Bell Canada heads south with $3.7 billion acquisition of Ziply

Shares are down at Canadian incumbent Bell Canada (BCE) after it announced it is buying its way into the burgeoning US fibre market.

Nick Wood

November 5, 2024

3 Min Read

It has agreed to pay C$5 billion ($3.65 billion) to acquire 100% of Ziply Fiber, which offers retail services to consumers and businesses in its home state of Washington, neighbouring Idaho and Oregon, and nearby Montana.

Ziply's network currently passes 1.3 million locations, and it is on course to grow to more than 3 million in the next four years. The addition of Ziply promises to increase Bell's own footprint to more than 12 million premises by 2028.

Ziply also lays claim to the fastest home Internet service in the US, with its range-topping tariff maxing out at an impressive 50 Gbps. However, at $900 per month plus a $600 activation fee, this is a niche offering, to put it mildly. Its most popular plan offers symmetric 1-Gbps broadband and weighs in at $60 per month.

BCE said C$4.2 billion of the purchase price will be funded by proceeds from September's sale of its 37.5% stake in sports and real estate giant Maple Leaf Sports & Entertainment (MLSE) to rival Canadian telco and fellow MLSE shareholder Rogers.

It all seems perfectly reasonable so far. After all, the appetite for fibre in the US is strong, and telcos are currently racing to reach as many prospective customers as possible.

However, to help shore up its capital position following the acquisition, BCE revealed that it will pause dividend growth after 2025, a development which – according to Bloomberg sent BCE's share price to a 12-year low.

According to the newswire, it came as bad news to investors who own BCE stock primarily for the dividend payouts, not because they are looking for exposure to the US fibre market.

Nonetheless, BCE chief executive Mirko Bibic insists the tie-up is in shareholders' best interests.

"This acquisition marks a bold milestone in Bell's history as we lean into our fibre expertise and expand our reach beyond our Canadian borders," he said. "Fibre is at the heart of what we do, and we're proud to connect people and businesses and enable them to do more through our fibre networks. By bringing together Bell and Ziply Fiber's exceptional talent, we'll accelerate our growth while continuing to deliver significant value for our customers and shareholders."

Indeed, gaining exposure to the fast-growing US fibre market could also offset some of the headwinds BCE faces at home.

Last November, in an effort to stimulate retail broadband competition, the Canadian Radio-television and Telecommunications Commission (CRTC) ruled that large telcos would have to provide smaller ISPs with wholesale fibre access in Ontario and Quebec. On top of that, the CRTC said it would determine how much these bigger telcos can charge.

In response, a furious BCE cut its capex plan and shed thousands of jobs. However, that didn't stop the CRTC from announcing that from next February, these rules will apply nationwide.

Meanwhile, Ziply CEO Harold Zeitz thanked financial backers Searchlight Capital and WaveDivision Capital for their support, and talked up the benefits of having BCE as his company's new parent.

"Bell's leadership and vision aligns perfectly with our commitment to improve the connected experiences of our communities through fast, reliable fibre Internet and a refreshingly great experience," he said. "This acquisition enhances our growth strategy with the scale and experience of one of North America's leading fibre operators."

Judging by BCE's tumbling share price though, Zeitz and Bibic will have their work cut out to convince investors that this is a shrewd move.

About the Author

Nick Wood

Nick is a freelancer who has covered the global telecoms industry for more than 15 years. Areas of expertise include operator strategies; M&As; and emerging technologies, among others. As a freelancer, Nick has contributed news and features for many well-known industry publications. Before that, he wrote daily news and regular features as deputy editor of Total Telecom. He has a first-class honours degree in journalism from the University of Westminster.

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