TELUS Network Services

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1 Donald A. Stuart Product Report 26 June 2003 TELUS Network Services Summary TELUS, the No. 2 network service provider in Canada, is revamping its network and enhancing its service offerings, to be an even stronger competitor in 2003 and beyond. Commentary On 18 June 2003, AT&T Canada Inc. announced that it would do business going forward under the corporate name Allstream Inc. Don Stuart Table of Contents Overview Analysis Pricing Competitors Strengths Limitations Recommended Gartner Research Insight List Of Figures Figure 1: Map of Canada Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Corporate Headquarters TELUS 555 Robson Street Vancouver, BC, Canada V6B 3K9 Tel: Fax: Internet: Overview In January 1999 BC Telecom and TELUS Corporation, the provincial telephone companies of British Columbia and Alberta, respectively, merged to form the second-largest telecommunications company in The new company was originally called BCT.TELUS Communications, but changed its name to TELUS Corp. in May TELUS was formed with a plan to become a major, nationwide service provider in GTE of the U.S. (a former part owner of BC Telecom), now Verizon (after the merger of GTE and Bell Atlantic), increased its investment in the new company to retain a 26.7 percent interest in TELUS. Then, in mid-2000, TELUS acquired a 70 percent interest in QuebecTel, with GTE (now Verizon) holding the remaining 30 percent. Given the strength of TELUS in western Canada, the QuebecTel acquisition provided a major boost to help TELUS launch services in eastern Canada (and nationwide). In the latter part of 2000, TELUS acquired Clearnet Communications (a leading wireless services provider in Canada), which was followed up in 2001 with the acquisitions of PSINet Canada, Williams Communications Canada, Columbus Group, Daedalian esolutions, Arquana Technologies and NWD Systems, further strengthening TELUS position as a major player in Canada on a national basis. Then in July 2001, TELUS acquired Verizon s 30 percent interest in QuebecTel, giving it complete ownership of the company, which is now known as TELUS Quebec. Also in July 2001, TELUS Quebec acquired the (Quebec) assets of AXXENT (a Canadian competitive local exchange carrier [CLEC]). At this point, Verizon s ownership in TELUS stands at around percent, giving TELUS a strong connection to the U.S. (and other global) markets. TELUS currently offers services throughout Alberta and British Columbia, much of Quebec, as well as in parts of Ontario and Manitoba. The company built a trans-canada fiber optic network to serve the major metropolitan areas of the country. In March 2001 TELUS announced that it had activated its national fiber IP backbone network connecting Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Montreal and Quebec City, with additional connections to Seattle, Chicago, Detroit, Buffalo and Albany in the U.S. Metropolitan networks already cover most of Alberta and British Columbia, and portions of Quebec, along with additional networks in Ontario. TELUS is functionally divided into two primary business units: TELUS Communications (providing most telecom business and residential services) and TELUS Mobility (providing wireless services). As of March 2003, TELUS reported over 442,000 high-speed Internet subscribers (and over 372,000 dial-up Internet subscribers), 4.9 million network access lines and 3.1 million mobile subscribers. Figure 1: Map of Canada 26 June

3 Analysis TELUS offers a wide range of services to business customers in the areas where service is currently available. Local service offerings include basic business line, business multiline, fax/computer data line access and various calling plan services. Long-distance service offerings include basic, international, tollfree and 900 services. A variety of call management (or custom-calling) features is available, including Three-Way Calling, Call Trace, Call Return, Call Waiting, Do Not Disturb, Voice Mail, Name That Number (Caller ID) and Call Blocking. Internet and data networking services offered include Integrated Services Digital Network (ISDN); Digital Signal Level 1 (DS-1); Switched 56; packet (including X.25); private line (from Digital Signal Level 0 [DS-0] to Digital Signal Level 3 [DS-3] speeds); frame relay (at speeds from 56 Kbps to Mbps); digital subscriber line (DSL); virtual private networking (VPN); videoconferencing options; wireless local area network (WLAN) solutions; and a variety of multimedia, integrated and application services; along with Web hosting and Internet Data Center services. TELUS is also preparing to offer additional services (such as optical Ethernet) at some point in the future. TELUS also offers data networking products, such as modems, channel service unit (CSU)/data service units (DSUs), hubs, routers, switches, remote access servers, frame relay access devices and other equipment for its customers. Network management, consulting and other managed service offerings are available to business customers as well. TELUS further presents customers with a wide selection of customer premise equipment options including telephone systems (Key/Hybrid/PBX [private branch exchange] systems and IP-PBX systems), voice mail products, call center products and Centrex services. Pricing Pricing information is quite variable. It is suggested, therefore, that clients contact the vendor directly to negotiate pricing based on volume needs, including options for bundled service packages and possible 26 June

