Zayo Buying Allstream’s Canadian Fiber Network

And while it’s unclear how the Trudeau government will approach regulating the telecom industry, he said the decision by MTS to sell to an American company is far less likely to raise the ire of the new government. Ottawa blocked its $520-million agreement with Egyptian investment group Accelero Capital in 2013 due to national security concerns.

Zayo said that its major interest in Allstream was the network – 20,000 kilometers of fiber connecting all major Canadian markets and 10 US network access points.

The segmentation of the communication infrastructure aspect of Allstream, which will become Zayo Canada, and subsequent reporting into Zayo’s core business segments (Dark Fiber Solutions, Colocation & Cloud Infrastructure, and Network Connectivity) will take multiple quarters to complete, Zayo estimates.

Allstream is a subsidiary of MTS Inc. that provides bandwidth and telecom services across Canada.

Allstream operates colocation space in Toronto, Montreal, and Vancouver as well.

“As we stand up Zayo Canada, we are targeting [about $225 million] of revenue, a 40 percent EBITDA margin, and a high single digit growth rate”, Zayo global president Karl Maier said in a statement.

“Within today’s Allstream is a robust collection of fiber networks, which are enormously valuable to both Allstream and Zayo customers”, Zayo CEO Dan Caruso said in a press release. Each of these will be separated into standalone business units in parallel with the formation of Zayo Canada. That segment represents about half of Allstream’s revenue.

MTS says it will retain responsibilities to pay out pensions and related assets to its retirees and other former employees.

The transaction is subject to certain closing adjustments, including normalised working capital, as well as certain pension-related obligations. The sale was approved by the MTS board of directors and is expected to close in the first quarter of 2016.