Ontera - The Cost of the Sale

Ontera was put up for sale by the Liberals, because it was deemed to be the most attractive to business.  The fact that it is also the most independent of the business lines operated by ONTC due to a 1997 restructuring is also a factor.

In order to understand the rationale behind this decision a little background is needed.  Back in 1997, O.N. Tel as it was known then, was deriving most of its still growing revenue from long-distance charges in a regulated and protected marketplace.  Even back then it was providing internet services to 85 communities under its ONLink banner and it operated local telephone service in Moosonee, Moose Factory, Temagami, and Marten River, later adding Iroquois Falls.  The profit from long-distance subsidized those services and also provided relief for the Rail division which was still losing money after the iron ore mines shutdown in 1990.

The financial statements for ONTC have always been complicated by little items like paying almost $1M to communities affected by the earlier divestiture of Norontair to find alternative transportation.  Political issues like the retiring of the second ferry in service between Tobermory and South Bay Mouth, the Nindawayma, the devaluing of the land in Timmins freed up by relocating out of the downtown core or the leasing of passenger equipment to the ACR for $1 per year all hit the bottom line of ONTC.  I don't understand the impact of a lot of it in the financial statements, but I don't think it was beneficial to Ontario Northland.

So now the province wants to sell Ontera...ostensibly because they say they will save $269M by 2014/15 and they cannot afford the $100M per year they claim the company will cost them.  The Liberals are adamant the transfer of assets to the private sector will not be a "firesale" and service levels will be protected. 

The price of the sale will determine whether or not it is a firesale, but it is important to understand what has transpired since the company started acquiring fiber optic cable, the "ring" that connects all the major centers in the North.  The company has spent large amounts of money in capital to build the ring since well before deregulation took away their long-distance revenue in 2002.  As of March 2012, the Ontera had $173M of equipment and buildings with $127M of accumulated amortization, most of it in recent years.

Business is going to look at the fact that the company has not turned a profit since 2001, the last year of Long Distance revenue, and disregard the profit potential now that the fiber optic ring is complete.

If you factor in the requirement for the successful bidder to continue the money losing services in small local telephones and cell service in the northern part of our service area, the bids are not likely to be very high.

The recently formed advisory council should be able to review the bids and determine if they represent a firesale or not.  If the bids are deemed too low, the divestiture should be stopped at that point and input sought for the best way to proceed.

This selloff and the previous attempt to divest Ontera, (then ON Tel) have both consumed massive amounts of money, wasted time and effort and diverted attention away from improving the process.  If this attempt to sell off provincial assets is unsuccessful, whoever is responsible should be held accountable.