Buying a telecom or VoIP provider in Canada

A telecom or VoIP provider sits inside a regulatory frame that can limit who may own it, and what you are buying is an operating service rather than a stock of goods. The useful order of questions is therefore: can I own this, can I run this, and is the customer base real? The sections below take them in that order. They describe what to look at, not whether any particular provider is a good purchase.

Can you own it?

If the target is a telecommunications common carrier, section 16 of the Telecommunications Act makes Canadian ownership and control a condition of eligibility, subject to exceptions, and the CRTC’s policy notes that the Act and the Regulations require a common carrier to be Canadian-controlled in fact, in addition to de jure ownership and control. A buyer assembling investors or lenders should see how those relationships look from that angle before signing. A non-Canadian who acquires control of an existing Canadian business is subject to the Investment Canada Act and must file a notification or an application for review unless an exemption applies. The government can also review an investment of any size for national security; ISED describes that side of the Act as aimed at foreign control of sensitive goods, technology, infrastructure or personal data, and a provider may hold both infrastructure and subscriber records. ISED says the net-benefit review thresholds for WTO and trade agreement investors are adjusted annually based on growth in nominal GDP, while those for other investors are set in subsections 14(3) and 14(4) of the Act, so read the current ISED page rather than a figure quoted elsewhere, and see can a foreign buyer buy a Canadian business.

Competition review for consolidators

The Competition Bureau says the Commissioner may review any merger or acquisition regardless of size, that whether a deal is notifiable depends on financial thresholds for the size of the parties and of the transaction and on other criteria and exceptions set out in the Competition Act, and that a merger with no pre-merger notification or advance ruling certificate request can be challenged for up to three years after closing, while for a merger that was the subject of an ARC request or a pre-merger notification the Bureau says it has up to one year after completion to challenge it before the Competition Tribunal. A buyer that already serves the same region or customer segment should ask its lawyer early which side of that line the deal falls on.

Reading the quality of the base

Points that suggest a sturdier base include revenue spread across many accounts rather than a few large ones, billing per seat or per line under current contract terms, and churn that has held steady through more than one renewal cycle. On the platform, check that it is on a supported version, that the numbers sit in the provider’s own name, that more than one upstream carrier is used so that a single repricing does less harm, that emergency-calling tests are on file and that more than one person can explain how the network is run.

Points that call for a closer look include month-to-month billing, a single carrier, hardware or software past its supported life, unresolved customer complaints, or growth bought with promotional pricing that has not yet been tested at renewal. Each is something the price and the protections may need to account for.

What to ask the seller directly

Ask directly about past toll-fraud incidents and billing disputes with carriers and how each ended; side letters and grandfathered rate plans that the contract list does not show; customers whose agreements let them leave if ownership changes; which engineer alone understands a custom call flow; and which large accounts belong to friends or relatives of the owner. Ask also how recently the platform was upgraded and whether an upgrade is overdue, since that cost lands on the new owner, and how much of the reported growth came from acquiring other providers’ subscribers, since acquired lines may bring their own churn and unresolved paper.

Plan the migration before you pay for it

If you plan to move the acquired subscribers onto your own platform, plan that move before you pay for the business. Ask which customers have custom call routing, unusual hardware or number blocks that must be ported, and how the seller would expect each group to move. Ask for a count of subscribers by setup type, and discuss with your advisers how to treat the customers you cannot move cleanly.

What you must qualify for yourself

• Eligibility under the ownership and control rules, for you and for the investors and lenders behind you.
• If you are not Canadian, an Investment Canada Act filing and the possibility of a national security review.
• The capacity to run a service that cannot be allowed to go down: monitoring, on-call staff and carrier relationships you can manage.
• Financing that fits the mix of assets; see financing a telecom or VoIP provider acquisition.
• A view, with your advisers, on how outages and privacy breaches will be insured and who bears them.