Canada besieged by long distance giants

In the space of just two days, the two largest U.S. long distance companies have signed deals that give them a strong position in the Canadian telecom market. But there may be more deals in the works, analysts said.

Today, AT&T Canada agreed to merge with Metronet, the country's biggest upstart local phone provider. And just yesterday, MCI WorldCom struck an alliance with Bell Canada, the country's biggest telco.

With new access to the local lines north of the border, AT&T and MCI WorldCom can offer their customers packages that treat Canada and the United States as a single market, analysts said.

The moves leave Sprint, the third-largest U.S. long distance company, without a local phone partner north of the border, however.

But this may only be a matter of time, analysts said. The No. 2 player in the Canadian phone market--BCT.Telus--is still independent, and could be a natural match for Sprint or another U.S. phone company looking to expand its presence up north.

"We haven't seen the end of the large announcements about upheavals in the Canadian market," predicted Ian Grant, managing director of the Yankee Group in Canada, a telecommunications research firm.

Northern exposure
The Canadian market is a natural move for the big long distance companies, all of which already market services there. The biggest trading partner of the United States, Canada also attracts more U.S. phone and data traffic than any other single country.

This has long attracted the big players to the long distance market between the United States and Canada. But the recent round of deals marks a new effort to offer a full range of services--local, long distance, and data--on both sides of the border.

The big players have already been working this kind of end-to-end strategy around the world. The announcements of the last two days will solidify AT&T and MCI WorldCom/Bell Canada as the biggest telecom brands in Canada, however.

But the Canadian market lags behind the United States in terms of deregulation and consolidation, and there still is space for other outsiders to ramp up their own presence, analysts said.

Sprint does have a substantial long distance network throughout the country, but has only recently begun to get into local markets--largely though the high-priced resale of other telephone companies' networks. Sprint Canada's local parent company has started investing in its own local networks, but is far from rolling out residential service.

Meanwhile, BCT.Telus is looking increasingly isolated in its own sphere of influence.

"There's no question that they are in need of a partnering arrangement if they are looking to provide complete services to their customers," said Mark Goldberg, a telecommunications consultant based in Ontario.

Sprint isn't the only company that might be interested in striking a cross-border agreement similar to MCI WorldCom and AT&T, analysts noted. GTE is a shareholder in BCT.Telus, and other Baby Bells have been very aggressive in investing overseas.

But the third-place U.S. player would fit well with the last big remaining Canadian independent, giving it a geographical reach and cross-border brand that could rival its larger competitors, analysts said.

"I think there's probably a lot of phone calls going on between executive suites today, while people try to figure out a response [to AT&T]," Goldberg said.