Telus has chutzpah

Many great fiascos have been perpetrated in the name of Canadian nationalism: Petrocan, Bombardier, the publishing industry. But for sheer chutzpah, nothing quite matches the Telus bid for BCE -- a monopoly phone company, purchasing another monopoly phone company, in hopes of creating yet a third monopoly, or the next thing to it, in the one area of telephony in which Canada has even a semblance of competition, wireless...

Not that it’s exactly cut-throat even now, with cellphone rates twice that of other developed countries. But take Bell out of the game, and the resulting Telus-Rogers duopoly would be spared even such gentle breezes of competitive pressure as occasionally spoil their naps today. Indeed, that’s the point. Talk all you want about synergies, but as competitive strategies go, it’s hard to beat eliminating the competition.

Just what Canada needs: another big, fat, slow, stupid, overpriced, under-performing monopoly. Oh, sorry -- I meant “national champion.” We already have one of the least competitive telecoms sectors in the world, at a cost to consumers and businesses in the hundreds of millions of dollars every year, and Telus proposes to make it even less competitive. But not for its sake -- no, no, no, no, no. For yours. It’s for Canada. 

It’s a “made-in-Canada” solution, Telus CEO Darren Entwistle intones. A Telus-Bell deal “makes enormous sense for our country.” How’s that? Well, if Telus doesn’t buy it, “there is a significant potential for a foreign strategic buyer to acquire that asset,” such as the American private equity firms behind three rival bids. If the deal gives Telus a stranglehold on the Canadian market, in other words, it’s worth it to keep the foreigners out. I’m reminded of the cartoon of the gimlet-eyed man at the bookstore counter. “I’d like to buy this book on chutzpah,” he tells the cashier. “And I’d like you to pay for it.”

It’s times like these I feel sorry for Canada’s chief executives. Until this week I doubt if Mr. Entwistle had ever uttered the words “hollowing out,” certainly not with the sort of deep sense of concern he managed in support of the BCE bid. He must know that it’s a wholly fake phenomenon, got up by the Toronto media for its own amusement, as new data confirm almost weekly. (Read Jacqueline Thorpe’s piece in Thursday’s Post: we’re about to become net international creditors, for the first time in our history.) Yet he is forced to drop his pants and parade around in maple leaf underwear all the same.

Because that is what we expect chief executives in this country to do: not to make goods and services people want at prices they are willing to pay, not to compete, to innovate, to take risks, but to play-act for the media and truckle to politicians, that they might be enlisted in the service of fleecing consumers, bilking taxpayers and stiffing shareholders. All too often, it succeeds.

Will it work in this case? Probably not: the government has signalled the Telus bid, should it prevail, will have to pass muster with the Competition Bureau, which is unlikely to let it go through as is. Yet the Bureau would probably be loath to turn the deal down flat. The question is what sort of conditions to attach, and whether the Bureau even has the powers to order the necessary remedies. 

We may safely assume that Telus’s proposed remedy -- setting aside part of the forthcoming auction of wireless spectrum for smaller, weaker competitors -- is inadequate. Again, that’s the point: to prop up a sort of Potemkin competition, just sufficient to keep the regulators off their backs but not so much as to cause them any real discomfort. At the same time, ordering Telus to divest itself of its wireless assets goes too far towards micro-managing the industry, and would still leave them in a dominant position in the land-line market.

There is one, and only one condition on which this deal should be allowed to proceed: that the Canadian telecoms market is thrown open to foreign competitors, as is the case in most other advanced countries. Indeed, liberalization should come before consolidation. Telus wants to be able to lock up the Canadian market beforehand, to fortify it against the “inevitable” onslaught of foreign competition. But that has things back to front. Only when an open and competitive market has been established, without barriers to entry, should the existing players be permitted to merge.

I will say one thing for the Telus bid: it has served to underscore how pointless the existing ownership limits really are. After all, if Telus is the “made-in-Canada” bid, that’s because the foreign-led bids, for all their elaborate efforts to stay onside of the law, are essentially shams --  however many Canadian pension plans might be rounded up to front the deal, everybody knows who holds the control stake. The law serves no purpose but to limit the pool of available bidders, and thus to depress the price paid to BCE shareholders.

In which case, there can hardly be any objection to doing away with these largely meaningless restrictions altogether. Unfortunately, that’s not something the Competition Bureau has the power to decree. As much as the government might wish to stay out of this, a competitive Canadian telecoms market is ultimately up to them.