Telus, BCE Could Turn Sights on SaskTel After Manitoba Buyout

  • Prairie telecom stands alone as provincially owned operator
  • Deficit in Saskatchewan makes revenue boost from sale tempting

The prairie province of Saskatchewan may become the next battleground for Canada’s acquisition-hungry telecom giants.

After BCE Inc. and Telus Corp. signed a deal to carve up Manitoba’s subscribers, the industry is turning its attention to the possibility that Saskatchewan could sell off its government-owned telecommunications provider.

Saskatchewan Telecommunications Holding Corp., known as SaskTel, is still in government hands, even after other provinces privatized their services over two decades ago. Now, with a new government facing a soaring debt load amid a weakening economy, the arguments in favor of privatizing are building.

“If there’s any time to do it, now would be the time,” said Ken Rasmussen, a professor at the Johnson Shoyama Graduate School of Public Policy in Regina, Saskatchewan. The conservative-leaning Saskatchewan Party is inclined to sell, all they need is a compelling argument to bring to voters worried about job losses and price increases, he said.

Premier Brad Wall, who swept to power in April with an even bigger majority, has said he wouldn’t privatize without putting the question to the public in a referendum or election. His government has initiated a “risk assessment,” to see if the sale of Manitoba Telecom will create competitive problems for an independent SaskTel. The two companies have an agreement that allows Manitoba Telecom customers to use SaskTel’s network when in the neighboring province.

Consolidation Nation

All this comes in the midst of a consolidation push among Canada’s biggest telecommunications companies. Rogers Communications Inc. bought Mobilicity last June and BCE expects its purchase of Manitoba Telecom to close around the end of the year, with Telus taking a third of the subscribers. Even before the latest round of consolidation, Rogers, BCE and Telus already controlled more than 90 percent of the country’s wireless customers.

Montreal-based BCE’s acquisition of Manitoba Telecom extends its presence in the country’s west, territory dominated by Telus, which was originally formed by a merger of the formerly government-owned carriers of British Columbia and Alberta and has its headquarters in Vancouver.

A 2013 study by the Frontier Centre for Public Policy estimated SaskTel’s market value was at least C$2.1 billion ($1.6 billion). The fact that BCE is paying C$3.1 billion for the similarly-sized Manitoba Telecom suggests that number could be even higher now.

Cost Cutting

SaskTel reported C$1.26 billion in 2015 revenue and finished the year with 618,000 wireless customers, which make up more than half of the province’s population. Both metrics outpace Manitoba Telecom’s C$995 million in revenue and 491,000 wireless subscribers, for which BCE is paying C$3.1 billion in cash and stock.

SaskTel would be desirable for one of the main players for the same reasons Manitoba Telecom is -- they can wring more value out of the business by integrating it with their existing operations and cutting costs, Greg MacDonald, an analyst with Macquarie Group Ltd., said in a phone interview.

Spokesmen for Rogers, Telus, BCE and SaskTel declined to comment.

Still, convincing the public to approve privatization might be a difficult task for Wall’s government, Rasmussen said.

SaskTel is "very popular in rural Saskatchewan, which is the basis of their support,” he said. The carrier provides quality service to the bread-basket province’s farms and small towns, which might not be profitable enough for a non-government owned company to service, Rasmussen said.

Hard Sell

Privatization has proven a pitfall for Saskatchewan’s conservative politicians before. Wall served as a staffer in the Progressive Conservative government of the 1980s, which suffered a resounding defeat in 1991 after selling off dozens of crown corporations and government assets. Wall’s predecessor, Elwin Hermanson, narrowly lost the 2003 provincial election after saying he would have to consider any offer from a private company to buy SaskTel.

When Australian mining giant BHP Billiton Ltd. made a bid in 2010 for Potash Corp., a fertilizer producer and one of Saskatchewan’s most important employers, Wall campaigned against the takeover. The federal government eventually blocked the sale.

A landlocked province of wide blue skies and rolling wheat fields, Saskatchewan’s economy has traditionally focused on farming and resource extraction, with young people often leaving to find work elsewhere. The province has kept its crown corporations longer than other parts of Canada because they’re seen as a way to hold onto a measure of economic control, Rasmussen said.

Tremendous Affection

“These have been some things that we’ve owned, have provided good service and people have a tremendous amount of affection for them,” he said.

But in the last two years Saskatchewan’s economy has been hit hard by falling oil prices and weak global demand for potash fertilizer -- two of its most important exports. By the end of March, the province’s debt had nearly tripled to 17.6 percent of its gross domestic product from the same time last year. Its deficit this fiscal year will be C$434 million, the government announced on Wednesday.

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