Brad Wall, SaskTel and the terrible, horrible, no good, very bad idea

Brad Wall has a terrible, horrible, no good, very bad idea for Saskatchewan; privatizing SaskTel. While the suggestion of privatizing Sasktel has been floated by the government for the past year, the idea took on new life yesterday with the Premier once again musing about the possibility of a referendum on privatization should the right offer materialize:

“If we were to get an offer as a result of the offer that’s happened in MTS for a majority of the company and we believed that it was good for the province for any number of reasons, it checked a lot of boxes in terms of keeping jobs in Saskatchewan, the head office here, better coverage, well then I can’t say yes to that deal because we didn’t campaign on that,” Wall said. “But I don’t think I should say no either without checking with the shareholders.”

The Premier obviously believes that there is a scenario in which a privatized Sasktel would be good for the people of Saskatchewan – as long as certain conditions are met. Could this be the case?  To evaluate the desirability of privatization, I think we need to look at a few different variables, such as affordability, access to service, quality of service and return on investment to determine whether we as a province would fare better under a privately-owned or publically-owned telecom.

Affordability

Let’s look at your bare bones landline package first. As you can see, for a basic home phone package, Sasktel is by far the most affordable. But obviously, landlines are increasingly becoming an anachronism, most people are going to be more interested in mobile phones and data packages.

So here’s a Canadian Radio-Television Commission (CRTC) cross-country comparison of 1GB data plans. As you can see SaskTel slightly higher, but still pretty competitive – particularly in relation to the rest of the country.

However, a one GB plan is pretty small, how about the larger, more popular data plans? As you can see below, for 10 GB to unlimited data plans, SaskTel is the best in the country.

One thing to notice is how important regional carriers like a SaskTel or a MTS are to cost competitiveness. As you can see, in regions where there are only the three national carriers, prices are much higher. Given the most likely privatization scenario would have SaskTel gobbled up by one of the big Three national carriers – like the proposed MTS sale to Bell – it’s this three carrier scenario that would be the reality for Saskatchewan if we privatized. But don’t take my word for it – here’s the judgement of the CRTC:

“In the territories of the Regional Carriers, the result of this competition is clear – prices are lower, customers receive more data and more vigorous competition than elsewhere in Canada.  In the territories of the Regional Carriers, wireless plans are as much as $50 to $70 per month less than their equivalents in Ontario, Alberta and British Columbia.” – Telecom Notice of Consultation CRTC 2014-76 – Review of Wholesale Mobile Wireless Services.

Also, in markets that are reduced from 4 to 3 wireless carriers, not only do prices tend to rise steeply but data caps become smaller and the cost of data on a per GB basis becomes far higher. In fact, for customers of the big three (Bell, Rogers and Telus) you can’t even get Unlimited data—  all their wireless packages have data caps. Unlimited data is only available in Saskatchewan from SaskTel and in Manitoba from MTS (for the time being).

So there’s no question that in terms of affordability, SaskTel is extremely competitive – offering the lowest prices in the country for larger and unlimited data plans. However, in Saskatchewan we also need to be cognizant of access to service, because ultimately it doesn’t matter how cheap a service is if you cannot access it.

Access to service

Saskatchewan is one of the most sparsely populated provinces in the country with about 1.8 persons per square kilometre of land. This is obviously a concern for a telecom company that has to make expensive investments in infrastructure that will serve less dense, and therefore less profitable areas. So how does SaskTel stack up in regards to access?

SaskTel has built its LTE (4G) network to cover 56% of the population of Saskatchewan, while its’ 3G covers 98% of the population in the province. How about the private carriers? Well, once again, the CRTC notes that those that have made investments in infrastructure in the province have primarily stuck to the more dense and therefore more profitable areas. Those that do build in Saskatchewan, extend their newer technologies only to Regina and Saskatoon:

“In contrast, in the respective regions of the Regional Carriers, the National Carriers have predominantly built in urban centres, not making the same extensive wireless investments in high-cost rural areas across each of their operating territories like that of the Regional Carriers.  For instance, SaskTel has built its LTE (4G) network to cover 56% of the population of Saskatchewan, while UMTS/HSPA+ (3G) covers 98% of the population in a province with a population density of some 1.8 persons per square kilometre of land.  The National Carriers who choose to build in Saskatchewan extend newer technologies only in Regina and Saskatoon, with population densities of some 61.8 and 50 persons per square kilometre, respectively.” – Telecom Notice of Consultation CRTC 2014-76 – Review of Wholesale Mobile Wireless Services.

