A Crown-owned Wireless Corp.? Perhaps the CEP Union is right.
Knee jerk reactions aren’t always the right ones.
I initially scoffed at the suggestion by the Communications, Energy and Paperworkers (CEP) union that the Federal government should set up its own 4th national wireless carrier (H/T to BNN’s Kristine Owram and Huffington Post’s Daniel Tencer). With the benefit of a week of holidays under my belt, perhaps I was too hasty to dismiss this as a possible fallback to the “made in Canada” solution presented by Birch Hill Equity Partners should it decide to acquire Wind Mobile and/or Mobilicity (see prior post “Birch Hill gives Federal government an escape from its Gordian wireless knot” Aug. 5-13). I recognize that the natural conclusion is that the CEP’s Crown Corp. idea is DOA for ideological reasons:
The Conservatives’ staunch free-market ideology makes the idea intolerable on its face, and for the telecom companies, a new competitor backed by the deep pockets of the federal government is a frightening enough prospect to launch them into fits of moral outrage even larger than the ones they’ve been having lately.
Not so fast.
I think this observer is ignoring the parallel represented by the Business Development Bank of Canada (aka Bruce the Mindless Eating Machine). As even causal readers of this blog know, the BDC is a rabid competitor on the commercial and sub debt lending front, both pre- and post-recession (see representative post “BDC Fact #2” Dec. 3-07). Firms such as ours (see representative post “BDC Fact #4” Dec. 5-07), not to mention Canada’s big banks and credit unions, lose business all the time due to BDC’s ultra-low cost of capital, predatory pricing methods, and lending structures that are forbidden in the private sector by the Office of the Superintendent of Financial Institutions (see prior post “BDC offside OSFI’s prudent lending guidelines” Sept. 17-12). According to the BDC Act of 1995, the Crown lender is to “complement” the lending and services provided by the private sector. Not compete with the private sector.
The BDC under CEO Jean-Rene Halde generously interprets its Act to mean his team can knowingly compete with the private sector using all of the tools at the agency’s disposal, such as the government’s low cost of funding, modest ROI expectations, and perceived higher tolerance for loan losses. Not to mention the lack of regulatory oversight by OSFI. The one hammer that smacks the private sector the most is the predatory pricing and structuring tactic, and despite six years of complaints to each and every Industry Minister I can’t get the government to rein them in.
As far as Mr. Halde is concerned, if the entrepreneur is happy, he’s done his job — whatever the BDC Act might say.
Even the Canadian Bankers’ Association is on board with our concerns, and has been forcing BDC to meet regularly to go over the specific examples of BDC’s national competitive efforts against BMO, National Bank, RBC, RoyNat and the like.
As such, if Parliament is comfortable with a Crown corp. taking good, profitable lending business away from the private sector (see prior post “Time to spinoff the BDC part 2” Apr. 22-07), reducing the shareholder returns of Canadian taxpayers as a result, it should have no problem creating a similar structure for the benefit of current wireless consumers. There’s even more justification, I suppose.
When a CFO takes a term sheet from BDC instead of our firm or a chartered bank, the company theoretically benefits from a lower cost of financing. That difference is just as likely to increase the firm’s profits, rather than wind up in the hands of the borrower’s end customers through lower prices on whatever goods and services are provided.
In the case of the CEP’s Crown Wireless Co. proposal, the government can draw a straight line between this concept and lower wireless bills for Canadian consumers. The simple fact is that Ottawa can borrow cheaper than Bell/Rogers/Telus, needs no profit margin on the provision of its wireless services, and can grant itself endless spectrum to accommodate usage down the road.
With Verizon now reportedly playing coy, Birch Hill is free to acquire Wind Mobile on a cost-effective basis and get its private equity-style plan rolling. Given the twists and turns of the past five years, the Feds can’t put all of their wireless competition eggs in this one remaining “new entrant” basket.
If you are going to apparently ignore your free market principles and continue to allow BDC to compete with the “hated” Big 5 Banks and small fry like us, why not let Wireless Crown Co. compete with the Big Three Telecoms? At least the latter fits with the current government’s agenda. The former has been around since the 1940s, and can always be privatized at the drop of a Ministerial hat.
(disclosure: this blog, as always, reflects a personal view and is not meant to represent the views of the TPA, its Board/Staff or the federal government)