Yesterday’s National Post included an article about MTS and Sasktel that could have been entitled “A Tale of Two Crowns“. The article was written by David Seymour of the Frontier Centre for Public Policy in Winnipeg and it is a digest of a recent report from the Centre.
The report examines the benefits of MTS having been spun off by the Manitoba government from its former crown status, while the Government of Saskatchewan has held onto its ownership in its provincial carrier.
Over the past decade, telecommunications privatization has played out in a continent-sized laboratory. In the middle of North America, two almost identical companies in the almost identical markets of Manitoba and Saskatchewan went divergent ways. While Saskatchewan politicians chose to hang on to Crown corporation SaskTel — the new provincial Premier vows to maintain the status quo — Manitoba politicians cashed out and let go of Manitoba Telephone Services through a 1996 public share offering.
There are some additional facts that might have been relevant for a more complete analysis.
Considering the present focus on mobile services competition, it would be helpful to assess the 5.5% cellular adoption differential in Saskatchewan (67.9%) versus Manitoba (62.4%). In Saskatchewan, 80% of cell phone users subscribe to Sasktel service; only 60% of Manitoban’s subscribe to MTS Mobility. Some might wonder if increased mobile penetration is a side benefit of Sasktel’s overwhelming local presence and whether provincial policies have contributed to higher adoption.
I also have a contrarian view relative to the study’s argument on taxation benefits:
In 2006, MTS racked up an income tax liability of $126.7-million to the governments of Canada and Manitoba, funds that can be used to pay for services or lower taxes in the broader economy. Meanwhile, SaskTel, as a Crown corporation, is exempt from income tax. This tax exemption is one of several hidden subsidies within the Crown corporation model. This subsidy represents a hidden financial loss for governments and taxpayers that is paid for with higher taxes or fewer services elsewhere.
Let’s not forget that MTS has avoided significant levels of tax payments by virtue of its acquisition of Allstream’s losses carried forward. Further, as a Saskatchewan crown, wouldn’t all of the profits go to the provincial government, whether paid as a dividend or reinvested? It might be argued that the people of Saskatchewan get to benefit from 100% of Sasktel’s profits.
MTS today earns twice the revenue, has three times the assets and employs 20% more people.
The Allstream acquisition masks the impact of investment and employment levels within the province of Manitoba. Almost all of Sasktel’s capital spending and employment is in the province; MTS has a national scale – good for growth opportunities, but more difficult to assess from the perspective of benefits to the people of Manitoba.
What I find most interesting is the similarity in services benefits for subscribers. Over a ten year period, the study found that consumers are pretty much equal – benefiting from the same level of service innovation and similar pricing.
Consider that a crown corporation can afford to look at longer term strategies with different pressures from the quarter-to-quarter demands of the public equities markets. I would be interested in hearing views on whether crown ownership may drive some behaviours more reminiscent of firms controlled by private equity.
Deal or no deal? As Howie Mandel asks at the end of each show, did the people of Manitoba make a good deal when “the banker” paid them out 11 years ago?
Private sector versus public sector; PC versus Mac; you say tomato… Is this one of those religious debates that has no answer?
The complete study is worth reading as a stimulus for these discussion. A one page graphical summary is also available.