Bell Canada to Acquire CVT

BCE has announced that it will acquire the 85% it does not own in CVT, Canada’s largest media company, for C$1.3 billion (US$1.2 billion) in equity value. GVT’s assets include Canada’s largest TV network with 27 stations across the country; 30 specialty channels, including TSN and RDS; online and video programming and properties, including CTV.ca, TSN.ca, RDS.ca, MuchMusic.com, MTV.ca, TheComedyNetwork.ca, and CHUM Radio, which runs 34 radio stations. BCE will also absorb C$1.7 billion in proportionate debt from the acquisition, which will be financed by a C$2-billion bank facility, C$750 million in new common shares, which will be issued to the Woodbrige Company Ltd, and surplus cash on-hand. BCE and the seller of CVT, Woodbridge, expect the deal to close in mid-2011 pending approval from the Canadian Radio, Television and Telecommunications Commission (CRTC) and the Competition Bureau. BCE highlighted the benefits of strengthening its video content, realising strategic and operating synergies with CVT, and becoming as vertically integrated as its core competitors (cable TV operators).

Outlook and Implications

• Importance of Video: According to BCE, Bell TV, its pay-TV service, accounts for around 40% of its residential service revenues (a greater share than traditional telephony). As a share of wireline services, video accounted for 17% in the second quarter of 2010, up from 15.6% in the second quarter of 2009. The 11.6% increase in video revenues over the two periods was driven by both 5% customer growth to 1.98 million (DTH and VDSL) and customer migration to higher-priced packages. Video ARPU rose 6.5% to C$73.43 over the period. The company is therefore not overstating how important video is to its business. The acquisition of GVT will lower the cost of advertising its Bell TV service and enrich subscription options with new content. As Bell emphasises, it also coincides with Bell’s deployment of high-speed wireline and wireless networks in 2010, which will enable it to offer new video services to TV, internet, and mobile users. While wireless ARPU (C$57.47) is significantly lower than video ARPU, wireless video is itself helping to drive wireless data ARPU, which rose by 19% between the second quarter of 2009 and the second quarter of 2010.

• Competition Intensifying: Bell faces increased competition in the wireless space. As of the second quarter of 2010, Bell Wireless and its affiliates had 29.9% of wireless subscriptions, approximately the same as in the first quarter. The entry of Wind Mobile and others into the segment will heighten competition. However, the acquisition of CVT builds on Bell’s strong position in the pay-TV market, where it only lags Rogers by some 320,000 customers, and also gives it access to a richer range of video content for its wireless services.