4 discounts for various contract-term commitments. Clients are also urged to gather bids from TELUS primary competitors, such as Bell Canada, AT&T Canada and Sprint Canada, before committing to any long-term contract agreements. GSA Pricing No. Competitors The primary competitors for TELUS in the Canadian market are Bell Canada, AT&T Canada and Sprint Bell Canada is the original and still the largest telecommunications service provider in The company recently announced plans to restructure its entire business operations, to serve the Canadian market through business units based on type of customer (consumers, small- and midsize businesses, and large corporations), rather than being based on geographic boundaries (as it was doing). It is felt that this will be a better approach to serving the market; however, it may take some months for the new organization to settle into place. Bell Canada reported over 1.2 million high-speed Internet subscribers (and nearly 1 million dial-up Internet subscribers, along with nearly 4 million mobile subscribers. AT&T Canada was formed in June 1999 from the merger of AT&T Canada Long Distance, MetroNet Communications, Netcom Canada and ACC TelEnterprises. AT&T has since sold off the residential longdistance portion of its operations to allow the company to concentrate its efforts on the needs of business customers. AT&T Canada went through the Canadian equivalent of bankruptcy proceedings during 2002/2003, emerging as a restructured company in April 2003, with U.S.-based AT&T Corp. no longer an owner of the company. AT&T Canada will launch a new brand name by September 2003 and must stop using the AT&T brand name by the end of As a result of the restructuring, AT&T Canada eliminated its debt, but it will still face difficulties going forward and continue to be at risk. The company, however, still offers a good set of services for business users and maintains a fairly extensive network across Sprint Canada (wholly owned by CallNet Enterprises, which, in turn, is 10 percent owned by Sprint of the U.S.) has a nationwide network and a fairly complete suite of network service offerings. Sprint Canada is currently providing service via over 130 collocations in nine Canadian metropolitan markets. Another competitor (and recent acquisition target) is Group Telecom, a CLEC in Canada, currently offering services in over 15 major markets across the country. In the early part of 2003, 360 networks (headquartered in Vancouver) acquired Group Telecom. Strengths TELUS has a very strong presence in the western provinces of Alberta and British Columbia (where revenue from its local market hold, in essence, provide funds for other developments and expansions). And TELUS is clearly the No. 2 telecommunications player in Canada, behind Bell The acquisition of QuebecTel helped strengthen the company s position in eastern Also, the acquisitions of Clearnet Communications, PSINet Canada, Arquana Technologies, Columbus Group, Daedalian esolutions and Williams Communications Canada, further strengthened TELUS position as a national provider in Canada and have assisted TELUS in focusing on its core business while accelerating the implementation of its national data, IP and wireless growth strategy. 26 June

5 Verizon s (formerly GTE s) relationship with TELUS effectively assists the company in meeting the multinational requirements of its customers and helps it to better compete with rivals such as Bell Canada and AT&T TELUS offers a wide range of features and services, including basic business services, data services, Internet services, wireless services, equipment offerings and consulting/managed services. In 2002, TELUS announced plans to migrate its circuit-switched long-distance traffic to a packetbased IP network employing voice over IP equipment from Nortel Networks. The national network will include voice gateways in 11 major cities across Canada and will enable TELUS to offer additional applications and services, including IP Centrex. Limitations While TELUS has a strong presence in western Canada (in its home provinces of Alberta and British Columbia); in Quebec (via its acquisition of QuebecTel) and a more limited presence in Ontario, Manitoba and other areas, the company is lacking a significant presence in the rest of This is with the exception of its wireless services offerings, which also include the acquisition of Clearnet Communications. There will continue to be strong price competition in the Canadian marketplace, which could make it more difficult for TELUS to continue funding its needed network build-outs and improvements especially considering the company s debt load. TELUS primary competitor (Bell Canada) is farther along with its network build-outs and expansions, giving it an advantage (at least for the moment) in going after Canadian business customers with multiple-site operations that are spread across the country. Bell Canada still has some work to do in Alberta and British Columbia. AT&T Canada also has a significant network presence across Canada, although it still faces difficulties ahead (as a result of its restructuring and new ownership position). Recommended Gartner Research Fixed Public Network Services Market Trends: Canada, , TCPS-WW-MT-0130 Canada Revisits Foreign Ownership Rules, TELC-WW-DP-0273 Insight While TELUS is the second-largest telecommunications company in Canada, it still has challenges to overcome on its way to becoming a truly major force in the nationwide Canadian telecommunications market, in all regions. Primary competitor Bell Canada currently covers much more ground with its networks than does TELUS (especially in the eastern part of the country), although it still needs to continue development of its network in Alberta and British Columbia. TELUS still controls the majority of the market in its home provinces of Alberta and British Columbia (along with a good market share in parts of Quebec, via TELUS Quebec, formerly QuebecTel), but considerable time, effort and money need to be expended before it is a ubiquitous nationwide player. Business clients should pay close attention to TELUS, as the company continues its nationwide network expansion. Also, TELUS should certainly be considered when seeking competitive bids for telecommunications services. TELUS is expected to remain as a major competitor in the Canadian market. 26 June