Politics hamper Crowns: Ching

December 6, 2004

By Bruce Johnstone Saskatchewan News Network

REGINA – Crown corporations should not be forced to lower their rates to meet purely political objectives, such as the NDP’s election promise to have the lowest-cost bundle of basic utility rates in Canada, says Don Ching, who has a unique perspective on the "pros and cons" of stateowned enterprises. Ching, 63, the retiring president and CEO of SaskTel and former president of Crown Investments Corp. (CIC), thinks that while Saskatchewan Crowns are, by and large, doing a good job, politics can and does interfere with the business-like operation of the Crowns. "There’s no commercial basis for keeping the utility rates the lowest of anyplace in Canada," Ching said. "That is strictly a social objective. . . . And there’s no question in my mind that the rebate system is totally and completely a social objective." While paying every household in Saskatchewan a rebate as compensation for not having the lowest rates is a legitimate role for government, rolling back rate increases isn’t, he added. "I would hope they would not try to obtain their objective through artificially pulling the rates down below what is commercially prudent," said Ching. Even the method of paying the rebate, which appears as a $137 credit on the December phone bill, comes "dangerously close" to political interference with the rate-setting process, he said. "It’s not a big step to move from the proposition of delivering the rebate this year through the telephone bill as a credit to simply telling SaskTel not to ask for the next set of rate increases." Fortunately, that’s not a problem Ching will have to worry about, having officially stepped down as president of SaskTel last Wednesday. His replacement, Robert Watson, has been in place unofficially since October. Watson, who has extensive telecommunications experience with GT Group Telecom and Shaw Communications, is in sharp contrast to Ching, a former labour lawyer and law partner of former premier Roy Romanow, who spent most of his career in the public sector with Potash Corp. of Saskatchewan (as executive vice-president from 1975-79) and CIC (as president from 1991-95) before coming to SaskTel nearly nine years ago. "When I came in here without really any industry experience, there was a pretty sharp learning curve for me," Ching said. In 1996, SaskTel was just entering the competitive marketplace, with long distance and cellular telephone competitors vying for a piece of the action. Prior to competition, the "mainstay of every telco" was long distance revenues, which were used to cross-subsidize local rates. But SaskTel’s long distance revenues have declined dramatically – from about 70 per cent of revenues 15 years ago to less than 20 per cent today. "There’s still value in (long distance), but it certainly isn’t the goose that laid the golden egg, like it used to be." Faced with competition, SaskTel had to change its corporate culture from that of a monopoly utility to a customer-driven, service-oriented organization. But Ching says he can’t take credit for SaskTel’s "evolution from a monopoly to a competitive environment. "SaskTel started preparing for competition long before competition arrived," Ching said. In fact, Sask-Tel started lowering its long distance rates in the early 1990s. "So when competition came in, there wasn’t the incredible price change" as there had been in the early days of competition, he said. More importantly, SaskTel had also done a lot of internal work to prepare its employees for competition. "There is a startling difference between the mindset of a workforce that is operating under a monopoly and a workforce that is operating under a competitive environment." Ching said SaskTel’s employees not only had to retrain, they had to rethink the way they performed their jobs. "Retraining there is. But it is really rethinking." Being customer friendly is "something that people can’t teach you. You’ve got to learn it." While vestiges of SaskTel’s monopoly mindset persist to this day, Ching said the company has become much more competitive in its rates, its products and services and, most importantly, its attitude towards customers. SaskTel’s evolution from a monopoly utility Crown to a competitive commercial Crown contrasts with Manitoba’s telephone company, Manitoba Telecom Services Inc. (MTS), which was privatized in 1997. With its recent acquisition of Allstream (formerly known as AT&T Canada, Unitel and CNCP Telecommunications) for $1.7 billion, MTS has become Canada’s third national telecom company, behind Bell Canada and Telus, which was formed from the privatization of Alberta Government Telephones in 1990 and its subsequent merger with BC Telecom in 1999. Recently, MTS CEO Bill Fraser mused publicly about taking over SaskTel’s cellular business, admitting he’s been trying for a decade to convince the government to privatize SaskTel and merge it with MTS. Saskatchewan’s reluctance to sell off SaskTel and expand beyond its border risks marginalizing the business, Fraser warns. Speaking as "past management," Ching said privatizing SaskTel would solve the problem of government involvement in the corporation’s business. "There’s no question that being owned by government and run as a Crown corporation has some very significant negative aspects about it. You’re caught up in the political process, whether you like it or not. Decision-making is influenced by matters other than business. And, inevitably, there is a fairly laborious decision-making process . . ." But, unlike a publicly traded company, a Crown corporation never has to look over its shoulder as a potential takeover target. "As long as the government takes the position they’re not going to sell, then the issue of somebody trying to take you over is something you can totally ignore." Government ownership also provides management with another advantage, namely the ability to take a longer view of business investments, Ching says. "(Shareholder ownership) tends to produce a shortterm view of the corporate entity by senior management. Again, you don’t get that particular phenomenon occurring in a Crown corporation. You tend to get a longer-term view – albeit with the influence of the electoral cycle." In fact, Ching believes Crown corporations can operate just as effectively as any private sector company as long as their political masters allow them to do so. "The fact of the matter is a Crown corporation, I would argue, can as effectively as any other organization do as good a job of running an enterprise." The real question is whether Crowns should be allowed to operate outside their geographical boundaries, or be rigidly confined within their provincial borders. "There may a good argument for saying SaskTel has to extend its reach beyond the borders of Saskatchewan. And if the bulk of the residents of the province don’t feel comfortable with that – and certainly some people don’t – then is that a crippling blow to a company like SaskTel to whom geographic boundaries are becoming more or less irrelevant?" Ching said the government has to do a better job of selling Saskatchewan people on the idea that Crown corporations can operate beyond the province’s borders, without sacrificing service to the province. "Is it possible for those people who want to maintain the enterprise as a Crown corporation . . . to go out and dialogue with the citizens of the province to the point where they’re convinced that it’s a wise and sensible thing to do to have SaskTel operating in B.C. or in Tanzania, as well as here in Saskatchewan? "And is it possible (for Crowns) to maintain that ... special connection to the problems of the province of Saskatchewan, while at the same time having a broad, panoramic view that they need to have if they’re going to do business beyond the province’s boundaries?" Ching said his new employer, Cogema Resources Inc., which is a subsidiary of the French nuclear company AREVA, is a good example of how a stateowned enterprise can manage and compete just as effectively as a private company. "(AREVA) is 97 per cent owned by the French government," said Ching, who takes over as president and CEO of the Saskatoon-based uranium mining company Jan. 1. "If (France) weren’t a republic, it would be called a Crown corporation. "So . . . operating in Northern Saskatchewan is a company which is what we would call a Crown corporation owned by the government of France. And people seem to be reasonably comfortable with that state of affairs. Is it therefore strange that a person would say, ‘SaskTel, you better not operate in France or Tanzania or Australia’? "The fact of the matter is you go and do business where you do sensible and wise business and make a good profit. "And above all you never, never, never fail to honour your customers in all places, and especially the customers who happen to be your owners, namely the residents of the province."