Time for BCE to Think Globally
The Canadian Radio-television and Telecommunications Commission (CRTC) recently denied BCE Inc.’s proposed $3billion takeover of Astral Media Inc. The CRTC Decision has the potential to push BCE into a new strategic direction. It may be as profound as Paul Martin’s decision to deny Canada’s banks the opportunity to merge with or acquire their peers.
In 1998 Paul Martin, then Canada’s Finance Minister, blocked the merger of the Royal Bank of Canada and the Bank of Montreal. Likewise, he denied the merger of the Canadian Imperial Bank of Commerce and Toronto Dominion Bank. Martin was anxious the mergers would further concentrate an already highly concentrated Canadian banking system, reduce competition within the sector, and increase the merged banks market power. He was also concerned with a loss of flexibility to address future banking public policy issues.
Underlying the proposed mergers was the need for the banks to grow. Canada presented few opportunities for major growth, except by merger or acquisition. Martin’s decision took this means of growth off the table. This caused the banks to seek alternative growth tactics.
Banks Find Growth Opportunities Beyond Canada
Canadian banks have acquired banking assets in Mexico, Columbia, China, the Caribbean, Luxembourg, and the USA. TD, for example, acquired a number of smaller banks in the USA, such as Banknorth. It now has more branches in the USA than in Canada. Scotia, by contrast, focused on expanding its global operations. According to the Wall Street Journal, in the last two years Canadian banks have completed, or are completing, 50 acquisitions with a value of almost CDN$42billion.
Martin’s public policy forced Canadian banks to look beyond Canada for growth. His policy created a stronger and less concentrated banking system. This made it less vulnerable to the recent international banking crisis and more sustainable. Moreover, it created jobs at home. In sum, Paul Martin’s banking policy brought major benefits to Canada.
Top Canadian Corporations Go Global, Except BCE
The banks are not alone in exploiting foreign opportunities. Toronto based Alamos Gold Inc., operates mines in Turkey, Mexico, and Canada. Bombardier sells its planes around the world. Alimentation Couche-Tard Inc., which has grown largely by acquisition, has operations in the USA and overseas, as has consulting firm CGI. Fairfax Financial Holdings Limited has insurance and reinsurance operations in Canada, the USA, Southeast Asia, Eastern Europe, the Middle East, Brazil, and the UK. BCE reports no sales outside Canada!
Foreign Telecommunications Winners
In the telecommunications sector, several companies have successfully exploited global opportunities. Telenor Group is the incumbent telecommunications company in Norway. It directly owns, or is in partnership, in cellular enterprises in Scandinavia, Eastern Europe, and Asia. It has controlling interests in cellular operations in Norway, Sweden, Denmark, Hungary, Serbia, Ukraine, Montenegro, Thailand, Malaysia, Bangladesh, India, and Pakistan, and a minority interest in mobile operations in Russia’s VimpelCom Ltd. Telenor Group has 203 million cellular subscribers. That is 27 times BCE’s 7.5 million cellular subscribers! It also has extensive broadband and TV distribution operations in four Nordic Countries.
Vodafone Group Plc., a U.K. telecommunications company, owns and operates networks in 30 countries and partners in 40 more. Vodafone owns 45% of Verizon Wireless, the largest mobile telecommunications company in the USA. Organized in 1985, Vodafone is the world's second-largest mobile telecommunications company having 439 million subscribers. That is 58 times the number of BCE’s subscribers!
MTN Group is a South Africa-based cellular firm, operating in 21 African and Middle Eastern countries. Founded in 1994, MTN boasts 187 million subscribers. It is active in countries such as South Africa, Afghanistan, Iran, Benin, Botswana, Cameroon, Republic of Congo, Cyprus, Ghana, Liberia, Nigeria, Uganda, Yemen, and Zambia.
Similarly, wireless operators such as Digicel Group and Orange have also taken advantage of global opportunities. Orange, a French telecommunications firm, is the flagship of France Telecom group. It is a global provider of mobile phone, wireline, Internet, cellular, and television services. It has 226 million customers worldwide. Orange operates in France, U.K. Spain, Armenia, Belgium, in a number of African countries, as well as Eastern European countries.
Digicel Group Limited provides cellular service in 31 markets in the Caribbean, Central and South America, and the South Pacific. Digicel has 12.8 million subscribers. It built this remarkable business in just 11 years!
There is not a lack of opportunities beyond Canada. According to the International Telecommunications Union, globally 1billion people do not have cellular telephone service. For example, in Africa 500 million people have yet to acquire a cellular telephone. Virtually all of Africa is bereft of wired telecom infrastructure. All 55 African countries are seeking to exploit the liberating possibilities of modern telecommunications. They need foreign investment and knowledgeable telecommunications operators.
This raises a number of questions. What is stopping BCE from following the example of Telenor, Orange, Vodafone, or MTN? Is it lacking experience in the delivery of cellular or wireline services? Why is BCE content with having only 7.5 million cellular subscribers, while MTN has built a business with 187 million, and Telenor with 236 million? Has its regulators, the CRTC and Industry Canada, made it so comfortable for BCE that it can be content with sub performance by contrast to other cellular enterprises that have embraced globalization? Moreover, when compared with its peers, why is it one of the few companies not to have embraced globalization?
What is at the root of BCE’s passive performance? Is it that it views itself as victims of bureaucratic persecution, as it often suggests? Is it threatened by foreign competition, as it often claims? Is it doomed to global irrelevance, and a takeover target? Is it that it has for far too long paid too much attention to the limited thinking of Bay Street investment bankers? Why is it that BCE has failed to step up to a grander strategy? Does it not have the necessary thought leaders within its ranks, or is it so riddle with operations minded resources that it cannot conceive beyond the daily tasks of operating the business?
Abandon Old Thinking - Embrace Globalization
BCE’s challenge is to change its thinking and adopt the view that Jean-Pierre Blais’ Decision presents, an opportunity rather than a limitation on its business. It needs to renege on its view that the CRTC has foolishly denied it the benefits of sector consolidation. Blais may be to BCE, and perhaps Telus, what Martin was to the banks, a boon of opportunity.
BCE is outplayed internationally. It needs to embrace the opportunities of globalization, as have the majority of our Top 25 Canadian Corporations. The CRTC’s Chair, Jean-Pierre Blais, decision to deny BCE the opportunity to acquire Astral may have the same effect on BCE as Paul Martin’s banking policy did on the banking sector. The Decision may shake BCE from its lethargy and cause it to seek and seize global opportunities for sustainable long-term growth.