What is a telecom or VoIP provider worth in Canada?

A telecom or VoIP business is a bundle of recurring bills, the telephone numbers its customers use, a network or hosted platform that carries the calls, and a regulatory standing a buyer has to be able to step into. BDC describes earnings-based, market-based and asset-based approaches, and notes that the multiple used in the market-based version varies greatly with the industry and market conditions. This guide is about what moves the inputs. It quotes no multiple or price figure, because a valuation needs the financial statements and is not something this guide can give.

The subscriber base

To see how much of the revenue is likely to stay, look at contract terms and churn: how much of the base is held under a current contract term, and how much can leave on short notice. Ask three questions of your own records. How many subscribers sit inside a current contract term? How many signed a term that has since lapsed and rolled quietly onto monthly billing? And what does customer churn look like by signing year rather than as one blended figure? A handful of large accounts, or one reseller sending most of the lines, adds customer concentration, which is worth examining.

What is left after the carriers are paid

Revenue is only part of the picture; margin after upstream cost matters too. A provider that sends traffic through other carriers earns the spread between what its subscribers pay and what those carriers charge it, and one upstream repricing can erase that spread. Per-seat hosted phone revenue, billed monthly for each user, depends on how many users there are, while usage-based minutes and wholesale traffic depend on customer volumes and carrier rates. Be ready to split your revenue into those two kinds, and to say how many upstream carriers you use and what happens to your costs if one of them walks away.

Owned platform or rented one

Whether the provider owns its switching equipment, or runs on a platform licensed from a software vendor with numbers supplied through a carrier, changes both the earnings and the risk. Owned network equipment can be an asset, but it ages and may be specialized, so ask what it will cost to refresh. With a rented platform, ask what the licence allows when ownership changes and who actually holds the telephone numbers. BDC says asset-based methods are typically used where a business’s value is asset-related rather than operations-related, and that earnings-based methods are commonly used for businesses that generate reasonable profits and whose value is greater than that of their net assets alone. Equipment still matters for what it costs to keep the service running.

How earnings get recast

Recasting starts from the profit the owner reports and adjusts it. BDC notes that a valuator typically reviews discretionary and non-recurring expenses and management compensation. In this sector the points to check include the owner’s pay set to a market level for a general manager, one-time credits or settlements with an upstream carrier, losses from toll fraud (someone running up charges through a hijacked phone line), platform development capitalized in one year and expensed in another, and annual prepayments recognized as earned. Ask also whether a fraud loss was a single event or a cost of how the platform is secured. See normalization and add-backs for the mechanics.

What can make two similar-looking providers differ in value

• Contract paper: one has current multi-year terms across its base, the other has a stack of expired agreements and handshake arrangements.
• Consent exposure: one runs on agreements that move to a buyer freely, the other depends on a carrier or platform vendor whose consent is required and uncertain.
• Compliance record: unresolved consumer complaints or emergency-calling gaps can be liabilities a buyer has to account for.
• The buyer pool: section 16 of the Telecommunications Act makes Canadian ownership and control a condition of eligibility for a Canadian carrier operating as a telecommunications common carrier, subject to exceptions, and a non-Canadian acquiring control of a Canadian business is subject to the Investment Canada Act, so eligibility can narrow who is bidding.
• Strategic fit: a BDC director observes that a strategic buyer is often willing to pay more because it sees synergies, and the Competition Bureau says the Commissioner may review any merger regardless of size.

Fair market value is not the sale price

BDC cautions that a company’s fair market value is not necessarily the price it will sell for, because market conditions, the buyer’s strategic interests, due diligence findings, the availability of financing, the seller’s eagerness and the seller’s involvement after closing can affect the final selling price. A finding about a registration or a carrier consent is the kind of due diligence result that can move the number. A valuator can prepare a report at three levels of depth, from a brief calculation to a comprehensive report, and BDC notes that the more thorough the report, the greater the cost and the assurance.