Charles Sirois, Chairman and CEO, Teleglobe Inc.
CANADA AND THE GLOBALISATION OF COMMUNICATIONS
Chairman: Julie Hannaford, President, The Empire Club of Canada
Head Table Guests
Blake Goldring, Vice-President, National Sales, AGF Management Limited and a Director, The Empire Club of Canada; Rev. Charles Plaskett, Minister Emeritus, Timothy Eaton Memorial Church; David Gluskin, Director, Capital Markets, Goldman Sachs Canada; Colin Watson, President, Spar Aerospace Limited; Juri Koor, Chairman, Call-Net Enterprises Inc.; Al Flood, Chairman and CEO, CIBC; Guthrie J. Stewart, President and CEO, Teleglobe Canada Inc.; Bart Mindszenthy, Partner, Mindszenthy & Roberts Communications Counsel and a Director, The Empire Club of Canada; Bill Keeley, OAC Student, North Toronto Collegiate; C. Edward Medland, President, Beauwood Investments Inc.; George Fierheller, Vice-Chairman, Rogers Communications Inc.; and Peter G. White, Chairman, UniMedia Inc.
Introduction by Julie Hannaford
For The Empire Club of Canada, 1996 has been distinguished by three main subjects. They are technology, telecommunications and finance. We have been addressed by the leaders of industry in each of these three areas, beginning with Bill Gates, President and Chief Executive Officer of Microsoft, to John Hunkin CIBC Wood Gundy, Rob Gemmell of Salomon Brothers, Phil Olson of RBC Dominion Securities, and Rob Grandy of Merrill Lynch, to Bill Catucci of AT and T and David Parkes of Sprint Canada. Not surprisingly, all of these speakers have been united in their focus. If there is a sub-text to each of these speakers' addresses to The Empire Club of Canada it might be defined as "global business at the millennium."
The global concept is of course not new. When we look back at the addresses to The Empire Club of Canada given in the 80s, we see the development of a clear trend toward addressing issues from a global perspective. But by the beginning of the 90s, what was before an interest of businessmen, bankers and academics became a preoccupation. This year the concept of a shrinking world created by an ever-expanding definition of the possible, and a correspondingly reduced view of what is not possible, focusses our concern, our interest, and our imagination on the real meaning of competition, industry, and communications at the millennium. In the telecommunications industry, globalisation and deregulation, both domestic and international, provide the backdrop against which true leadership in the telecommunications industry and indeed in all other industries is defined. What we have learned so far from our speakers in the field of telecommunications and technology is that leadership in the industry emerges not as a result of one single vision, but rather as a result of the ability to shift, redefine, and recombine vision in order to accommodate change.
Hence, Bill Catucci, from AT and T, described for us the ever-decreasing value associated with monopoly, and he did so from the perspective of a former true believer in monopolies. David Parkes, from Sprint Canada, addressed us on the issue of the change to our way of thinking about communications in an age where competition must govern the way in which we understand our consumption of items on the expanding telecommunications menu.
Our guest today addresses us on the issues surrounding intercontinental telecommunications services and carriers. Teleglobe Inc., of which our guest Charles Sirois is Chairman and Chief Executive Officer, is a Canadian public company that is amongst the world's largest intercontinental telecommunications carriers. It links Canada to almost 240 countries and territories and is an international leader in global coverage mobile services through Telesystem Limited, of which our guest is also Chairman and Chief Executive Officer. It maintains a significant presence in the personal communications services area, both domestic and foreign, and in the international telecommunications and mobile satellite telecommunications sector, as well in the communications and media sector.
Teleglobe, along with every other intercontinental telecommunications carrier, is poised on the brink of dramatic change and rapid development, and we are therefore privileged to have Mr. Sirois address us at a time when these changes shall dominate our news and change the way we think about communications.
Mr. Sirois brings to the podium of The Empire Club of Canada much more than news about intercontinental telecommunications service delivery. Mr. Sirois addresses The Empire Club of Canada as an example of leadership and vision in the 21st century. His biography is a story of excellence, determination, and unshakable belief in Canada and Canadian enterprise. Mr. Sirois took an MBA at Lavalle University. Before he graduated, Mr. Sirois had a choice of career opportunities which included the United States of America. Mr. Sirois chose Canada. He began work with what has been described as an absurdly small paging company, which had 300 subscribers and annual revenues of less than $200,000. It has been said that where others saw an insignificant little nothing of a company, Mr. Sirois found a window into a fascinating and fast developing new industry. Having done so, Mr. Sirois parlayed that small 300-subscriber business into a company known as National Pagette Limited and National Mobile Radio Communications Inc. In 1987 these companies merged with Bell Cellular to form BCE Mobile, where Mr. Sirois was Chairman and Chief Executive Officer from 1988 to 1990.
