I wasn’t being entirely serious last week when I suggested that a potential plan B for the Canadian government, in the event that Verizon opts not to expand its wireless operations north, might be to start its own Crown cellphone corporation. But lo and behold just two days later, the Communications, Energy and Paperworkers – which counts many telecom employees among its ranks – echoed the idea with the same suggestion. In light of that, it’s perhaps time to examine the thought a little more closely.
The most obvious comparison to be made is to SaskTel, a provincial Crown corporation in Saskatchewan. The company competes against the likes of Bell, Rogers, Telus and Shaw across a variety of service offerings, including wireless, internet, landline phone and television. Even though the company is a relative flea compared to its rivals, it does pretty well for itself.
In 2012, it posted a profit of $130 million, with a dividend of $84 million going back to the provincial government. SaskTel began its upgrades to LTE wireless the same year, pushing its capital expenditure intensity up to a relatively high 26 per cent. Residents, for their part, seem to like the company, as evidenced by the 1.4 million accounts in a province of only a million people and its good standing in J.D. Power customer satisfaction surveys. This is probably because SaskTel’s prices tend to be better than its bigger rivals.
SaskTel is also known as something of an innovator. It was the first company in North America to launch broadband over Digital Subscriber Line (DSL) and also an early leader in IPTV. All things considered, SaskTel looks to be a successfully run government company that makes a solid return by providing decent services at good prices, with quality investment and innovation to boot.
Despite that, the company is probably not the best comparator for the suggestion at hand because it wasn’t necessarily created for the purpose of being a competitive instigator. A better example of that lies on the other side of the world, in tiny New Zealand.
Fed up with years of high prices and poor service from its incumbent phone company Telecom New Zealand, the government there went out and bought its own internet service provider in 2007 in an effort to spur competitive forces.
The Crown company initially known as THL was originally formed to manage microwave towers, but in 2006 it was rebranded Kordia. A year later, its role changed once the government decided to acquire Orcon, a small ISP that generally bought wholesale service from Telecom, similar to what the likes of Teksavvy and Primus do here in Canada in respect to network owners such as Bell and Rogers.
Kordia itself is very much a hands-off company, according to Paul Brislen, chief executive of the Telecommunications Users Association of New Zealand. The government selects a board of directors, which then picks its own CEO. The board makes its own day-to-day decisions and the government says little about it. Most of its business actually revolves around consulting work in Australia, where it helps build cellphone towers.
“It’s not really like a government-owned business,” Brislen says.
Kordia’s purchase of Orcon was a deliberate attempt by the government to put pressure on home broadband services and prices. “They felt that they could come in and offer an alternative service over infrastructure-based competition,” Brislen says. “That would help regulate Telecom’s price.”
The problem was that the company ended up focusing on the wrong technology, particularly the roll-out of copper-based DSL. The world, however, was rapidly moving toward fibre, which offers superior throughput and efficiency.
A change in government came along, which brought with it a change of focus. The new, conservative government instead chose to build the $1.3 billion Ultra Fast Broadband network, a modern fibre backbone that would bring next-generation service to Kiwis.
Orcon, if it wanted to build its own fibre, was going to need a big cash infusion if it was going to go to the next level. Given the government’s spending on the UFB, that wasn’t going to happen, Brislen says. The ISP was ultimately sold off to private investors earlier this year.
The Orcon experience highlights some potential pitfalls that a government-run telecom company can encounter. For one, it’s easy for bad decisions to be made – especially when it comes to relatively risky bets like technology – and therefore tax dollars to be wasted. It’s also clear that such operations are prone to the mood, and government, of the day. If the CBC is any example, there is an inherent risk to operational continuity; one government may like the idea of running a Crown cellphone company, while the next may not.
On the other hand, for every Orcon, there is also a SaskTel. The bottom line is that if the government of Canada does indeed want to entertain the CEP’s suggested notion, it would do well to study what has worked and what hasn’t, and why.
Still, the idea of a Crown wireless corporation is an intriguing one. Such a company could take up another of my suggestions from last week, in that it could also sell wholesale service on its network to any and all comers. Imagine not just one new competitor to the Big Three, but potentially many. Bell, Rogers and Telus are obviously deathly afraid of Verizon, but this could be the more frightening idea – especially because it’s one their own workers support.