News that the potential sale of Allstream to Accelero Capital Holdings had been rejected by the Canadian government broke shortly after Capacity’s interview with the company’s general manager for global carrier solutions, Christine Pop.
Pop subsequently expressed her surprise and disappointment at the government’s decision, adding: “We have an excellent and strong track record with our customers and are confident that this decision will not affect our services or customer relationships.”
With the potential deal blocked, focus again falls on how the Canadian IP service provider’s plans to remain competitive in a market dominated by TELUS and Bell.
Allstream operates a 30,000km fibre backbone across Canada, as well as 18,000km of intra-city fibre and five cross-border connections. Pop acknowledges that this footprint is relatively small, but that the company is “proudly punching above its weight”.
One way the company has been able to distinguish itself in the Canadian market is through its Ethernet offering. Allstream joined the Metro Ethernet Forum (MEF) in May 2012, and its COO, Mike Strople, was also elected to the MEF’s board of directors this July. The company is targeting completion of its MEF certification in Q2 of 2014.
“We really see Ethernet as an integral part of the fundamental technology road map and believe that standardisation in the industry through MEF (Metro Ethernet Forum) certification is an important piece of this roadmap globally,” she says.
Pop’s previous incarnation as a buyer at Verizon has given her an all-important client perspective. Allstream offers wholesale telecom services to both North American and global carriers.
“Our main focus these days is on IP-based services. There’s been huge growth in Ethernet in Canada and the demand for bandwidth is increasing. We have seen bandwidth grow rapidly from 10G to 40G and now 100G,” she says.
The price of competition
Pricing for IP services still fluctuates hugely across Canada, but has become far more competitive in the major cities of Vancouver, Calgary, Montreal and Toronto. “You’ll find pricing to be aggressive in the big metro areas, where the bulk of our market is. But price differentials across Canada can be huge. You can buy a 1MB IP service for around C$100 (US$96) a month in one of the major cities, but in remote areas like the Yukon you could pay up to $19,000 for a similar service,” says Pop.
The dynamics of the wholesale market in Canada is largely dictated by its proximity to the US. Most of Canada’s population – between 70-80% – is within 100 miles of the US border, presenting a lot of opportunity for cross-border traffic and joint enterprise.
“If you talk to most US carriers, Canada would be in their top five growth countries. In the case of at least one major US carrier, Canada is their number one growth market,” explains Pop.
Underscoring the healthy economic relationship between the two countries, Canadian carriers have been turning to partnerships with US data centre providers. This summer, Allstream announced a deal with US data centre provider Telx to establish a joint PoP in Chicago, which will enable over 98% of Canadian businesses to be reached by US carriers.
Unlike its neighbour, the monetary policy promoted by the former Bank of Canada governor Mark Carney – now Governor of the Bank of England – has underpinned economic stability in Canada.
“We have weathered the recession fairly well,” says Pop.
She adds that major sectors of the economy such as retail, financial services, oil and gas, and mining have driven the growth now enjoyed by the telecoms industry.
Enhancing cross-border relations
US corporate expansion in Canada is having a knock-on effect in telecoms, creating opportunities for US players.
“Take the example of a US bank with branches in Canada. Years ago branches would have bought their telecoms services locally. Nowadays, with globalisation, a lot of the telecoms decision-making is centralised and based in the US.”
It appeared Canada’s telecoms market would also be stimulated further by a policy change designed to remove restrictions on investment in Canadian telecoms by foreign companies.
Yet the Canadian government’s decision to prevent Accelero – the equity firm controlled by Egyptian telecoms tycoon Naguib Sawiris – from completing the $500 million acquisition of Allstream could undermine this.
MTS, which owns Allstream, said the proposed sale was rejected by the government due to “unspecified national security concerns”, and also expressed its extreme surprise and disappointment at the decision.
Prior to this news, Pop had expressed her support for the Canadian’s government attempts to open the doors to global players, and she still remains hopeful for the future of the market.
“Policies that support a dynamic and competitive market are crucial to economic growth in Canada. We are hopeful that the government’s decision on Accelero does not signal a trend away from open pro-competitive policies. This will be detrimental to Canadians and Canadian businesses,” Pop suggests.
