SaskTel: How Ownership Impacts Behaviour in a Competitive Market

Abstract

How much of a role does ownership play when a public enterprise moves from a natural monopoly to a competitive market? Through comparing the market performance of SaskTel and Manitoba Telecom Services (MTS) from 1995 to 2012 it will be possible to answer this question. The eighteen year time frame makes it possible to measure the ramifications of privatization because MTS operated as a public enterprise until its privatization in late 1996. The question of ownership and the corresponding analysis make it possible to isolate any unique advantages or significant consequences of operating a public enterprise within the competitive, market driven and ever evolving telecommunications industry. Chapter 1 lays out the question as well as the hypotheses being tested in this work. The value and unique capacities of a public enterprise can be determined by each firm's ability to perform the three policy roles traditionally played by public enterprise as described by Chandler (1982). The roles are: the capacity to augment the private sector, distribute economic outcomes more equitably, and promote regional and provincial goals over other jurisdictions (Chandler 1982). Each role outlines a potential purpose for operating a public enterprise and each serves as a basis to compare changes which took place as a result of both regulations and a highly competitive market place. Chapter 2 elaborates on the common justifications for creating as well as privatizing a public enterprise. The former section focuses on the market failure of a natural monopoly, and the later section discusses the regulatory and structural changes which have taken place in the telecommunications sector. Chapter 3 demonstrates that Manitoba and Saskatchewan are very similar provinces, which allow the consequences of privatizing a public enterprise to be picked out. This chapter also provides a modern history of MTS and its similarity with SaskTel. MTS is the most recently privatized provincial telecommunications firm in Canada. The geographic and economic similarities between Manitoba and Saskatchewan create a strong ground for comparison and discussion. Chapter 4 carefully analyzes the performance of both firms from 1995 to 2012 based on their respective annual reports using a number of shared reporting measurements. These findings are then interpreted through Chandler's (1982) three functions as described in Chapter 1. Finally, Chapter 5 discusses the results of this analysis. Ownership does alter firm behaviour. SaskTel plays a dominant role in terms of province-building when compared to the performance of MTS as illustrated by comparing the income tax payments of MTS to the dividends returned to the government by SaskTel as well as the debt levels of each firm. As a public enterprise SaskTel is able to avoid paying the same taxes as its private counterparts, provide a direct return to the province, and take on debt at lower rates with the backing of the provincial government. The unique abilities of a public enterprise allow SaskTel to concentrate the wealth it generates within Saskatchewan as well as shelter itself from the private market. Each of these advantages are due SaskTel's status as a public enterprise and afford this firm certain opportunities which are unavailable to private firms participating in the same competitive market. A public enterprise offers unique benefits when participating in a competitive market.