This is an obvious concern for rural Saskatchewan who rightly fear they would be neglected in a fully privatized telecom environment.  Here’s David Marit, the president of SARM expressing this fear:

“We are very fortunate in this province to have a provider (in SaskTel) that looks at rural just like they do anything else. We do have the private telecoms in this province – the Teluses and the Bells of the world. But they are not in rural. They won’t go to rural because of the numbers and what it costs them to set up. They just won’t go there.”

We can see in the chart below of capital intensity that SaskTel appears to make greater investments in its capital infrastructure than the other major carriers:

Capital intensity is the percentage of a company’s total operating revenues that are reinvested into capital expenditures like infrastructure. What’s interesting is that from a private investor’s perspective, this high rate of re-investment is viewed as a liability – as it means less money is returning to shareholders as profits and dividends. But as a Crown Corporation that is committed to making crucial investments in the province – particularly in underserved rural areas, this should be viewed as a positive.

Now it may be that any privatization would be contingent on promises to invest and expand service in rural areas. But such a promise – if it could be enforced – would require either a drastic reduction in the sale price due to the lack of profitability in servicing these areas or massive government subsidies. Rural Saskatchewan’s access to high quality telecommunication services seems much more certain and secure under public ownership.

Service quality

So a good gauge of service quality is to take a look at the number of complaints lodged against a company. In Canada we have the Commissioner for Complaints for Telecommunications Services which catalogues all the complaints lodged against the various telecoms throughout the year. Given each provider is going to have differing numbers of customers who each may have differing numbers of services we look at the complaints per one million access connections – an access connection could be a wireless plan, home-phone, TV, etc. As you can see, SaskTel has the lowest number of complaints per million access connections of any of the major telecoms. Moreover, Wind Mobile, which had a comparable amount of total access connections to SaskTel, registered almost 20 times the number of complaints compared to SaskTel. To quote the Mark Goldberg and Associates Risk assessment of SaskTel, SaskTel’s total of just 16 complaints is “remarkably low.”

Return on investment

The last variable I want to look at is “return on investment.” Now, what return on investment means for a Crown Corporation can be tricky – because it may not be pure profitability, it may be providing good jobs and ensuring a diverse and highly-skilled workforce, it may be ensuring the lowest-cost, highest quality service, it may be the amount of money invested in communication infrastructure in the province – or it may be trying to strike a balance between all of these goals. So depending on what we want our Crown to do, return on investment may not just be a matter of money.

But let’s say for the sake of argument it is just a matter of money, that we only care how much money can be returned to the public purse. What type of ownership is best positioned to accomplish that – public or private?

Below we see how much revenue MTS has returned in cash income tax versus what SaskTel has returned as dividends in millions of dollars. As you can see, MTS has done a spectacular job of avoiding income taxes – so much so that it has paid a grand total of $1.2 million in cash income tax in the past decade. During the same period, SaskTel returned over $800 million to the province of Saskatchewan.

 

How is this possible?  A few years ago, MTS purchased communications firm Allstream in a deal worth $1.7 billion. Aside from expanding MTS’s business, the company “gained the benefit” of all of Allstream’s tax loss carry-forwards, which are past losses that can be applied to reduce future taxes owing. Today, the company has a “tax asset” or “tax shield” worth $300 million that it can use against any tax balances owing. MTS estimates it won’t pay any cash taxes until at least 2019, and has pushed back the date when it expects to start paying tax at least five times in the past decade. To think that any potential buyer of Sasktel wouldn’t employ the same tax avoidance strategies to the best of their abilities is tremendously naive.

Now one of the arguments made in favour of privatization is that SaskTel wont be able to return the same level of dividends in the future. That is one of the possible predictions of the Goldberg and Associates Risk Assessment.  Over the past decade, SaskTel has delivered an average yearly dividend of $80 million to the province, but you could cut that in half, or even cut it by two-thirds and you would still be collecting far more in revenue than what the privately-owned MTS has delivered to Manitoba over the past ten years. Once again, in terms of pure cash return on investment, Sasktel is far superior to the private sector.

Conclusion

On affordability, access to service, quality of service and return on investment, publicly-owned SaskTel  is far and away the better performer. Now there is one last argument you could make for selling SaskTel, and that is the Premier’s argument that you could use the proceeds of a sale to eliminate the province’s operating debt, which the Premier estimates is over $4 billion dollars. Now this is incredibly short-sighted in my opinion, but even if we take the argument seriously, we will see it’s simply not worth the cost.

