I have great admiration for sacrificial entrepreneurs, immolating themselves on the altar of free enterprise.
This column is a salute to them, especially the ones who have disappeared from the telecommunications scene in the last year or so. I appreciate their courage.
It sure has been a tumultuous couple of years. I found an Industry Canada report, for example, from 1999-2000 that listed 44 competitive local phone carriers nationwide (proposed and actual). Today, the Canadian Radio-television Telecommunications Commission (CRTC) lists only 17.
Without risk-taking adventurers, we wouldn’t have the exciting telecommunications industry that we have today. It amazes me that so many daredevils ventured down the telecom stream, considering the regulatory whirlpool that awaited them.
The undertow has been powerful. Last week Call-Net Enterprises Inc. (aka Sprint Canada) was digging itself out of $2 billion in debt by striking a deal with shareholders (as of press time, the deal was awaiting court approval). Even once-profitable Shaw Communications has been posting successive quarterly losses. It’s not cheap to build a network.
But all these troubles have an upside. They can have a cleansing effect. As in all of nature, death usually leaves compost that the next plant uses to set its roots. In business, that compost is called bankruptcy or receivership (or merger), and it makes room for the strong, smart and lucky newcomer. In an ideal world, institutional death frees up labour, assets and customers for competitors to absorb.
Artificially induced death, by contrast, does more harm than good because it discourages further vision and investment, something that can only return when trust comes back (whenever that might be). Unfair laws and questionable accounting practices can cause the kind of chill that doesn’t easily renew itself.
Unfortunately, we’ve seen some of that infect the telecom world of late (most notably via Enron, Qwest and Global Crossing). Right now, revised earnings statements and the like going back to the late 1990s are making some of the telecom heyday look like a mirage.
The effect that such revelations bring is hard to underestimate.
I wish the demise of the telecom sector were only the pure, natural kind of death. It would have had the opposite effect that we see now. It would have revitalized the survivors, not frightened them.
To see the upside of down times, look at the restaurant business: It has perpetually high bankruptcy rates (lately about 10 per cent vs. two per cent for businesses in general), yet service is by-and-large excellent, prices are exceedingly low and total employment is high. And, despite low margins and high risk, people continue to start new restaurants.
Of course, supplying phone and Internet service is not a piece of cake.
“Death” in Canada’s telecommunications retail over the past couple of years has often been the result of over-optimism: overbidding for wireless spectrum, overexpansion, inefficiency and bad luck – mostly, poor management.
To hear some executives discuss it, however, you would think the troubles have been because of unjust laws and regulatory policy favouring incumbents. While I agree that incumbents have a huge, unfair advantage right now, that should have been obvious in 1997, when the CRTC implemented many of the regulations.
The CRTC has the thankless job of trying to arbitrate, balancing the conflicting needs of incumbents, consumers and new entrants. Hearings to review the current situation will take place later this month, but no matter which way the CRTC leans, it is going to be implicitly picking a winner. It’s sad that it has to be this way.
Against a 100-year head start for giant incumbents, it’s difficult to imagine even innovative, lithe competitors being able to make a dent. Add to that the fact that rates are capped (phones), incumbents have to provide services to their competitors (phone and Internet), etc., and we have a seriously distorted market.
Some of the survivors have endured by being small. Both TeraGo Networks Inc. and Platinum Communications Inc. of Calgary, for example, are private and relatively small Internet service providers serving niche markets that keep them below the radar of the big incumbents. TeraGo focuses on super-fast connections, via its own wireless network, and high-end services in the business sector, while Platinum offers mainly rural high-speed connections.
Their tactics are in contrast to the big players including GT Group Telecom and AT&T Canada, which are risking billions of dollars to build massive infrastructure, such as a national Internet backbone.
I applaud each of these high flyers. They are doing this country a great service, keeping the incumbents on their toes and putting in all that fibre.
It almost makes me sorry for their rivals, the old telcos, which were conceived in a trap.
On the one hand, they have to be aggressive. Complacency with market share will lead to stagnation. But aggressiveness, for any market-dominant company such as Telus, is often interpreted as predatory.
It’s the same problem faced by Air Canada, the giant everyone loves to hate. If it jacks up rates, it is “gouging” and opening the door to competition. If it keeps rates low, it is predatory pricing. It’s a no-winner.
And yet, later this month, the CRTC is going to have to take sides. Good luck.
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I want to thank Chris Curry for setting me straight regarding my column on Segways (March 28).
This reader pointed out that 20 km/h, the maximum speed of the little robot, is considerably faster than “an average jogger.” In fact, it is more like the speed of an average sprinter. And as Curry wrote, only the finest distance runners in the world might attain that speed. He’s right.
I stand corrected.
