Over the past few years, a big trend in the telecom business has been the spinning out or sale of telephone directory businesses by carriers looking to generate cash for other strategic initiatives such as the expansion/upgrading of high-speed networks. The list includes Telus and Bell Canada, while Verizon is apparently looking to sell its directory businesses for $13-billion to $17-billion. While definitely Old Telecom, telephone directory businesses are attractive because they generate lots of cash flow and, so far, they have managed to fend off the advances of online services such as Google Local. For investors who purchase telephone directories, a key issue is what to do with them. Do they, for example, try to maximize cash flow by aggressively pushing sales and streamlining operations? Do they try to acquire other telephone directories to drive synergies and operational efficiencies? Or do they try other strategic avenues? Perhaps the telecom industry and investors should look at Yellow Pages Group, which was spun out of BCE Inc. in 2002 (BCE, which owns Bell Canada, sold a 90% stake for C$1.9-billion to a group that included KKR in 2002. Today, that stake is worth C$6.7-billion). Yellow Pages made an intriguing move earlier this week when it agreed to acquire Trader Media Corp. for C$436-million. Trader Media publishes the Auto Trader in Ontario as well as 64 other classified publications such as Boat for Sale and Employment News. The purchase is intriguing strategically because it shows how telephone directory owners are willing to diversify into other print/classified-related businesses to maintain and/or boost cash flow growth at a time when there is more competition from online rivals.  This is particularly important to Yellow Pages, an income-trust that distributes most of its profits to unit holders.

Does it strike anyone as strange that the C.D. Howe Institute has suddenly decided to explore Canada's wireless market just before two important industry events -  the federal telecom review and the CRTC's examination of local telephone rules - are unveiled in March? It's not like C.D. Howe has been an engaged telecom thought-leader in recent years. In a new report, C.D. Howe concludes the major reason why only 50% of Canadians have wireless phones are regulations that keep local phone prices artificially low. If local phones were higher, it reasons, there would be more demand for wireless service and higher penetration. Unfortunately, there are several flaws in the report. Among them is the failure to properly examine other markets to determine why penetration rates are higher in the U.S. (65%), Australia (75%) and Europe (>90%). But perhaps the study's biggest shortcoming is the failure to look at a crucial issue within the wireless industry itself: pricing. Over the past few years, Canadian wireless carriers have prided themselves on being disciplined and a focus on ARPU and "profitable growth". It's a solid, pragmatic approach if you're focused on the bottom line and satisfying investors and analysts. And it has worked to perfection if you look at how well Telus Mobility and Rogers Wireless have performed in the past two or three years. But it is not the most exciting approach if you want to convince recalitrant potential customers to come on board - that is, if you really want to pick the highest hanging fruit, which may be the most lucrative. There's nothing wrong with this way of doing business but it is what it is. In a study earlier this year, telecom consultancy, Seaboard Group, contended Canadian wireless users pay 60% more than U.S. plans and 19% more than what Europeans pay. For C.D. Howe not to make wireless pricing a focus draws into question the validity of the report.