Due diligence on an ISP or rural broadband provider

Diligence on a rural broadband provider has an unusual shape, because much of what needs verifying sits outside the books: who has a claim on the equipment, whether the sites and routes are really secured, what a funder can demand, and whether the subscriber count on the spreadsheet matches households actually connected. It runs in layers. Registries can come first because they are public, documents second, field checks of the network third, and the subscriber and privacy review last, once a buyer is serious enough to see named records. A finding in any layer can lower the price, change the structure or end the deal, and this guide says what each can mean.

Registry searches: who has a claim on the equipment

Search for security interests registered against the company and its former names before relying on a statement that the equipment is free and clear. In Ontario, the Personal Property Security Registration system can be searched through Access Now to find whether a lien has been filed. British Columbia’s Personal Property Registry records security interests and liens under the Personal Property Security Act, and Alberta runs its own personal property registry for searching registered security. Québec works differently, with a register of personal and movable real rights set out in a regulation under the Civil Code. A lender may hold security over towers, radios and vehicles, so a search may turn up registrations that need discharges at closing. What a PPSA search is explains the basics.

Land and route records

Easements and rights-of-way matter to this business, and one way to find them is a search of land records as well as the seller’s summary. A British Columbia title lists the charges, liens and interests registered against the parcel. In Alberta, the Land Titles Act is the framework for registering documents that create and end legal rights in property, and caveats are among the instruments the registry handles. Ontario’s Access Now page points land searches to a separate land registration service rather than the personal property system. For each parcel carrying a tower, a cabinet or a buried line, compare what the records show with what the seller says exists. A route across private land with no registered or written right is a different thing from one the provider can defend.

Documents that decide whether the deal survives

Read the funding agreement, if there is one, in full and before anything else. Look for the clause on change of ownership or control, any requirement for the funder’s approval before closing, ongoing service and reporting obligations, and any provision that requires repayment if obligations are missed. An approval requirement that cannot be satisfied before closing is a finding that can end a deal, because closing without it can put the funding at risk. Then read the site, easement and right-of-way agreements for whether they can be assigned, how long they run and what happens at renewal, and put the same questions to the upstream and backhaul contracts. A change-of-control clause in any of them can matter in a share purchase as much as in an asset purchase.

The network itself

The seller’s asset register tells you what the seller believes exists. An independent technical review of a sample of tower sites, cabinets, cable or fibre routes and core equipment tells you what does. Ask the reviewer to report on age, condition, remaining manufacturer support and capacity at the busiest sites, and to compare the findings with the register and the outage log. Deferred maintenance can change the price instead of ending the deal, and its size can come from the inspector’s estimate rather than the seller’s. Where plant is buried, ask how the provider records its routes, because a provider that cannot show where its own cable lies carries a risk no financial statement records.

Subscribers, billing and privacy

Reconcile three lists: subscribers in the billing system, services provisioned on the network, and equipment installed in homes. Differences can point to unbilled service or departed customers still on the books. Then review how personal information has been handled. PIPEDA’s fair information principles include accountability, consent and safeguards, and the Office of the Privacy Commissioner says an organization must keep a record of every breach of security safeguards involving personal information under its control, whether or not the breach was reportable. Ask to see that record. A missing or thin one is itself a finding, and a breach that should have been reported and was not is a liability to price or to cover in the agreement.

What findings can mean

These outcomes are possible.

• A security registration against equipment the seller described as unencumbered can become a discharge condition at closing, or a payout from the proceeds.
• A funding agreement that needs the funder’s approval can move the timetable to the funder’s, and the approval can be written into the agreement as a condition.
• A tower or route with no written right can lead either to a new agreement before closing or to an adjustment in price.
• Deferred maintenance beyond the seller’s figure can produce a price reduction, a holdback or an indemnity.
• A subscriber count that does not reconcile can send the negotiation back to the verified number.