erase competition while they are struggling.

Colin Legendre, the president of Coextro, a Mississauga-based internet provider, said it seems incumbents are taking over competitors now to prevent them from exerting downward pressure on prices in the future. That way, “even if the [wholesale] rates do come down, there are going to be so few of us left [that] the impact on them will be minimized,” he said.

Lower rates could be on the horizon. In its recent policy directive, Industry Canada directed the CRTC to support small companies that operate on the wholesale model and grant them greater access to incumbents’ fibre-to-the-home networks. New CRTC chair Vicky Eatrides told The Globe in January that the regulator was working on an updated model.

Yet the big companies say these acquisitions are part of their strategies to expand their services outside their home territories, allowing them to compete with local incumbents and offer more affordable services through subbrands, known in the industry as “flankers.”

Oxio will be Cogeco’s first such flanker. Anastasia Unterner, a spokesperson for Cogeco, said Oxio will benefit from Cogeco’s “strong support to pursue its mission and business model under its existing brand.”

In a note to investors, Desjardins analyst Jerome Dubreuil said the acquisition is also defensive, as it “reduces the risk of BCE [Bell Canada] eventually taking these wholesale subscriptions away.”

Bell Canada said it was invited to participate in the EBOX and Distributel sale processes and decided to invest in order to strengthen its presence in Quebec and Ontario and offer services at the same or lower prices. The companies will “benefit from Bell’s technology and network investments and operational synergies,” said Bell spokesperson Jacqueline Michelis.

Quebecor said it purchased VMedia in order to take advantage of the independent provider’s technology solutions and to expand its lower-cost offerings. “VMedia is now one of the key partners that will help accelerate Quebecor’s plan to create greater competition in Canada through advantageous bundles of service,” said VMedia spokesperson Veronique Mercier in a statement.

Of its own deals with Start.ca and Altima, Telus spokesperson Brandi Merker said they would provide the companies’ customers with access to wireless networks and a suite of products and services. According to its website, Telus only offers internet in British Columbia, Alberta and Quebec. Acquiring Start.ca and Altima gives it access to customer bases in Ontario and other provinces.

Independent wholesalers typically lease network space from several incumbents. With acquisitions, incumbents could take advantage of mutual agreements to negotiate access rates that are even lower than those the wholesalers offered.

The acquisitions have highlighted the fierce competition between incumbents, which are eager to get a foothold in each other’s territories. In January, shortly after Telus acquired Start.ca, internet service provider Acanac Inc. launched an offer directed specifically at customers of Start.ca and Altima: six months of free internet for switching. Acanac is owned by Distributel, which of course is owned by Bell Canada.

The takeovers have also led to an awkward situation for the CNOC: Three of the organization’s seven board members are CEOs of companies recently acquired by incumbents – George Burger, co-founder and director of VMedia, Matt Stein, chief executive officer of Distributel, and Peter Rocca, chief executive officer of Start.ca.

Mr. White said the companies are all long-standing champions of competition and are committed to promoting affordability.