First off, the value of SaskTel is nowhere near $4 billion, probably closer to $2.3 billion. But if you impose conditions on the sale – such as forcing the private carrier to service and make investments in unprofitable rural areas or ensuring certain employment levels or requiring headquarters in Saskatchewan, you are limiting the potential profitability of the private carrier and therefore would have to negotiate a diminished sale price. And as the Premier assures us, these types of conditions would be a part of any deal, so the actual sale price might be well below $2.3 billion.

Coupled with that, any sale price would more than likely also have to pay off SaskTel’s current debt – which sits at $870 million – also significantly reducing the sale price. Add to that the price of covering pension obligations, as well as costly consultants and legal fees to coordinate the sale (which were over $10 million alone for the MTS privatization way back in 1996) and the province might conceivably make closer to one billion dollars from any potential sale.

As the above should amply demonstrate, there is simply no good argument for selling SaskTel. The cost to the province of losing the most affordable rates, rural access to service, investment in critical infrastructure and annual dividends in the millions in exchange for sale proceeds that might only eliminate a quarter of the province’s operating debt would have to be characterized as the most reckless, short-term decision in Saskatchewan’s history. And as we all know, we have a pretty rich history of reckless, short-term decisions.


Simon Enoch is the Director of the Saskatchewan Office of the Canadian Centre for Policy Alternatives. He holds a PhD in Communication and Culture from Ryerson University.

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23 comments

  1. Not sure where you’re getting your info but just last Monday I compared Bell cell packages with Sasktel for the 3 cell phones in my house. A total of $70 per month cheaper at Bell. I have always been a Sasktel customer but if rates haven’t changed by the time my phones come due shortly I will be making the switch.

    1. Hi Mike, try checking the pricing and plans in another rate center; like Ontario. The big three carriers don’t set their pricing nationally but on a province by province basis. The national carriers lower their prices in MB and SK, because the regional carriers don’t collude with them regarding pricing.

    2. This is exactly the thinking that is at the root of the debate. If a subscriber chooses a private carrier there may be some short term individual benefit (mind you if you read the fine print on the private carrier plans there are tons of extra fees). However, if the subscriber chooses SaskTel, it is like paying yourself. The plan from SaskTel keeps the money in the province, keeps people employed in our urban and rural communities, and contributes to lowering the taxes you pay for highways, health care, schools, etc. You pay yourself! It is a simple concept. By the way, have a dispute about your bill with a private carrier. Not a pleasant experience.

  2. Crown corporations provide a great return to the provinces coffers, great services everywhere in Sk & provide decent jobs to the people of OUR province. Wall put off selling off SLGA but eventually sold us to out of province businesses. Stop selling us off !

  3. Wall is going to do what he wants no I think it is a horrible idea to privatization of everything it will not help Saskatchewan at all but he does not care I never voted for him and I won’t be in the future

  4. Makes no sense(cents) whatsoever, to sell off Sasktel..or any other crown, and it was a big mistake to privatize the liquor stores when 9 licenses went to So bey’s..how much money will stay here in Sask..?? Simon says it all in first sentence in his delivery of pro or cons of selling Sasktel…The old saying>”If it isn’t broken don’t fix it”. comes into play here seriously and big time..Leave well enough alone Mr. Wall and cronies…

  5. Your ROI comparison is fundamentally incorrect. Instead of comparing MTS cash taxes paid to SaskTel’s dividends paid, the apples to apples comparison should be MTS dividends paid to its shareholders. SaskTel doesn’t pay cash taxes either since it is SK owned.

    1. Im talking about what is returned to the provincial public purse. Yes, I’m sure a select group of private shareholders will do just fine should SaskTel privatize, but that doesn’t do the people of Saskatchewan much good.

      1. Your analysis is still flawed. The dividend generating power of MTS had it been owned by the MB government would have been just as good if not better than the dividends that the SK government has enjoyed from SasTel. That is the correct analysis/comparison. To say that MTS did not pay any cash taxes because of their use of tax assets that they were entitled to use from their Allstream acquisition (and subsequent years of operating losses) is irrelevant to your ROI analysis (ROI stands for Return on Investment, to which the MB government has had none in MTS for a very long time but public shareholders do). Your analysis is the equivalent to comparing SaskTel dividends to SK and cash taxes by TELUS to BC and AB, which makes no sense.

