Old Rivalries Move NorthWilliam C. Symonds
Exploit brand differentiation where you can find it, marketing gurus advise. As Canada's long-distance telephone market exploded on July 1 into frenzied competition for customers, more than 200 companies began clamoring for slices of the $5.5 billion market. Most of them offered big discounts off the rates charged by Bell Canada, the nation's Ma Bell. TelRoute Communications Inc., based in Toronto, went one better. Its ads feature a beaver wearing a Mountie's hat and saluting the Canadian flag. The message: TelRoute is "100% Canadian owned."
A modest distinction, perhaps. But almost every other major player in Canada's nascent long-distance wars has allied itself with a battle-hardened U.S. long-distance company. Stentor, the powerhouse group of nine provincial phone companies that dominates Canada's phone service, has tied up with MCI Communications Corp. Sprint Corp. owns 25% of Call-Net Enterprises, now operating as Sprint Canada. And AT&T, uncharacteristically cast in the feisty upstart's role, has taken a 20% stake in Unitel Communications Inc.
Canadian regulators sparked the competitive rush by ordering Stentor to provide rivals with equal access to its big network--just as AT&T was ordered in the U.S. in 1984. Canada has tried to limit foreign involvement in its phone business--imposing a 20% cap on non-Canadian ownership of the country's major carriers--but both sides need one another too much to stay apart. "Canada is the largest single international market" for the U.S., says John Cahill, Sprint's vice-president for the Americas. "So if you're going to expand globally, you have to be there."
For their part, Canada's upstart telecom companies need U.S. technology and expertise to compete with Stentor. Unitel last year tapped Stanley B. Lacks Jr., former head of AT&T's consumer long-distance business, as its CEO. And on July 11, Sprint Canada plans to roll out an ad campaign that mimics Sprint's U.S. efforts, featuring Candice Bergen touting Sprint Canada's savings plan. The main difference: Bergen will parler franais as well as English.
Advanced technologies developed in the U.S. are also spreading north. In late 1992, Stentor paid $150 million to license MCI's so-called intelligent network, which among other things allows corporate customers of Stentor and MCI to create private networks linking operations on both sides of the border. It would have taken years "for us to develop all these services by ourselves," says Brian Canfield, CEO of BC Telecom Inc. and chairman of Stentor. In turn, MCI Executive Vice-President Eugene Eidenberg says, "that's helped us increase our market share," especially among U.S. companies with big operations in Canada.
BIG CUTS. Stentor remains Canada's telephone behemoth, even after deregulation. It controls 95% of Canada's residential long-distance business and 75% of its business market, says Canfield. Unlike AT&T in the U.S., Stentor companies can keep their chokehold on local phone business. "They remain fully integrated monopolies [that] can cross-subsidize their long-distance business," charges Joseph P. Nacchio, president of AT&T's Consumer Communications Services and a Unitel board member. Stentor denies the subsidies.
The challengers plan to hit Stentor hard. Discounts of up to 30% off the bigger company's rates could pry enough business away to cut Stentor's overall market share to as little as 67% by 1998, figures Jonathan L. Robinson, an analyst at Toronto brokerage ScotiaMcLeod Inc.
But how tough the rivals can afford to be isn't clear. Last year, Call-Net--Sprint Canada's parent--lost $2 million on sales of $96 million. Unitel dropped almost $150 million on sales of $310 million. But Bell Canada, which serves the lucrative Ontario and Quebec markets, is one of the country's most profitable companies. It earned $627 million on sales of $5.8 billion in 1993 and is now cutting costs sharply to stay a moneymaker. "We're worried about whether the competition can be sustained," says Joseph Schmidt, president of the Canadian Business Telecommunications Alliance, which represents business users.
Of course, losses are hardly surprising at this early stage. And profitability should improve "as the industry consolidates over the next six to nine months," predicts Juri Koor, CEO of Sprint Canada. Like many observers, he expects the field to shrink to Unitel, Sprint Canada, Stentor, and a few others. Can the new rivals thrive as MCI and Sprint have in the U.S.? It all depends on regulators' vigilance. So far, Stentor has come out just as strong, if not stronger, than the post-monopoly AT&T.