Bell Canada scoops 360networks assets

In a deal tagged at C$275 million (US$200 million), Bell Canada Enterprises (BCE) announced Wednesday it has agreed to purchase the Canadian assets of Vancouver-based 360networks Corp., including the assets of 360's subsidiary, GT Group Telecom Services Corp.

Under the deal -- which is set to close by September 2004 -- Bell said it plans to keep 360's business, facilities and customer base in Western Canada, but has opted to sell off portions of the retail customer operations and some network assets in the eastern part of the country including Ontario, Quebec and Atlantic Canada to Call-Net Enterprises Inc.

The pieces of 360networks Bell will hold on to will operate as a division of Bell Canada but will retain the 360networks and Group Telecom brands, the company said.

While 360networks' chairman and CEO Greg Maffei said the company is disappointed to be exiting the Canadian market, he said that being presented with an opportunity to eliminate debt was "compelling." The company has plans to focus on developing its U.S. business which includes long-haul network footprint and a Western U.S. regional network.

"I think it is a smart move on BCE's part to extend territory physically but also more importantly to buy the feet on the street with that booked customer value," said Roberta Fox, president of Markham, Ont.-based Fox Group Consulting. "Professionally I think it was bought more for the people and the booked customers than for the network. It is harder to build the organization and the customers."

Fox said she was surprised to discover Bell plans to sell aspects of 360networks to Call-Net. She said it is likely a move to reduce the amount of capital BCE has to borrow to purchase 360.

Brownlee Thomas, senior industry analyst with Forrester Research Inc. in Montreal, agreed with Fox's suspicions that BCE is looking at selling those assets as a cost recovery.

In terms of the deal itself, Thomas said she thinks a smart move has been made by all parties.

"Canada is a very small market," she explained. "In the U.S. market, it is a lot easier to make the same revenues at a lot less expense. Canada buyers are more conservative, the sell cycle is longer and this conservatism leads to looking around and saying 'Do we really want to take a risk with smaller players?' I am a bit surprised that 360 just clued in that they were not able to work in this tiny market."

At this point, 360networks is advising its customers to continue working with their contacts within 360networks and Group Telecom for inquiries regarding product, service, billing and technical issues.

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