Should Sasktel Be Privatize?

ESSAY II

OUTLINE

I. INTRODUCTION

II. RATIONALE FOR CREATING SASKTEL AND CROWN CORPORATIONS

III. ADVANTAGES AND DISADVANTAGES OF PRIVATIZING SASKTEL

IV. CONCLUSION

Should SaskTel be privatized? (literature on public ownership, privatization, theories on the role of government)

Saskatchewan Telecommunications or SaskTel is a provincial Crown Corporation operating under the authority of The Saskatchewan Telecommunications Act. It is the leading full service communications company in Saskatchewan, providing local, long distance, voice, data, Internet, web-hosting, text and messaging services over a fiber optic-based, fully digital network (http://www.sasktel.com). SaskTel has delivered first-rate telecommunications to the people of Saskatchewan for more than 90 years. Crown Corporations (a form of public ownership, section 6a) like SaskTel, as a form of public ownership (essentially where government either creates a commercial enterprise or takes a business out of private hands and runs it as a state agency), account for a significant proportion of Saskatchewan economic activity. The most common rationales for the existence and use of Crown corporations like SaskTel include the following: market failure/ provision of essential good or service, nation building/ nationalism, efficient and effective delivery method, economic development, public ownership as regulatory tool and commercial investment2. In addition, Crown corporations also provide a window for the private sector and attracting business people to management. In order to understand and make a decision regarding the privatization (the transfer of public assets, operations or activities to private enterprise)of SaskTel or not, we need to study the original rationales for creating Sasktel (a Crown corporation) and evaluate the advantages and disadvantages of privatization to the government, business and society as a whole. The rationale for any particular Crown corporation may change, the result of which is sometimes an equally valid but different rationale from what was originally intended (section 6a). The issue of privatizing SaskTel is an enormous one, considering the ripple effect it could have on other Crown corporations in Saskatchewan. The issue of privatizing SaskTel raises many legitimate questions such as: Why should we consider privatization? If SaskTel is privatized, don't we lose control of it? How do we keep the office in the province? Won't a lot of people lose their jobs? Won't prices go up? What about the loss of revenue to the province when dividends are no longer paid out? Don't companies benefit a few rich shareholders, while SaskTel benefit everyone in the province?

Before making decision about privatizing SaskTel or not, we need to look at the original reasons behind the creation of this Crown corporation. We need to answer certain questions like, does SaskTel still function as it is intended to be and does it meet its original objectives today. Saskatchewan's earliest Crown corporations were established before the province was incorporated in 1905. They were founded to provide reliable, high-quality services to all Saskatchewan people, at affordable costs. Over the years, the role has expanded. The Crowns now promote economic development and make a significant contribution to the province's finances. Since 1995, the crown sector has paid more than $1.8 billion in dividends to the province's General Revenue fund. When Manitoba telephone systems were privatized in 1996, it left SaskTel as the last government owned phone company in Canada. At one time in the prairies, governments and telephone companies were practically inseparable. It was seen as natural monopolies (one producer supplying all of the market at lower costs than many producers could) because of the huge cost of installing a wired network, telephone markets were the exclusive domain of crown corporations, whose job was to make phone service affordable especially for rural customers. Over the past eight years, both Alberta and Manitoba governments have sold their phone companies, arguing that private companies are better able to cope in an industry that has rapidly evolved from monopoly to competitive background. In the 1980s, the Mulroney government moves the issue of privatization to the fore, appointing a Minister of State of privatization to oversee the sale of de Havilland Aircraft and Canadair, and to explore the sale of numerous other public sector firms.

There is little doubt that the role of Crown corporations in Canada remains a subject of some controversy. In Saskatchewan, people's attitude towards privatization varies. Today, a growing number of people believe that SaskTel as a Crown corporation should be privatize. There are many critics of SaskTel who call for the privatization of it, if not all Crown corporations. Many argue that SaskTel could operate more efficiently as a private company than as a Crown corporation. Such critics argue that free market is a more efficient mechanism for the allocation of goods and services and that privatization will give the public greater choice at a competitive price. They argue that Crown corporations dominate the Canadian economy and are inefficient, prone to political interference, and distort market forces. They believe that Saskatchewan people deserve to choose which company they would like to do business with and at what price. The public also wants to see the benefits of competition. Most of them think that the government is more worried about protecting one of its cash cows than anything. Supporters of privatization say that it leads to reduced government debt, increased efficiency, and stimulates an entrepreneurial culture. In addition to critics of crown corporations, there are other arguments for the privatization of SaskTel such as the following: First, it is often argued that governments have few incentives to ensure the enterprises they own like SaskTel are well run. Whereas private owners will lose money if their businesses are run poorly, thus public money can sustain even the most inefficient enterprise. Moreover, because federal government owns Crown corporations, public officials may only be interested in improving a Crown corporation when its performance becomes politically sensitive. The government may put off making any improvements to a given corporation due to political sensitivities. Second, corporate executives and personnel may be selected for political reasons rather than business reasons. For example, in 2004, VIA Rail gains unwelcome notoriety in the aftermath of the release of Auditor