Canadian Telecom
Encounters Its Own Static

Canadian commercial real estate firm Royal LePage reports that Canadian business spending on information and communications equipment dropped 19.8 percent in the fourth quarter of 2001, the fourth straight quarterly decline. Flagship companies Nortel and JDS Uniphase have led the telecom descent, accompanied by startups which have often failed altogether.
        During 2001, Nortel vacated more than 200 buildings. That is a significant piece, when the total space occupied by telecoms in Canada is only 16.5 million sq. ft. (1.53 million sq. m.), only a bit more than the total for New York alone, and just 4 percent of overall commercial space. (U. S. telecom space occupancy stood at 63 million sq. ft. [5.85 million sq. m.] as of November 2001.)
        "A lot of telecom space has come back on the market," confirms Chris Vardon, project manager, telecommunications, with Royal LePage, "and a lot of it is going power of sale."
        Take the 360 Networks building in Toronto, which was originally purchased for $CA11.8 million, spruced up with $CA25 million more, but is now listed for sale at the rock-bottom price of $CA15 million.
        Vardon says the high-tech Kanata area, just outside of Ottawa, has taken it on the chin as well.
        "It's been real hard-hit by this telecom meltdown," he says. "The vacancy rate is now 24% in that area. There are a few small companies looking for data centers, so there is an opportunity right now. Typically they cost $CA300-500 per sq. ft. to build, and they're able to pick up these buildings for 10-25 cents on the dollar."
        Vardon cites the sale of an Exodus Communications building in Brampton, Ont., going to Q9 Networks, one of a host of Web hosting firms setting up shop in Toronto. Q9 is also opening a facility in Calgary. WorldCom (also expanding in Vancouver), Telus, Primus, Sprint, and Look Communications have all opened up hosting centers in Toronto in the past two years, and were joined in February by Vancouver-based RoundHeaven Communications.
        While these networking firms manage to fill some of the newly created chasm, Vardon says the filling of vacated telecom space is being accomplished by users of every stripe.
        "Individual users, industrial or straight office users" are filling the space, he says.
        The influence of telecom on overall space is more powerful than square feet however, as those companies' needs often translated into upgraded system infrastructure in buildings ... for instance, uninterrupted and redundant power systems. In fact, The Yankee Group reports that nine out of 10 Canadian companies soon will need to upgrade their cabling infrastructure.
        "The integration of voice and data services, combined with the multitude of bandwidth-demanding services, has created the need for transmission facilities that incorporate far more raw capacity than is currently in place," says Jeremy Depow, senior analyst for the Yankee Group's Canadian Market Strategies research and consulting practice.
        Even with all those vacated buildings, the Bank of Montreal still thinks that the sector will outperform all other sectors over the next five years, growing by more than 9 percent annually.
        "It may seem counterintuitive that the communications and information services sector should be characterized as having high output growth given the well documented deterioration in its financial performance over the past year," said Tim O'Neill, the bank's lead economist, in March. "Nonetheless, we project that this sector's output growth performance will outpace that of the next fastest sector by more than 50 percent through 2006."
        Getting the jump on that next wave are Montreal-based Hyperchip, which is expanding its R&D investment by CA$330 million and 280 jobs, and Leetwo Metal, a metal part maker for telecom and IT end users, which is investing CA$15 million and looking to add 128 jobs over the next three years.

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