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Privatizating Crown corporations in Saskatchewan: A tale of two telecoms

| January 28, 2013
Photo: Carol Browne/Flickr

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Where does the Saskatchewan government stand on the privatization of provincial Crown corporations? You'd be hard pressed to come up with a definitive answer after the government's partial privatization of Information Services Corporation (ISC), the introduction of new private liquor stores and Premier Wall's end-of-year comments that privatization deserves a "rational, pragmatic and non-ideological" public debate. That this rash of privatization is occurring all while the government is supposedly bound by it's support for The Crown Corporations Public Ownership Act, which is intended to preserve "public ownership of our major crown corporations" is even more surreal. When does a government's actions begin to speak louder than its words? Despite the government's rhetorical commitment to the Crowns, it certainly seems like privatization is on the agenda, and not only on 'the margins." As Leader-Post columnist Murray Mandryk insightfully observes regarding Premier Wall's recent call for a public debate on crown privatization:

"Wall would be fully aware that he has gone about as far as he can with any small, "incremental" changes. This would seem to be about more than ISC or a few new private liquor stores. Otherwise, why would Wall bother? So what else might be in play for Wall and the Sask. Party? SGI? SaskTel? Even SaskPower or SaskEnergy?"

If Mandryk's suspicions are correct -- and the government's recent actions would seem to suggest they are -- it is certainly not going to publicly admit them. The current government understands better than most that the provincial Crowns are the "third rail" of Saskatchewan politics, and one tinkers with them at their peril.

Given this reality, it is no surprise that the government would keep its preferences for privatization to itself and use only the most measured of language when discussing even the possibility of privatization. How then to divine the government's real intentions? Luckily, we have a rather convenient historical comparison in Manitoba with which to judge the Saskatchewan government's actions towards the crowns.

Like Saskatchewan, Manitoba also displays broad public support for its Crown corporations. Moreover, in the 1990s, it had a Conservative government that promised time and again that it had no designs to privatize any provincial Crowns. Then, in 1996, Manitoba Telephone System (MTS) was sold off lock, stock and barrel with limited public debate. It may be useful for citizens of Saskatchewan to become familiar with the MTS sale as a case study in how government's prepare the way for privatization regardless of their public rhetoric.

As Errol Black and Paula Mallea explain, after winning the 1995 election, the Filmon government began to lay the groundwork for privatization even as they vehemently denied any plans in public:

"I can indicate that we do not have any plans (to privatize MTS)" Filmon said on May 24, 1995. "We are not driven ideologically or are hidebound as members are opposite. We continue, obviously, to keep an open mind on all opportunities that are presented to us, but we have no plans to do that."

Part of the groundwork involved selling off MTS assets and turning over lucrative MTS activities to the private sector including the fire-sale of it's co-axial cable system for 20 per cent of its market value and the contracting out of telemarketing services which "stripped MTS of the capacity to exploit telemarketing for its own benefit and to diversify its revenue sources."

If this sounds familiar, it should, because it sounds eerily like the Saskatchewan government's "Sask First" policy that has restricted the operations of the Crowns by forcing them to divest of their out‐of-province assets and discouraged them from "competing with the private sector" within the province.

For SaskTel, the Sask First policy has meant the Crown has divested itself of the profitable DirectWest Canada and the Hospitality Network along with Agdealer, Saskatoon Square, and Navigata for what some consider fire-sale prices while also contracting out residential installation and repair services to the private sector.

Heather Heavin, member of the Johnson-Shoyama Graduate School of Public Policy, rightly questioned the Sask First policy, asking "If investing outside the province is not an option and investing inside the province will only be allowed if there are no other private investors interested in a particular project or business venture, what left for the Crowns? High risk, low return projects?" Similarly, the Star-Phoenix called the Sask First policy "ideologically driven and harmful to the interests of citizens," as it will "hamstring the companies to the point that their long-term viability is put at risk." More bluntly, Murray Mandryk wondered if the policy was designed to produce "barely profitable entities ripe for privatization."

Further reducing the viability of Saskatchewan Crowns is the government's incessant raiding of Crown dividends which are used to balance government accounts rather than for much needed investments in infrastructure and innovation. SaskTel's CEO Ron Styles, concedes that with the government taking 90 percent of the Crown's profits as a dividend, SaskTel's debt-to-equity ratio, currently at 37 per cent, could move into the high 40s. The company's debt, which is roughly $432-million, could reach $750-million to $800-million by 2017 or 2018.

As Crown debt loads increase proponents of privatization will inevitably use this as leverage to convince the public that we can ill-afford to continue to subsidize what will be characterized as 'inefficient and bureaucratic state-owned dinosaurs,' all while promising a boon of wealth and prosperity should privatization proceed.

That's certainly how the sale of MTS was justified (when Filmon finally admitted to it). Glen Findlay -- Minister in charge of MTS -- cited the company's $800 million debt and a need for massive infusions of capital for new investments in technology to justify the sale. Along with the requisite need to get out from under "the heavy hand of public bureaucracy" and improve "competitiveness." While the well-worn 'stick' of debt and deficits was brandished, so was the 'carrot' of wealth for Manitoba residents. As part of the sell-off scheme, the first block of MTS stock would be sold to Manitobans at half-price. While the government touted the ability of Manitobans to cash in on the sale of MTS, one skeptical resident asked, "we already own this phone company, why are you trying to sell it back to me?"

Yet, despite massive public opposition to the privatization -- with public opinion running up to 80 per cent against the sale -- the Filmon government would push through the sale of MTS in early 1997.

Merely one year after privatization, Manitobans owned less than 20 per cent of MTS stock, 1,350 employees had been laid off and phone rates had increased 37 per cent. A decade after privatization, most rural MTS offices have been closed, services have been contracted to out-of-province providers and Northern Manitoba First Nations communities have been locked in a decade-long battle with MTS to provide promised improvements to services. And what about (former) Premier Gary Filmon? He was appointed to the MTS board of directors in 2003. According to the Winnipeg Free Press, the market value of his shares is $483,435.00 and he received $147,200 plus expenses to attend a total of eight board and 16 committee meetings in 2010 and 2011. Nice work if you can get it.

The moral of the story is that actions speak louder than words -- particularly when it comes to the privatization of a publicly cherished Crown corporation. The current Saskatchewan government has taken great pains to convince the public that it is committed to the public ownership of the Crowns. However, the actions of the government belie its words. If this government truly believes in the value of strong Crown corporations for our province it should show us through action. End the Sask First policy and impose a hard cap on the amount of dividends the government can take from Crown profits. Show us that you aren't trying to hinder the Crowns at every step. Don't tell us, show us.

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

Photo: Carol Browne/Flickr

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