Municipal telecom assets to be sold to Bell Aliant, TbayTel
By Chris Marchand
Dryden residents are invited to a public meeting Thursday, Sept. 27 to review the details of offers to purchase the Dryden Municipal Telephone System and its mobility division.
The meeting will take place at The Dryden Regional Cultural and Training Centre, 7 p.m.
City councillors agreed in principle to the sale of the struggling public utility’s assets in a special public meeting Sept. 19. The split deal would see Bell Aliant purchase DMTS’ landline and Internet services for $4.5 million, the mobility division is being sought by TbayTel for an undisclosed amount.
DMTS currently holds approximately 5,000 landline customers with Mobility featuring 3,200 customers.
In 2007 both Bell Aliant and TbayTel, made offers in the $12-15 million range for DMTS and Dryden Mobility combined who were, at the time, operating profitably.
Since 2009 however, the company has mounted significant losses, accumulating a deficit in excess of $16 million in four years.
A 2007 council decision to ‘retain and grow’ was a turning point in which the company’s expenses began to overcome revenue — the move was made despite warnings from consulting firm Deloitte and Touche of significant risk.
The aggressive plan to establish DMTS as a regional telecommunications leader involved a $15 million investment in Mobility, comprised of a $12 million loan from Infrastructure Ontario, plus $3 million of city cash flow. It was to be a large investment in proportion to a small and fiercely sought after northwestern Ontario market.
The move would fundamentally change the relationship between Dryden Mobility and TbayTel. The Thunder Bay company, who had previously supported Dryden Mobility’s services through its infrastructure, found itself in direct competition with an operation that had set its sights on capturing TbayTel’s own native market.
However, the subsequent purchase of the wrong switching technology saddled Dryden Mobility with a key piece of technological infrastructure that cost millions and struggled with processing post-paid cellular plans.
“The Lemko switch was great for the military and other pre-paid cellular services, but it doesn’t work so well for post-paid where it’s tracking all the users and billing them at the end of the month,” said van Koeverden. “It just couldn’t handle the post-paid volume that we were putting against it.”
Internally, van Koeverden says the culture within the operation was marked by a lack of monitoring and objective overview of financial results.
“We don’t have a ‘profit’ culture in the organization,” said van Koeverden. “It’s a municipality. Even as the bad numbers were coming out, the people in charge didn’t seem to recognize the urgency in bringing it to profitability. It took four years of massive losses for council to stop pushing to ‘retain and grow’. The consultant convinced council we could go back to that same strategy and take over Thunder Bay too.”
In May of 2011, following an operational review, council installed consultant Eamon Hoey as interim CEO of DMTS in the place of Peter Gillis in another push to get the retain and grow strategy back on track.
Van Koeverden adds the city sought a partnership with major carrier Bell Mobility in hopes of making the cellular division work, but a deal could not be reached.
By the start of 2012, van Koeverden says council were considering an exit strategy.
If landline and Internet is still profitable, why sell it?
The traditional landline and Internet services of the Dryden Municipal Telephone Service has been marginally profitable over the past five years. In 2011 the operation posted profits of $325,000.
Yet, van Koeverden says without a $5-10 million investment in fibre-optic infrastructure those profits will also be eroded by intensifying competition.
He says local phone, Internet and TV bundling packages, soon to be offered locally by Shaw are expected to erode the market share significantly — particularly with the advent of Voice-Over Internet service that is expected to grow by 22 per cent this year.
“They (Shaw) will be able to supply home phone service shortly. It’s no longer going to be a monopoly,” he said. “Since their phone service is not regulated, they can offer it at any price. In Thunder Bay you can get a home phone line from Shaw for $9.95.”
On the Internet front, DMTS is offering service speeds of 50 megabytes per seconds, compared to the 250 mbps offered by Shaw in many markets.
Human resources plan in development
In regards to the sale, some job losses are to be expected in the transition, though a majority of staff will endure the switchover.
