Flaherty’s reasons for supporting BCE deal have been proven invalid.....in the first 100 days

Despite the fact that Ottawa will lose more taxes from BCE as a Private LBO versus an income trust (i.e. $800 million per year), Jim Flaherty was supportive of the LBO, even though it also saw BCE’s debt reduced to junk bond status and its cost of capital go through the roof. Here’s what Flaherty said a year ago

“More important, though, he said that the new owners would likely be able to invest in upgraded technology - such as fibre optic wiring to households or the wireless network - that, in turn, will help increase Canadian productivity. Improved wiring to Canadian homes would allow Bell Canada to deliver faster Internet service to its customers, and allow it to keep pace with their cable company rivals.”

Jim: It looks like that ain’t happening.....why should we not be surprised?

Question for Jim Flaherty: exactly where is the upside in the LBO of BCE for Canadians?

BCE moves into the future – slowly

SIMON AVERY
From Monday's Globe and Mail
August 25, 2008 at 3:34 AM EDT


How will BCE Inc. spend money on its business following privatization? Conservatively.

The country's largest communications carrier has chosen an investment plan for upgrading its residential broadband network.

Rather than a massive spending spree to roll out fibre optic cable to all its customers' homes, Bell Canada has opted instead for a more moderate approach that it says is sufficient to compete with cable companies.

Bell announced that it will run fibre-optic cable to condominium and apartment buildings under construction between Quebec City and Windsor.

All other homes on the Bell Canada network will continue to receive signals over existing copper wiring.

The decision is part of a rapid series of changes George Cope, the new chief executive officer, is implementing in his first 100 days at the helm.

Some industry experts consider the move a step backward, saying that previous management had committed five years ago to put fibre in all new developments.

With the latest decision, the company will only offer fibre to new buildings containing 100 or more residences each.

In addition, the fibre stops at the basement.

Bell will run traffic over copper wires from the basement into each new unit of the building.

Mr. Cope and his leadership team face a delicate balancing act. They need to invest aggressively enough to keep pace with cable companies' networks, and they need to cut costs to allow BCE's purchasers to manage payments on about $30-billion of debt incurred to complete their buyout.

"If you polled the average guy on the street who knew anything about buyouts, they'd say, 'Oh my gosh, Bell is going to stop investing.' The neat thing about this announcement is that that's absolutely not the case," said Kevin Crull, president of Bell residential services. "We're investing with discipline in growing markets and where we know we can win competitively."

Most Bell Canada customers will see broadband Internet speeds increase as the company deploys fibre optic cable to neighbourhoods and then relies on older infrastructure to complete the last kilometre. The company is in the middle of a $1.2-billion project to deploy fibre to neighbourhoods. That rollout began in 2005 and should be completed by 2011. By the end of this year, the company expects to have 2.4 million households covered by this method, Mr. Crull said.

The technology, however, does not give Bell Canada the speed of its cable competitors. Vidéotron Télécom Ltée, for example, offers download speeds of up to 50 megabytes per second for $80 a month. Bell's top service is just 16 Mbps and costs more.
Mr. Crull said rivals cannot guarantee those high speeds and their service deteriorates depending on traffic volume. Furthermore, he said, the majority of customers have no use for speeds above 10 Mbps.

Bell Canada has already deployed fibre into dozens of condominium buildings in Toronto and Montreal as part of a test program started more than five years ago. The company developed technology and trained crews for the job, which is just one of the reasons the newly outlined policy falls short, some analysts said.

"Given the dropping cost of fibre gear, Bell's decision is surprising," said Dave Burstein, editor of DSL Prime, a newsletter about broadband. "It may be an attempt to keep operations simple by holding back on new technology."