Monday, September 03, 2001

BCE Inc. says it will continue to support struggling subsidiary Teleglobe
http://www.canada.com/vancouver

ALLAN SWIFT - Canadian Press

MONTREAL (CP) - Telecom holding company BCE Inc. says it remains committed to its money-losing subsidiary Teleglobe Inc., even though the international long-distance network may have to ask its parent for a bailout.

Analysts are unanimous that BCE vastly overpaid for Teleglobe in buying full ownership last fall for $6.4 billion US, including its retail long-distance unit Excel Communications. Early last week BCE pulled the plug on Excel and sold it for an embarrassing fraction of what was paid for it.

Four days later, Teleglobe itself took out the axe for the second time this year and chopped 450 jobs while slashing $500 million from network expansion plans. The charge to cover the cuts will hurt BCE's bottom line in this quarter.

On top of these two hits, Teleglobe CEO Terry Jarman said candidly that BCE will be called on to help close a $750-million shortfall for Teleglobe to complete its network, despite the cost cuts.

BCE spokesman Don Doucette said the parent firm will come through.

"We've been unequivocal in our support of Teleglobe and its strategy," Doucette said, despite losses that are not expected to stop till 2003.

Teleglobe lost $147 million on sales of $542 million in the second quarter.

After flying high in the last half of the 1990s with the spread of the Internet, the whole telecommunications industry is going through a period of turbulence much worse and longer than anyone expected.

Despite the setbacks, BCE says it is sticking to its latest strategy set out last December, to focus on three main areas: Content, through Bell Globemedia; connectivity, through Bell Canada and Teleglobe; and electronic commerce, through BCE Emergis.

Analysts point to BCE's major and most profitable holding, Bell Canada, as a good reason not to worry. Most of them rate BCE a buy and expect its stock to reach $50 over the next year, compared with Friday's close of $38.30 Cdn, up 21 cents.

Doucette said all so-called connector companies like Teleglobe are feeling the pinch of falling communications traffic rates.

"We maintain that once this downturn inevitably turns around Teleglobe will be exceptionally well-positioned to capitalize on growth in the international marketplace."

Analyst Ian Grant of The Yankee Group agrees, and added that in any case it's not the right time for BCE to sell Teleglobe's network because its value has plunged.

"If you're BCE you grin and bear it, you cut the rate of spend and you wait until the pendulum comes back the other way again."

Grant said maybe U.S. giant SBC Communications, which owns 20 per cent of Bell Canada, could come to Teleglobe's aid after SBC gets regulatory approval to carry international voice and data traffic.

"SBC itself could turn on the faucet and fill Teleglobe's networks."

Independent analyst Eamon Hoey said Teleglobe's management "inherited a grossly over-ambitious program of conquering the world."

He said BCE made the right decision in buying it, but it vastly overpaid and should not have included Excel, which was unloaded last week.

Both Grant and Hoey say BCE's real strength is its telephone network, composed of Bell Ontario, Bell Quebec and Aliant.

"It's the old-fashioned business of voice telephone which still propels the ship," said Grant. This provides stability and cash for BCE to dabble in the popular convergence model, with its recent acquisitions of the Globe and Mail and CTV.

Hoey admits he doesn't comprehend that side of the business.

"I have trouble understanding Globemedia and what it's going to provide. I'm not a convergence advocate."

Hoey reckons convergence is just a return to creating conglomerates, an idea that most companies fled from during the 1990s to focus on a core business.

He points to Manitoba Telecom Services, a basic phone company partly owned by BCE whose stock has surged higher than BCE's.

"I think BCE will come out a winner because its core competent company is Bell Canada," not because of peripheral assets, Hoey said.

BCE's Doucette admits BCE has not yet achieved spectacular synergies from its convergence strategy, but he noted: "There will be some announcements in the not-too-distant future, primarily on the e-commerce and content side."