AT&T Plugs Into Canada's Market

AT&T is back in Canada, but not as an ally of the company it helped start almost 113 years ago. Rather as a competitor.

The world's largest telephone company has bought a 20-percent interest in Unitel, the long-distance telephone operator that is competing with giant Bell Canada.

The deal is expected to accelerate long-distance competition in Canada by increasing the technical capacity of Unitel and allowing connections to the United States "to be seamless," in the company's words.

"It jump starts Unitel into the long-distance market," says Ian Angus, president of Angus Telemanagement, a Toronto-based consulting firm.

Unitel says it gives the company a three-year edge in providing high-end telecommunications services.

"It shows the real benefits of competition," says George Harvey, president of Unitel. "Business customers will start seeing benefits by June and July of this year. Both business and residential customers will now have a wide choice of service."

Unitel was owned by Canadian Pacific and Rogers Communications, both of whom sold shares to give AT&T its 20-percent ownership. Unless federal law changes, that is as far as it goes.

"Government regulations limit foreign participation to 20 percent," Mr. Harvey points out.

Unitel won a long regulatory battle last June, which gave it the right to compete in the long-distance telephone market in Canada. It had already been providing bulk-line services over its own lines, much of it fibre-optic cable laid along Canadian Pacific's railway right of way.

Under the new ruling, Bell Canada, which operates in Ontario and Quebec and controls telephone companies in some other provinces, has to allow Unitel to connect to Bell's local networks. Since competition started in earnest in the fall, Harvey says growth has been 30 percent faster than expected.

"Unitel's growth has been principally with small business," Mr. Angus says. "Joining with AT&T gives it access to big business accounts, especially the Canadian subsidiaries of large American firms."

Angus says the connection with AT&T puts Unitel in the world league. "Telecommunications is a world business. Unitel is a small player competing against a large firm [Bell Canada] at home. AT&T will give it the management skills it needs."

Bell Canada is the biggest supplier of telephone services in Canada. AT&T helped found it in the 1880s, and, early on owned as much as 48.8 percent of the Canadian operation. By the 1960s that had dwindled to a little more than 2 percent. Then in 1975 AT&T sold its remaining shares to Bell Canada. That ended the financial and technical relationship. One year later, Bell Canada's manufacturing arm, Northern Electric, became Northern Telecom.

One byproduct of the change was that telephones, which had looked the same in Canada and the US, started to diverge in design.

BELL Canada grew up with nearly the same monopoly power AT&T had in the US. It had the $7 billion (Canadian; US$5.4 billion) long-distance market almost all to itself until last June. However, three prairie provinces have state-owned systems and British Columbia has a privately owned one.

Canada's nine major telephone companies have formed a group called Stentor to compete for long-distance service. Stentor has a long-distance alliance in the US with MCI.

Angus says Unitel will have a hard time competing with the Bell-led consortium, but its alliance with AT&T will help.

"Unitel has never really had to compete before. But AT&T has been at it for years. In addition, forget the talk about residential service, the business market is where the money is. That is where Unitel could do well selling high-end integrated network services," Angus says.

Those services, he says, are "virtual private networks. They have the look and feel of a private network but the reliability of a public network."

That is what Unitel's Harvey says he was after; not just AT&T cash, but access to its telephone network and network of business customers around the world.