Mr. Sirois sits on the board of directors of Hydro-Quebec. He is Chairman of the 1994-1999 Fundraising Campaign for the University of Quebec at Montreal. He received the Order of Canada in 1994. He is a founding member of the Washington-based Global Information Infrastructure Commission. He is a member of the Federal Advisory Council on the Information Highway. He is the author of a book on the Information Highway, entitled "The Medium and the Muse." Mr. Sirois' leadership in the field of intercontinental telecommunications is defined by excellence and vision in the field of telecommunications, by a strong and passionate belief in the creativity of Canada and the future of Canadian enterprise and a breathtaking list of achievements.
I am also pleased to report, for those of us who are perhaps intimidated by the new language of telecommunications, by the spectrum of choice and change in the industry, and for those of us who are haunted by the fear that someone else will discover that we have not yet learned how to programme our VCR, Mr. Sirois is our friend. As one of the masters of the electronic highway, Mr. Sirois will nevertheless admit the following: "I have never had a computer, and I don't know how to use one. All the people who work with me carry around their agendas and pocket calculators. 1 don't know what they gain by that, especially if their batteries go down. I keep my work schedule in an old fashioned book, and if it changes I write in the new items."
Ladies and gentlemen, please join with me in welcoming our guest today, who is able to define leadership in international telecommunications, without becoming its slave, Charles Sirois, President and CEO of Teleglobe Canada.
Thank you Julie.
Ladies and gentlemen, what does it mean to be global? And, how do we get there?
In many ways, we're already there and just don't notice. Like a crystal-clear line to Europe in milliseconds. It's an age of many miracles and wonders, not just the long-distance call.
In other ways, we've barely started on the journey. In so many parts of the world, it's still a traditional village not a "global village." Too often we forget that half the world's population, some three billion people or about 100 times the population of Canada, has never made or received a telephone call!
However, ladies and gentlemen, I can say that 1997 will bring a tide of change in telecommunications, as it becomes truly global, as it is supposed to be.
The global communications industry is in the midst of the most profound changes in its history--changes driven by the twin forces of competition and technology. As competition redefines our operating environment, a technological revolution is re-inventing the possible. The net result is change: sweeping, fundamental, and irrevocable change.
1997 will be the year when the Information Highway meets the Information Skyway--when new satellite systems are launched to deliver dial tone and e-mail, messaging and position finding to every place on the earth's surface.
We'll see many more millions of people using the Internet--a truly global technology where geography simply does not exist to the user, and where the distinction between users of Netscape Navigator and of Microsoft Explorer is far more significant than any distinction between, say, North America and Asia.
Among the key dates ahead is February 15, 1997. This is the date on which the World Trade Organization negotiations on basic telecommunications services reach the deadline for an agreement. The WTO will help ensure truly international investment and ownership of global enterprises, and set ground rules for regulation agreed to by member countries.
Whatever happens in the WTO negotiations, the trend to the new mega-carriers is unstoppable. We are in the midst of a tremendous wave of mergers, alliances, partnerships, contractual arrangements, to form new global alliances.
Just in the past few weeks, we've seen British Telecom buy the American carrier MCI to form a new giant. AT and T has already formed the World Partners Association, another of the three leading global carrier alliances. Our friends at Sprint have put together the Global One alliance with Deutsche Telecom and France Telecom.
AT and T is also about to renter the local American markets it left behind to the "Baby Bells" years ago, offering integrated local, long-distance and overseas services. Meanwhile, those not so baby-size regional Bell operating companies are making their own plans for global service, including long-distance and overseas. They also plan mergers. By the first quarter of 1997, we'll see Pacific Telesis and SBC Communications join forces, as well as Nymex and Bell Atlantic in the East.
For some, being global is about being very large. But I am not convinced that big is best. I see the winners of the future as the better players, not the bigger players. Another path to being truly global is through flexibility and adaptability. That path means accessing the markets where and when we have the greatest value to offer. It means keeping open a wide range of options for competing effectively, including global financing and alliances. And it means being able to move rapidly on opportunities.
The opportunities are certainly there. Global telecommunications is a booming business today, growing at good rates in the developed world and at phenomenal rates in the rest of the world. Demand for ATM multimedia capacity that allows for affordable, real-time, multimedia communications services involving the simultaneous transmission of voice, text, data, and images is especially strong in developed countries, while the drive for dial tone is a powerful force in emerging economies.
In China, for example, there are only two telephone lines per 100 people, compared to Canada and the United States at the other end of the spectrum where there are 60 lines per 100 people. In many developing regions the existing networks are obsolete.
The cost of bringing modern wired telephone service to the whole planet is U.S.$3 trillion according to the International Telecommunications Union, an impossible amount! The pent-up demand for telephone service is extraordinary, however, as it can take a few years to have a phone installed.
