Bell Canada, a subsidiary of Canadian telecom giant BCE, is set to acquire Kirkland, Wash.-based fiber internet service provider Ziply Fiber in a $3.6 billion deal. This acquisition will enable Bell to expand its reach into the Pacific Northwest, where Ziply currently serves more than 1.3 million business and residential locations across Washington, Oregon, Idaho, and Montana. Following the announcement, BCE stock saw a decline of over 10%.
Despite this, the company has ambitious plans to expand Ziply’s network to over three million locations within the next four years. Ziply Fiber had previously emerged in the market after a $1.35 billion deal to acquire the Northwest operations of Frontier Communications. The acquisition, led by investment company WaveDivision Capital and Searchlight Capital Partners, saw the development of around 2,000 new fiber miles, positioning Ziply as one of the fastest residential internet service providers in the U.S.
Ziply Fiber is led by the former president of Wave Broadband and managing director at WaveDivision Capital, with telecommunications entrepreneur, who was CEO of Wave Broadband, serving as its chairman.
According to a Ziply spokesperson, the company does not anticipate any changes to its Seattle-area workforce or operations as a result of the acquisition. BCE Inc., the parent company of Bell Canada, is facing the challenge of convincing investors that it is the best owner for Ziply Fiber. The Montreal-based telecom giant sees an opportunity to boost profits by leveraging its expertise in running fiber networks and expanding services to underserved American regions.
However, the move has not been well received by income-seeking investors.
BCE expands fiber reach with Ziply
Following the announcement, Bell’s stock price dropped by 9 percent to an 11-year low.
The decision to pause common-share dividend increases after 16 consecutive years of hikes was met with skepticism by analysts. Despite the initial reaction, Bell CEO Mirko Bibic believes this acquisition will increase the company’s revenue and profit, creating value for investors in the long term. Bell has been devising a U.S. fiber growth strategy for nearly two years.
One of the key statistics that motivated this move was the stark difference in fiber internet access between Canada, where 75 percent of households have access, and the U.S., where only 51 percent do. Bibic’s plan includes selling Bell’s minority stake in Maple Leaf Sports & Entertainment and reinvesting the $4.2 billion proceeds into Ziply. This year, Ziply posted $400 million in earnings before interest, taxes, depreciation, and amortization (EBITDA), and Bell projects an 11 percent annual growth in EBITDA for the U.S. business.
While Bell shareholders initially reacted negatively, rating agency Moody’s labeled the Ziply acquisition as “credit positive,” citing improved revenue and EBITDA growth prospects for Bell. The move will make Bell the third-largest fiber provider in North America. If Bell’s strategy succeeds, it will close the gap in high-speed internet access between Canada and the U.S., challenging Canadians’ sense of superiority in this domain.
