Hydro-Electric Firms Invade Telco Sector
By The Globe and Mail
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We're a kind of hidden secret," said Ian Miles, head of Toronto Hydro Telecom Inc. "Customers are looking for a credible alternative to Bell."
Telecom has seen numerous upstarts rise and fail in recent years, unable to build viable businesses in the face of Bell's dominance. But those small competitors, fuelled by boom-time capital, were unable to build their own complete networks, relying at least in part on Bell's infrastructure. Hydro companies, however, have their own high-speed fibre-optic networks, originally developed to monitor sprawling power grids.
Realizing they had a potentially valuable asset, hydro companies have begun to sell various services, such as speedy metro local area networks, connecting a business's multiple urban locations.
"Bell's our biggest competitor," Mr. Miles said. Toronto Hydro Telecom -- owned by Toronto Hydro Corp., which itself is owned by the City of Toronto -- is two years old. With about 400 kilometres of fibre around the city and blanketing the downtown area, the company aims for big-name businesses, already counting more than 150 customers.
"We've got a good niche," Mr. Miles said. "We don't win every deal we go after. Bell is obviously very aggressive. But we are finding that there are a number of customers out there that have frustrations with the company."
Data and Internet telecom services sold to businesses and the public sector in Canada are worth more than $4-billion a year, according to Brahm Eiley, president of Toronto-based Convergence Consulting Group Ltd. He estimated hydro telecom companies control less than five per cent of the market, dwarfed by leader Bell, majority-owned by BCE Inc., and other phone companies also partly owned by the Montreal-based conglomerate.
"What's interesting is the hydro companies have their own [networks]," Mr. Eiley said. "They're not going to control the market, but they can definitely affect competition."
The hydro telecoms, operating mostly in Ontario, also have long-established corporate parents in the electricity business, providing a money cushion, Mr. Eiley said. And, unlike ambitious but unsuccessful Bermuda-based Global Crossing Ltd. and its deceased peers, "hydro companies are a lot more modest in their business plans," Mr. Eiley said.
Telecom Ottawa Ltd., a unit of city-owned Hydro Ottawa Holding Inc., has almost 300 kilometres of fibre in the country's capital.
"We expand it every day," said Dave Dobbin, head of the one-year-old company. Calling itself a "broadband data utility," Telecom Ottawa operates judiciously, using a "build-it-when-they-come" approach to network expansion, adding space as its customer list (about 110) grows.
Like other hydro telecoms, the so-called MUSH sector -- municipalities, universities, schools and hospitals -- is a key focus. Another growing customer base is, in fact, other telecom companies, including carriers such as Bell that lease "dark fibre," which still needs switching and routing equipment to light up the lines.
"We see Bell as potentially our largest customer," Mr. Dobbin said.
The hydro telecom trend goes well beyond big cities in Ontario, according to the Washington-based United Telecom Council.
The FibreWired Network is an association of small-town Ontario hydro companies with telecom services, including those in Brantford, Guelph and Kingston.
Enmax,a utility owned by the City of Calgary, is getting in the business, as is provincially owned Manitoba Hydro. In the United States, about one-sixth of the country's 3,000 or so utilities are in telecom.
To one observer, the significance of hydro companies playing in telecom is low.
"It's never going to be their day job," said Iain Grant, head of consultancy SeaBoard Group. The hydro companies' strength is not connecting businesses, a market segment that has attracted the most competitors, Mr. Grant said. Like Bell and other one-time telecom monopolies, hydro companies have right-of-way access up and down every residential street in Canada, an invaluable asset.
Although bringing high-speed fibre to individual houses doesn't make economic sense at present, Mr. Grant said, "they've got the reach to do some interesting things."
Watching the latest competitive attack, Bell focuses on its core strengths: a wide offering of services, an extensively developed network and a history of servicing telecom customers.
"This is what we've done for over a century, and it continues to be a hallmark of our service proposition," said Mike McGrath, vice-president of enterprise markets at Bell. "One of the big differentiators that we like to stress is we have one of the largest broadband footprints in North America."
Compared with Bell, the various hydro telecoms offer services only to small segments of a larger market, needing to partner with other hydro telecoms to bridge the distance between cities. But in coming years, there is the possibility to consolidate "the patchwork we have right now," Mr. Miles said. "The opportunity is definitely there. It'd be a powerful network and a powerful brand."
Such a development, however, probably would come later than sooner, especially given the politics that squashed an initial public offering of Hydro One Inc. stock earlier this year. The Ontario provincial utility owns Hydro One Telecom Inc., whose network would be the keystone in any merger of hydro telecoms.
For now, Hydro One Telecom is only another hopeful in a hotly competitive market, trying to find its niches. The three-year-old company has about 45 customers and is profitable, said Joan Prior, president and chief executive officer.
"The telecommunications sector has had a lot of trouble," Ms. Prior said. "It went from the darling to the devil. Keeping our head above water in that climate has been a great challenge, and I think we've done well."