“Bell will be assuming the employees that are there for the most part,” said van Koeverden. “There will be a number of local area staff who will be offered positions with TbayTel. We haven’t worked out the HR (human resources) plan yet. we will be doing that over the next two weeks.”
As the technological infrastructure is wired into the building, the city of Dryden expects to lease Bell Aliant the original phone company building for the first three months of the switchover.
Both Bell Aliant and TbayTel deals are expected to be approved and signed at the Oct. 3 regular meeting of city council. Mobility customers will be ported to TbayTel and upgraded to compatible handset beginning Oct. 25.
For Bell Aliant, union, regulatory and contract discussion will take place throughout October and November with the transaction to close Jan. 1, 2013. Bell Aliant will occupy the current space at City Hall for three months before moving to a new location.
The history of the Dryden Municipal Telephone System
By Dryden Observer Staff with files from Gerrie Noble
The telephone story at Dryden started with a single pair of telephones purchased by one of our early pioneers. Alvin L. Orvis had a store in 1901 at the corner of Whyte Ave. and Princess St. where the CIBC bank is today. Orvis’ house was just north of the store. In order to have communication between the house and the store he purchased the telephones with batteries and wire installing them in 1906.
In 1912 the store was destroyed by fire — the remaining phone was donated to the Dryden Museum by Leslie Orvis in 1960.
In 1910, M.S. Campbell, the local CPR station agent, in partnership with his father-in-law James McFayden, set up a small telephone system from the station to the Campbell house and the McFayden home. A third line ran to McFayden’s office in the building now occupied by Gould’s Furniture.
Permission to run wires on poles had been received from the CPR and the Town of Dryden. The system used a series of rings to indicate who was being called. When doctors Blair and Dingwall saw this convenience, they arranged to be included in the circuit. Next it was pulp mill manager JB Beverage who had his office connected.
The last person on this private system was Russell Wigle, the town electrician.
In 1914, town council began discussions on the idea of establishing a municipal system, though they were uncertain that it would garner enough subscribers to be a self-supporting utility. Phone service was still considered a ‘frill’ when roads, water and sewers were in need of funding.
A company was formed and charged with the task of finding fifty subscribers. The system went into operation in 1916 with 92 subscribers.
The age of the operator
The first telephone switchboard was established at 53 King St. — a vacuum sales shop today. Mrs. Alex Upton resided there and was the first telephone operator, assisted by her son and daughter. Later the exchange moved to 49 King St. where Mrs. Frank Russell and her daughter took over switchboard duties from 1925 to 1930 when it was moved to the rear of the former fire hall on King St.
Early in the year of 1926 long distance service was established between Dryden and Thunder Bay as well as Winnipeg. Three operators each worked an eight hour shift to provide 24-hour service.
It was soon thereafter that the Town of Dryden would take over the utility from the company that initially funded its early efforts.
The operators were in a unique position to know what was going on in town — knowing who was calling who and who was seeing who — but of course were supposed to mind their own business. In times of emergencies they were often instrumental in taking quick action.
Mrs. EJ Warren was the community’s chief operator for 28 years. When she retired from her post in 1958, Warren was overseeing 17 operators in the new telephone exchange at 65 Princess St.
Before the local telephone system went to dial service in 1962, the system required six operators per shift on 1500 lines.
To sell, or not to sell — round one
Council discussions around selling the public utility first emerged in the early 1960s as Bell Telephone began to consolidate many municipally owned systems across Northwestern Ontario. The debate strained relations between town councillors as well as the town’s relationship with Bell Telephone as a decision was made to enter into an agreement with Northern Telecommunications Supply (NTS) to establish dial service.
Bell eventually purchased NTS bringing local long distance service under its auspices in 1968.
By 1979, the new Automatic Number Identification System put an end to the need for long distance operators at the Bell office Duke St.
In 1981, town council passed a motion to invest $1.4 million to computerize the system, monies the utility had earned were used to cover the expense.
In 1984, the Dryden Municipal Telelphone System adopted the universal 911 emergency number for police, fire and ambulance.