BCE Divests Data Center Assets to Boost Network Investments

Zacks Equity Research

Canada’s leading communications company, BCE Inc. BCE, recently announced the divesture of 25 data center facilities at 13 sites to Redwood City, CA-based multinational firm — Equinix, Inc. EQIX. Markedly, the strategic partnership between the two companies will focus on the delivery of hybrid multicloud and integrated networking solutions, thereby accelerating digital transformation opportunities for Canadian enterprise customers. Impressively, the all-cash transaction is valued at CA$1.04 billion (nearly $750 million).

Considered as one of the leading platforms for digitized business, Equinix specializes in Internet connection and data centers. Holding a major market share in global colocation data centers, Equinix is armed with 205 data centers across 25 countries. The company develops robust data center solutions with innovative interconnection services that seamlessly adapts to the dynamic requirements of businesses. In 2017, the data center giant bought 29 data centers for $3.6 billion from another major tech player — Verizon Communications Inc. VZ. Notably, the latest acquisition will add key customers in strategic sectors to enhance the value of the digital ecosystem, which will enable Equinix to augment its presence in Canadian markets.

Besides unlocking opportunities for Canadian businesses, the divesture will bolster Bell’s wide portfolio of cloud solutions and experienced professional services with accelerated network investments. Markedly, this strategic deal, built on the strength of Bell’s avant-garde network infrastructure, will add nearly 500 new Bell customers ranging from financial services to IT. As part of the agreement, Bell Business Markets has become the first Platinum partner of Equinix in Canada. Consequently, this privilege will provide an absolute access of Equinix’s cloud solutions to Bell customers. The transaction, which is subject to certain regulatory approvals, is expected to close in the second half of 2020.

BCE continues to benefit from FibeTV and FibreOP TV growth, price hike and an improved business market stemming from a steady economy. It is well positioned to benefit from strong subscriber additions with focus on technology upgrades. The company continues to focus on six strategic areas — investment in broadband network and services, accelerating wireless services, leveraging wireline momentum, expanding media coverage, improving customer service and achieving a competitive cost structure. These initiatives are expected to generate higher revenue per user and attract new customers in the coming days.

However, the company’s local lines for traditional telephony service continue to face a decline among large customers due to higher wireless substitution and migration to IP-based services. This is reflected in the persistent erosion in overall network access services, hurting revenues of the local and long-distance operations. Although it continues to invest substantially in LTE, broadband and fiber, it is believed that the company may not be able to recover massive outlays from customers due to competitors’ short-term pricing of comparable services.

BCE currently has a Zacks Rank #3 (Hold). It has a long-term earnings growth expectation of 4.5%. The stock has lost 7.3% compared with industry’s decline of 40.8% in the past year.

A better-ranked stock in the industry is Telstra Corporation Limited TLSYY, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Telstra has a long-term earnings growth expectation of 3.7%.

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