Xplornet says private equity backing will mean more investment in high-speed internet for rural Canada


Originally Published by The Globe and Mail
Author: Alexsandra Posadzki

Rural Internet provider Xplornet Communications Inc. says backing from a U.S. private equity firm will allow it to increase and accelerate investments in high-speed broadband to underserved markets across Canada.

Rural connectivity has come into focus in recent months as Canadians have shifted to working and learning from home amid the COVID-19 pandemic. That’s created challenges for those living outside of major cities, who often have to pay more for slower, less reliable connections.

Xplornet – which serves about a million rural Canadians using a combination of fibre optics, wireless and satellites – announced last year that it will invest $500-million in its broadband network over five years to bring faster speeds and more data to its customers. The company’s sale to New York-based infrastructure investment firm Stonepeak Infrastructure Partners, which closed Wednesday, will substantially increase that investment and allow Xplornet to move more quickly. “We are full speed ahead,” Xplornet’s president and chief executive officer Allison Lenehan said in an interview.

Mr. Lenehan declined to put a dollar value or specific timeline on that investment, saying the company would provide more details in the months ahead. The companies also did not specify the value of the acquisition, although The Globe and Mail previously reported that a source familiar with the deal pegged it at about US$2-billion, including Xplornet’s debt load. The Globe did not identify the source because they are not authorized to discuss the matter publicly.

The company has borrowed heavily to expand its network, purchase spectrum licences – the rights to radio waves used to send wireless signals – and lease satellite capacity.

Credit rating agency Moody’s, which has assigned the company a non-investment-grade B3 rating, said there is significant room for Xplornet to grow, with roughly 2.8 million rural and remote homes in need of high-speed internet. “The rural/remote market’s low broadband internet penetration suggests a strong growth opportunity for Xplornet,” Moody’s said in a note dated April 29, adding that it expects the company’s revenue growth to be in the high single digits or double digits over the next three years.

Brian McMullen, a partner at Stonepeak who leads the firm’s communications infrastructure practice, shares that view.

“We’re still early days in terms of getting high-speed broadband into the household and into small businesses in places where internet is tough to deliver,” said Mr. McMullen, whose firm manages US$24.4-billion of assets. “We think there’s a long-term opportunity here to get the network infrastructure assets constructed – building more towers, building more fibre in places where it doesn’t exist today.”

However, while Xplornet has so far faced limited competition from larger players such as BCE Inc.’s Bell Canada, Rogers Communications Inc. and Telus Corp., who don’t offer extensive rural service, that could begin to change, Moody’s said.

“Xplornet’s business will face competition from some of these peers as they use fixed wireless [technology] … to extend reasonable-speed internet into the less dense areas of Canada,” Moody’s said in its note. “Their potential involvement in the rural/remote markets will limit how far Xplornet can increase [average revenue per user] and revenue.”

Meanwhile, the federal government is preparing to open its Universal Broadband Fund, which subsidizes the cost of building networks in more sparsely populated areas, to applications in the coming days, Rural Economic Development Minister Maryam Monsef said Monday.

The fund is expected to pay out up to $1-billion over 10 years as part of Ottawa’s promise to connect all Canadians to high-speed internet – defined as 50 megabits per second (Mbps) for downloads and 10 Mbps for uploads – by 2030.

Mr. Lenehan said Woodstock, N.B.-based Xplornet is open to working with Ottawa, but the company isn’t counting on government funding to execute its plans.

“We welcome public funding but we’re not waiting for it because that can take some time to work its way through,” Mr. Lenehan said. “We’re ready to go now.”

Read original article at theglobeandmail.com