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Bell Canada has revealed that it has big ambitions in the high-speed internet sector in the United States. Sean Kilpatrick/The Canadian Press
On Monday, BCE Inc. BCE-T, the parent company of Bell Canada, appealed to investors and sparked a sell-off in its shares by launching a U.S. expansion strategy anchored by a $5 billion acquisition of high-speed internet provider Ziply Fiber.
But, since then, it has become clear that Bill had much loftier ambitions in the fast-growing American sector. Executives at the Montreal-based communications company spent six months pursuing the huge prize, Frontier Communications Parent Inc. Dallas-based FYBR-Q is America’s largest fiber provider.
In the final round of auction for Frontier in early September, Verizon Communications Inc. — the second-largest U.S. telecommunications company — over Bell and the company won with a $20 billion bid, according to regulatory filings and four sources familiar with the auction. practical. The Globe and Mail agreed not to name the sources because they are not permitted to speak on behalf of the companies.
After selling Frontier, Ziply’s owner, Searchlight Capital – which bought the company from Frontier in 2019 for $2 billion – decided to put it up for auction and invited Bell to bid.
Investors reacted poorly this week to Bell’s plan to buy Ziply, which owns fiber networks in four northwestern US states. Bell’s stock price fell 9 percent on Monday when the company announced the deal and said it would pause common stock dividend increases after increasing its payouts for 16 straight years.
The lukewarm reception to Bell’s expansion plans in the United States and the scale of investment needed to keep up with rivals like Verizon highlights the challenges facing Bell CEO Mirko Bebek as he tries to boost profits at a telecommunications company with limited growth opportunities in its home market. .
In an interview on November 3, Mr. Bebek said running fiber — the backbone of the digital economy — was Bell’s competitive advantage. Two years ago, as the company neared completion of a four-year, $22 billion buildout of its Canadian networks, Bell executives and the board began working on strategies to “leverage our fiber expertise,” he said.
Over the past year, Mr. Bebek said Bell decided to look at U.S. acquisitions, in part because Internet networks there are much less developed than those in Canada. Only 50 percent of U.S. homes have access to fiber-based high-speed Internet, versus 75 percent market penetration in Canada. The US telecom market also includes a number of smaller regional players – Ziply operates in Washington, Oregon, Montana and Idaho – and Bell could buy in, then boost profitability by accelerating fiber deployment.
Before bidding for Ziply, Bell looked at potential acquisitions of large and small U.S. telecommunications companies, partly to build its understanding of the sector, Bebek said. He declined to comment specifically on Bell’s interest in Frontier.
Bell’s challenge is to convince investors that it is the best owner of the US fiber network Ziply
In October, Frontier filed documents with US regulators detailing the year-long sales process that led to the Verizon acquisition. While the document does not specifically mention other bidders, it identifies five competing bidders from Party A to Party E, and four sources said Bell is Party E.
Frontier filings show that activist fund manager Jana Partners LLC began a campaign to sell the company in the fall of 2023, and Mr. Bibic first reached out to Frontier Chairman John Stratton in February “regarding a potential strategic transaction.”
In June, Bell made an initial offer to acquire Frontier for between $34 and $37 per share, or between $8.5 billion and $9.2 billion, and to assume the company’s $11.5 billion in debt. The documents show that Frontier agreed to let Bell contact a small number of institutional investors, such as pension funds, that would buy Bell shares to help finance the acquisition.
In the narrow world of communications, Marianne Turk, former head of Bell Media, was one of the Frontier board members who evaluated the proposals.
As high-stakes poker continued through the summer, Frontier used interest from Bell and other bidders to successfully pressure Verizon to boost its bid. In early August, Verizon said it would pay a maximum of $33 per share for the company. When Frontier called for final bids before the Labor Day weekend, Bell offered $35, while Verizon raised the stakes to $38.50—valuing Frontier’s debt and equity at $20 billion—and won the company.
Weeks after Frontier’s sale, Ziply’s owner, a Toronto-based private equity fund, invited Bell and other potential buyers to bid on the company. Bell won Ziply by paying a price equal to 14.3 times the company’s earnings before interest, taxes, depreciation and amortization (EBITDA). In a report, Scotiabank analyst Maher Yaghi said the acquisition is “an expensive way to acquire fibre.”
However, analysts Nick Del Deo and Craig Moffett at investment firm MoffettNathanson LLC said that based on the number of potential subscribers who are served — or “passed through,” as industry insiders say — “on an apples-to-apples basis, the implied value of each The pass for Ziply is almost identical to what Verizon agreed to pay for Frontier.
This year, Ziply will achieve $400 million in EBITDA. Bell expects the US company’s EBITDA to increase by 11 percent annually, a growth rate that is difficult to match in the local telecommunications industry.
However, some experts have raised concerns about whether the company’s plans have fully taken into account competition from fixed wireless, a form of Internet service using a wireless connection that has gained popularity in the United States over the past two years.
While the connection provided by fixed wireless networks was previously too slow to support more than casual use, recent advances in 5G mobile technology have dramatically improved the speed and quality they provide, according to Jason Bockowitz, associate director of the Graduate Institute. Columbia Business School. Telematics examines the ownership of the telecommunications market.
For the average user who surfs the Internet, uses social media and streams TV, fixed wireless networks “easily” provide adequate speeds, and are more affordable than fiber, he said. That’s why the country’s biggest players are doubling down on their tech efforts, reaching about 14 million Americans in the past two years.
In Seattle, Ziply’s largest metropolitan coverage area, Verizon offers fixed wireless service for about $25 to those already on a wireless plan. Ziply’s fiber service starts with a monthly promotion of $10, but increases to $45 after the first year, he said.
Verizon’s acquisition of Frontier’s fiber networks makes sense given Frontier’s group of enterprise customers, who are unlikely to switch to fixed wireless, Professor Bockowitz said.
Meanwhile, Bill may seek to take advantage of US federal funding. In 2022, the Biden administration announced $45 billion in capital spending support for companies developing affordable, high-speed internet in rural areas. According to Christopher Ali, a professor of communications at the University of Pennsylvania, Zeppeli’s footprint in rural areas makes it a likely candidate for this funding.
However, this money may now be at risk. US President-elect Donald Trump has said he will cancel financing deals made by the previous administration – although it is unclear whether he will keep that commitment, given that most of his supporter base is rural. Even if the money remains there, it comes with onerous regulatory requirements.
“I wouldn’t risk $5 billion hoping the money will come through,” Professor Bockowitz said.
Eric Bohlin, a professor and Ivey Chair in Telecommunications Economics at the University of Western Ontario, said he sees Bell’s move south as a statement about the slowing profitability of the Canadian market and the desire for a less regulated market environment.
Bell’s recent disposal of its media assets in favor of an acquisition closer to its core business makes sense, he says, given how few telecom companies have been able to successfully maintain a profitable stake in the media business.
