Positive Changes at MTS

Commentary, Crown Corporations, Frontier Centre

Last week brought new evidence of accelerating change in the telecommunications industry. Bell Canada announced it would pay a premium price for 20% of Manitoba Telecom Services. As part of the deal the two companies will form a venture, two-thirds owned by MTS, to provide business services in Alberta and British Columbia.

The romantics who yearn for the old days of monopoly and public ownership will scowl about the deal and cite the usual litany of fears about loss of local control and jobs. But MTS deserves credit for concluding such a strategic arrangement. Telecom experts predict their industry will see continued consolidation and accelerating competition across the country and around the world. As a small regional player in a world of hyper-competitive giants, the company had limited possibilities — the local business market is worth only $275 million a year. Under the new arrangement, MTS becomes a major regional player in Alberta and B.C. markets worth $2.2 billion, with backstopping from the richest and the most advanced telecommunications company in Canada. Not bad.

The naysayers should face facts. The world has changed and most governments are bailing out of owning and operating commercial enterprises. At one point in our history, the Crown Corporation model had its place in our economy. It made sense, for example, when capital was scarce and only governments could finance big infrastructure investments.

But over time the model became obsolete. The Crown Corporation's biggest weakness is the limited and static nature of the market it serves, a political jurisdiction defined by a provincial or national border. Typically they are under-capitalized and slow to react to market changes – a product of politicized decision-making in a low-tech and subsidized monopoly environment.

Rapid technological change in telecommunications has destroyed this benign and comfortable framework. The Filmon government wisely concluded that the rapid, capital-intensive hurly-burly of the telecom business is no place for unsophisticated politicians to muck around in with tax dollars. By selling MTS, they created a major taxpaying corporation and managed to retrieve a lot of money for more useful purposes, like paying down the provincial debt. Without political interference, the company is much better prepared to cope with a rapidly changing marketplace, with the added benefit of playing in a much larger market in which to prosper.

The main lesson to be drawn from the evolution of MTS is that government ownership is not important. With access to capital, new technology, and economies of scale from its new relationship, Manitoba's economy will benefit more broadly. Efficiencies inevitably flow through to consumers, so we can expect better service at lower prices. Modern public policy is about creating a competitive framework that maximizes consumer benefits while providing maximum opportunity for service providers to thrive and expand.

It's no coincidence that Alberta's Transalta Power, a share-holder owned electricity company, is the most efficient power company in Canada. It has access to the capital markets and investors who are attracted by the company's superior management and operating skills. Unhindered by political restraints, the company now has major operations in countries around the world. It produces cheap power, has world-beating technology, and has its global headquarters with the high talent/high income workforce in Alberta. Are there some lessons here for our more sheltered "Little Manitoba" thinkers?

Last week Sweden's Social Democrat Government announced a radical overhaul of its portfolio of state-owned companies, whose assets are valued at $78 billion. Major management changes will likely precede a spate of privatization.

It's happening even in the orthodox social democratic heartland. So what can enlightened thinkers conclude?

Government ownership of commercial enterprise is a dead fish. Let's move on.