A big telecom scoops up another small Canadian internet provider

Another small internet provider has been scooped up by one of Canada’s big telecom players, continuing a wave of consolidation among independent competitors even as regulators have pledged to help the struggling sector.

Montreal-based Cogeco said Tuesday that it has acquired the telecommunications operations of startup Oxio, which had about 30,000 customers as of last May.

Cogeco said it plans to use the acquired business as a second brand, a common strategy in Canada’s telecom market, where the dominant players often operate multiple discount “flanker” brands.

Oxio, which has raised more than $50 million in venture capital financing, said it will continue operating a proprietary software business separately. (The companies didn’t disclose a price for the deal.)

Tuesday’s news follows a string of other sales of independent internet service providers (ISPs) to large telecom companies, including Distributel and EBox to Bell, VMedia to Quebecor and Start.ca and Altima to Telus.

CRTC has vowed to help smaller telecoms

The federal government and the Canadian Radio-television and Telecommunications Commission (CRTC) have both recently indicated plans to support smaller competitors but those that remain say help can’t come soon enough.

“Now it is undeniable that the industry is in crisis,” said Andy Kaplan-Myrth, vice-president of regulatory affairs at of Chatham, Ont.-based TekSavvy, the largest independent ISP. “It has been urgent for years and we’ve been saying that and it’s like nobody believed us.”

The CRTC has long required the country’s big telephone and cable companies to sell wholesale access to their networks at regulated rates. The smaller companies then sell internet, TV and home phone service to their own customers, often offering lower prices or different types of packages, forcing the large players to contend with more competition.

But the small players say their business model has been severely hampered by recent CRTC policies, including the reversal of a decision that set lower wholesale rates and their inability to get access to fibre-to-the-home internet service, which is fast and in demand by customers.

Geoff White is the executive director of the Competitive Network Operators of Canada, a lobby group for small ISPs.

CRTC needs to fix ‘inflated wholesale rates’

He said in a statement Tuesday that CNOC has long maintained that the consolidation of the small players “was going to happen, and continue to happen, until the CRTC corrects inflated wholesale rates, and lack of mandated access to fibre.”

Kaplan-Myrth said the CRTC has proceedings in front of it right now that would it allow it to address those issues.

The federal government issued a new policy direction to the CRTC last week, ordering the regulator to set rates faster and ensure access to fibre-optic service.

The CRTC’s new chair Vicky Eatrides has also said the commission plans to review the wholesale regime soon.

Drew McReynolds, telecom analyst with RBC Dominion Securities, said in a recent report that the new policy direction from the government will have only a “limited impact on the sector” in the short term.

However, in the medium-term and as the CRTC updates its wholesale regime, McReynolds said, “we fully expect the pendulum to swing more in favour of internet resellers.”

But there are still questions about whether any changes will come soon enough. A representative for the CRTC didn’t comment Tuesday on whether it would take any steps on a more urgent basis.

Kaplan-Myrth said TekSavvy itself has been losing customers for several years and while he would not comment directly on whether the company was itself considering a sale, he said if it did, “I don’t think that people could be surprised in light of what has happened to all of these other competitors.”

“That alone should be terrifying, because we are the last major one standing now.”

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