Matt Stein was a thorn in the side of Canada’s major telecom companies for years.
As chief executive at Distributel, the county’s largest independent internet service provider (ISP), Mr. Stein campaigned hard for regulations that allowed upstart companies like his to compete for customers with incumbents such as Bell-owner BCE Inc., Telus Corp. and Rogers Communications Inc.
When a Canadian Radio-television and Telecommunications Commission decision in May, 2021, went against ISPs, Mr. Stein said the regulator was “seemingly bowing to lobbyist pressure” from the big telcos and added: “This is a terrible day for Canadians.”
And after a series of other regulatory setbacks, including the federal government’s recent ban on inexpensive Huawei gear for telecom networks, Distributel became the latest ISP to throw in the towel.
Late Friday, ahead of the Labour Day long weekend, Bell announced it is acquiring Ottawa-based Distributel, which was founded in 1988. The two companies didn’t release terms of the deal, and it requires regulatory approval. To justify the sale, Mr. Stein said as part of Bell, “Distributel is better positioned to compete and deliver on our decades-long commitment to bringing choice and affordability to Canadians.”
If you believe what Mr. Stein was preaching in the past – that the telecom consumer is best served by ISPs that can resell services carried over Bell, Telus or Rogers networks – then Friday was a terrible day. Distributel is just the most recent ISP to quit the field, and resellers may soon be finished as a competitive force in telecom.
The Bell acquisition was the third involving an ISP this year. In July, Quebecor Inc. bought VMedia, an internet and cable provider with customers in the Toronto area. In February, Bell Canada acquired EBOX, an ISP based in Longueuil, Que.
Not every ISP owner is enjoying the happy ending that comes with selling the business. In the past five years, a number of companies went broke, including Toronto-based Frontline Broadband, which filed for creditor protection in 2020.
All these ISPs were founded by entrepreneurs who succeeded by luring customers away from the incumbents by providing cheaper services. By selling, or shutting down, these owners are signalling the future belongs to the big telecoms they used to mock. Telecom analyst Mark Goldberg said: “The sale this year of three previously independent companies shows the owners think valuations on their businesses are attractive, and there’s an opportunity to exit.”
The reason Bell and Videotron are keen on companies such as Distributel and VMedia is rooted in the ISP’s significant presence in urban Ontario markets. Toronto and Southern Ontario, along with B.C. and Alberta, are major destinations for immigrants who need cellphones. In a report on Tuesday, analyst Maher Yaghi at Bank of Nova Scotia said Canada welcomed 128,000 people in the first three months of this year, and is set to welcome more than 400,000 immigrants annually over the next three years.
“Population growth was not even across Canada. Ontario and British Columbia saw an outsized increase compared to Quebec,” Mr. Yaghi said. “The reason we highlight these divergences is due to the higher market share that Rogers has in Ontario and Telus in B.C.”
The ISPs also missed seeing a shift in the political landscape in the past few years as the federal government conducted its review over Huawei.
Recall that BCE and Telus quietly stopped buying inexpensive Huawei gear years before Ottawa moved in May to ban the Chinese company’s equipment from 5G networks and began gradually removing the equipment from existing operations. (Rogers was never a major Huawei customer.) When the decision actually came, the hardest-hit domestic companies were ISPs such as Ice Wireless, which serves Northern Canada, and B.C. rural internet provider ABC Communications, both of which committed to purchase Huawei equipment in 2019.
Market forces such as immigration trends are reshaping the telecom industry. So, too, are geopolitics. The competitive landscape shifted with the blessing of regulators such as the CRTC, as Ottawa recognizes rules must balance multibillion-dollar investments in 5G networks against consumer demands for lower cellphone bills.
For ISP owners such as Distributel’s Mr. Stein, the shift in regulatory winds and the deep pockets of incumbents meant it was time to stop fighting big telecom, and instead sell out.
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