Canadian power play: MTS breaks out of residential mold with Allstream

Manitoba Telecom Services, one of the biggest telco video operators in North America, showed that even the more aggressive broadband deployments may not be enough to sate the appetite of investors. Yesterday, the company announced it would acquire fellow Canadian carrier Allstream in a transaction valued at $1.7 billion.

The combination of MTS and Allstream, which shocked analysts, brings together a strong residential carrier with a carrier focused specifically on the enterprise market and with a network that crisscrosses Canada and the northern third of the U.S.

"It brings together two extremely complimentary businesses in terms of geography and strategies," said John McLellan, vice chairman and CEO of Allstream.

For MTS, the move not only gives it a significantly larger reach, but also allows it to spread its risk. In Manitoba, where it is the incumbent carrier, the company has been reporting solid numbers of broadband customers. In February, MTS announced it had passed 10,000 digital TV customers in a little over a year since introducing the service.

"In the residential market we’re very well positioned in Manitoba in terms of the broadband infrastructure we’ve already put into place and the initiative that we’ve taken in high speed Internet and digital TV," said Bill Fraser, president and CEO of MTS. "We’re quite comfortable with our strategy in that market."

However, the company, which is partially owned by BCE and will end up as a competitor to that carrier after completion of the merger, is looking very heavily at voice over IP. And providing service in that market requires a strong enterprise presence, Fraser said.

"On the enterprise side, we’re not, as MTS alone, as well positioned to be able to provide state of the art voice-over-IP service to all of our customers and reach their branch offices outside of Manitoba," he said.