Saskatchewan Premier Brad Wall recently challenged government-owned SaskTel to come up with a competitive response to the brave new world of telecom, where deals are coming fast and furious.
Saskatchewan Premier Brad Wall recently challenged government-owned SaskTel to come up with a competitive response to the brave new world of telecom, where deals are coming fast and furious. Pity the poor soul charged with writing that report.
The Premier asked for a refreshed game plan from SaskTel because the company is squarely in the sights of BCE, after the country's biggest telecom player dropped $3.9-billion this spring to buy next-door-neighbour Manitoba Telecom Services (MTS).
How does SaskTel's executive team reply? BCE's strategy for winning customers includes owning stakes in sports franchises: the Maple Leafs, Raptors, Argos and Canadiens. Does SaskTel respond by buying the Roughriders?
Or should SaskTel take inspiration from the big dog in U.S. wireless, Verizon, which doled out $9-billion (U.S.) over the past year for struggling Internet pioneers Yahoo and AOL. Is it too much to ask the folks from Regina to build the search engine that knocks off Google?
What SaskTel is experiencing is an acute example of the pressures facing every telecom company, a list that includes Canadian incumbents BCE, Telus, Rogers, Shaw, Cogeco and Quebecor.
The battle for customers has never been fiercer, with rivals who used to have a provincial focus but are now national. Governments are intent on keeping the pot boiling in the regulated sector, viewing competition as a benefit to consumers.
New entrants in telecom can use technology and a winning pitch to make major inroads: Witness the growth of rural Internet provider Xplornet. Founded in 2004 in New Brunswick, the company now has a national growth plan and 300,000 clients, which makes it larger than SaskTel's Internet business. And foreign telecom companies are targeting Canada, as shown by last year's acquisition of Allstream by Zayo Group, a mid-tier U.S. communications infrastructure company.
The challenge facing SaskTel executives as they craft a letter to the Premier is that there is no easy path forward for any telecom company, no one strategy that promises future success.
The basic telecom game plan in mature markets such as Canada's is simple: Expand your subscriber base, either at the expense of rivals or through acquisition, then make those customer relationships as robust and sticky as possible. It's the second part of that approach – the robust, sticky relationships – that's got CEOs wheeling and dealing.
Look at what BCE CEO George Cope announced in recent months, in addition to the MTS deal: Mr. Cope also snapped up full control of data-storage company Q9 Networks in a $675-million (Canadian) transaction and struck partnerships with IBM and Microsoft, all to better serve business customers. The table stakes in telecom keep rising.
Boldly going where the company has never been before carries significant risk. Cogeco has long sought to branch out from its cable-company roots and spent the past few years acquiring fibre networks and other business-related telecom services. Last month, Cogeco wrote off $450-million of this investment; the company says it remains committed to the business.
SaskTel is approximately the same size as MTS, with revenue of $1.2-billion last year and 1.4 million customer connections across wireless, land line and Internet divisions. The Crown corporation simply doesn't have the financial resources to get into an acquisition arms race with the dominant Canadian telecom players.
None of this is news to Saskatchewan's premier or the SaskTel board. They've all had time to digest a report from consulting firm Mark H. Goldberg & Associates, commissioned in the wake of the BCE offer for MTS, that highlighted SaskTel's numerous vulnerabilities to BCE, Telus, Rogers and Shaw, and led to the premier's request for an updated business plan.
The honest response from SaskTel would be to encourage what the investment bankers tend to refer to as a strategic review and the rest of the world calls an auction of the 4,000-employee company.