        1. And to claim that the people of SK is better off receiving dividends into perpetuity than a large lump sum payment today completely ignores the simple time value of money concept. If the lump sum payment today is bigger than the discounted future cash flows into perpetuity, then the people of SK is better off receiving the large lump sum payment, period. That lump sum payment could be redeployed to another investment in SK that could generate a better ROI , create more jobs and/or improve the province’s position and competitiveness.

          1. The facts are there Paul.They are not made up numbers out of thin air.Not everything brad wall says is true.The proof is there that as a 4th carrier (most other provinces have only 2 or 3) prices are kept lower in Saskatchewan.Did you actually read the whole article? Reread it again put politics aside and base your opinion on facts.Mr wall is deliberately trying to misinform the public and the above article supports that fact.

  6. To understand why wireless prices in SK and MB are lower than in other provinces, you need to understand who’s the incumbent and who’s the challenger/new entrant in those two provinces. Both SaskTel and MTS had over 75% market share of subscribers several years ago. Today, their market shares have dropped to roughly 50% as Rogers, TELUS and Bell have been competing on price (neither one has the ability to bundle wireless and wireline services). As such, one needs to understand that it is not SaskTel that has brought prices down for consumers, it has been the new entrants in the province (Rogers, TELUS and Bell).

    1. This debate is not about Sasktel having reduced its prices in the past however many years (they in fact have actually increased them), and it has nothing to do with the fact that Telus and Bell are relatively new entrants. The argument is how much value we as both residents of the province AND owners of the utility get out of having control of the infrastructure. There is huge value both in profit sharing which we ALL benefit from as well as better regulation of consumer prices (which again we all benefit from because virtually every household is a customer at least once over). Price competition is a very shortsighted definition of that value, if you want to see what happens when a company’s infrastructure is not owned by its customers look at how poor Rogers Mobility has done in this province (and they have been in the market here as long as Sasktel has), or just look to every other province where the infrastructure has long ago been sold off.

    2. Interesting to note that the competing interests to SaskTel use the SaskTel network to deliver their services (other than Rogers who have built some infrastructure in high traffic areas over the years). They haven’t had to build infrastructure or maintain it. In spite of this, and the CRTC rules around incumbent carriers, pricing, etc., SaskTel has been able to compete quite well and return an average of $80million to the GRF. Those dollars have a current value as well especially when coupled with the contributions of the other Crown Corporations. The real benefit is that those dollars stay in SK. I don’t buy the “pay off your farm debt by selling the machinery today because it will be worth less five years from now argument.” That machinery keeps revenue coming in until you either can’t fix it, or have enough capital to upgrade. SaskTel has done this well, and has innovated despite the competitve nature of the business over the last 15-20 years.

  7. All those rural folk are the ones who voted for Wall. Now look how he plans to thank you, selling the only company that provides service in the rurals. Why doesn’t he put the ridiculous bypass on hold and recoup what he can before it’s too late.

  8. A good article, well documented. We recently dropped our landline for calls but kept it for data. We have two cellphones and save money. I don’t think Sasktel should be sold but should be promoted across Canada as an alternative. For years, other carriers have used the Sasktel network in this province so we should exercise our reciprocal right to use theirs in other jurisdictions. Most people want the 10G or mor plans, we can provide it cheaper. Expansion of Sasktel as a competitor would bring more money into the province be be shared by all, not just a few shareholders far away. Selling Sasktel gives us a onetime sum of money and then everyone pays more forever after that. We need our crowns; it’s the Saskatchewan way.

  9. I had Bell satellite for years and It was ok. But when I went to Bell mobile it was the absolute worst customer service I had ever dealt with. Ever !! Sask Tel customer service has always been excellent. If Sasktel was the the same price or a little more I would still stay with them. While many people will chase the lowest rates remember that you get what you pay for. Will any one of you reading this buy a piece of crap cell phone ?? I know some of you have had bad experiences with Sasktel but was it resolved ? Did you go to upper management to resolve it ? Over 30 yrs with Sasktel and I’ve never had a problem that wasn’t taken care of at the primary level or next up. Please do not sell Sasktel.

    1. I really appreciate this comment. As an employee, working in retail sales I can say our customer service is exceptional. I fight for my customers and do anything in my means to resolve any issues. This isn’t a job to me, it’s my career…my bread and butter. If my customers aren’t happy, I’m losing sleep over it. Sasktel has a different level of service, and we’re trained that customers are #1. We’re customers ourselves. Thank you for all the positive comments.

  10. Sask Tel is owned by the people of Saskatchewan – NOT Brad Wall, plain & simple!! its not his to sell.

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