The other day I wrote about the fears associated with the lifting of foreign ownership on telecommunications companies, which will hopefully happen some day in spite of a paralyzed government. A reader over on Macleans took me to task for not backing up some of my conclusions. That post was meant to be short and pithy, hence my not getting into the numerical analysis. But since it was requested, I thought I’d follow up.
The reader, who identified himself as working for one of Canada’s big telecom and cable companies, took umbrage with the suggestion that the industry isn’t competitive and that vertical integration is a stupid idea. Granted, those are subjective assessments to some degree that can go either way, but there’s some good evidence to back up both of my positions.
In regards to whether Canada’s industry is competitive enough… well, the government wouldn’t be bending the Telecom Act to get Wind Mobile and other new competitors in if it believed that to be the case, would it? As for vertical integration, the history of media and technology is littered with examples of why it rarely works in the long run, from Hollywood’s ownership of theatres (quashed by antitrust authorities) to the slim market share ultimately held in computers and phones by Apple.
Getting to the quantifiable part, the reader disagreed with my assessment that Canada’s telecom companies could stand to shed some employees because they’re not exactly lean and mean fighting machines. To counter, he compared the revenue-per-employee numbers of Canadian and American telecom firms and pointed out that our companies don’t fare too badly, given the huge differences in size and scale:
Company Revenue per Employee
As the saying goes, that’s one way to skin a cat. There are many ways to gauge corporate efficiency, but in this context the reader is right: measuring revenue per employee is probably appropriate. After all, if we’re talking about whether a company has too many employees, judging it by how much money each worker brings in probably the right way to go.
However, comparing against other telecom companies – and particularly American telecom companies – is probably the wrong method because it assumes efficiency on their part. That is by no means established so the better way to go seems to be to compare against other companies in general.
In that respect, I made up the chart below that compares the 50 biggest companies in Canada, ranked by profit, according to The Globe and Mail. The list is populated mainly with banks and energy companies, but BCE, Rogers, Telus and Shaw all show up, in 9th, 21st, 31st and 48th respectively.
How do they fare in terms of revenue generated per employee? Not so well – they all come in near the bottom, with Rogers, BCE, Shaw and Telus showing at 32nd, 38th, 41st and 43rd out of 50, respectively. For kicks, I also ran the numbers for the Globe’s full 1,000 companies and the results were no better. Rogers, BCE, Shaw and Telus ranked 364th, 402th, 475th and 484th, respectively, all coming in middle of the pack.
But wait, there’s more! With these companies operating in what is essentially a technology space, I thought it might be fun to compare against strictly tech companies. The differences are astronomical. Google, for one, pulls in about $1.1 million per employee, compared to Rogers’ $435,000, which is close to what Yahoo makes. The difference is one is Canada’s leading wireless and cable company while the other is considered to be on life support. In other words, one Google employee is nearly as efficient as three Rogers’ workers.
Is it fair to compare telecom companies, with their billions in sunken infrastructure costs, to lean-and-mean internet operations? Probably not, but it does illustrate that there are far more efficient businesses out there.
For one last element of extra fun, I ran the numbers on the big four companies to check their actual profitability per employee. When how much the companies spend on things like infrastructure, employee salaries and customer acquisition is taken into account, they fare much better among Canada’s top 1,000, all ranking within the top third. Not only that, they also rank very closely to each other – Rogers at 229th, BCE at 249th, Shaw at 259th and Telus at 292nd. Have these companies somehow achieved a perfectly harmonious profitability level or is this coincidence? You be the judge.