The quickest and most cost-effective way of providing new services in these parts of the world is through a combination of wired and wireless services. Hand-held and fixed-site satellite phones will supply citizens in developing countries with a telephone for the first time in their lives. Mobile satellite service networks are the solution for these places where a conventional land-based system or cellular-type infrastructure is not economical.
At one time telecommunications were seen as a luxury. By the beginning of the next millennium highly reliable, widely available telecommunications will be recognised everywhere as a vital economic underpinning for job creation, for attracting and keeping investors from outside the country and for participating in global electronic trade and commerce.
According to a recent Gallup survey, nine out of 10 senior executives from the world's largest companies are convinced that telecoms will become more important to the expansion plans of their organisations over the next five years. While among the 50 million or so Internet users, the cry for greater bandwidth is deafening.
With all of these changes occurring, it's a great moment for a global regulatory structure in telecommunications. Governments from around the world have talked about the issues. The World Trade Organization had a round of negotiations that was suspended last spring without agreement--and was extended to February 15, 1997. Issues have been clarified since that time. All players know what's on the table, what cards are in their hands, what they will have to trade off and what's to be gained for their concessions. Member governments everywhere are putting their final positions together as we speak. The WTO ministerial meeting begins in Singapore on December 9.
What does Canada have to gain from all of this? What will Canada have to put on the table to make it happen? Like every country in the world today, we have a predominant interest in ensuring the best possible telecommunications infrastructure, to be reliably connected to each other and the world. This is far and away the most important interest that Canada has. And it is best served by establishing a competitive, open Canadian market, where Canadian and foreign companies compete to provide the best service options at the lowest cost.
As for "national champions," becoming global means less national and more champion. It means an end to domestic protection and instead a thrust toward international free trade and investment. That means, for example, ending monopoly on Canadian overseas facilities.
How does Teleglobe feel about this? We asked for it! Our position, which we made clear to the government more than a year ago, is that we're quite prepared to give up one of the last vestiges of monopoly in Canada. The national monopoly is the trailing edge of regulatory options. The sooner we all leave it behind and become something else, the better.
I've been asked, "Isn't this like turkeys voting for Thanksgiving?" I suppose it's a reasonable question. In fact, I really don't have a large file of quotes of CEOs calling for an end to their company's profitable monopolies! The answer is that we will be sitting at the table, not on it, and we will have much to be thankful for. Let me assure you that this bird can fly.
Teleglobe is the world's sixth-largest intercontinental carrier, and we have the second-largest North American-based global network after AT and T We've been enjoying steady growth in revenues and profits for years, while reducing international rates just as steadily. We have a global strategy in place, and it is already working. We are concentrating on the high frontier and the leading edge, where the growth opportunities can be found.
In the first nine months of 1996 the non-Canadian portion of Teleglobe's revenues rose by over 250 per cent, and the pace is still picking up. We are now in the American market, where the FCC has granted us a facilities license. We're competing every day with AT and T, Sprint, MCI and hundreds of resellers, and winning new business all the time. Our approach is focused on business customers and ethnic communities, and on selling capacity to other carriers and resellers.
In the U.K., we're a reseller, and we've applied for a facilities license, which we expect to get within the next month. And we're not stopping there. We see great opportunities in Germany, the second-largest telecommunications market in the world, and elsewhere in Europe as the European Union opens that market. We have already laid our Information Superhighway across the Atlantic. It is the Globesystem Atlantic, a fibre optic ATM link with mind-numbing multimedia capacity, that joins Canada and the United States to the U.K., Denmark, Germany, and Iceland. We were the first with such a system, but most certainly not the last.
We don't have to dominate new markets when we enter them, to feel the impact on our bottom line. If we get just six per cent of the U.S. market, for example, Teleglobe will double in size.
Also, we're among the leaders in building the "information skyway"--the next wave of global commercial satellite communications systems. Last August, we received an affirmation of this strategy from the bond markets, when our ORBCOMM satellite venture raised $170 million. That completed the financing for this two-way global paging system. Two satellites had already been launched, and the rest are now being built by our partner, Orbital Sciences Corporation. We're on target to put 28 satellites in low-earth orbit by the middle of 1998. With applications that include messaging, e-mail, location finding, and others, over 70 million potential users for ORBCOMM have been identified worldwide.
This will be a diverse and competitive market. There are many more satellite systems following on behind us. Among these, Teleglobe is also a founding partner with TRW in Odyssey. This is a constellation of 12 larger and more expensive satellites, launched up to medium-earth orbit, that can handle voice as well. We expect to have Odyssey in place by the year 2000.
While the telecommunications industry has been moving very rapidly to position itself for a truly global market in communications, the regulatory framework has been slower to adapt. It is still a national matter, and will remain so. But the World Trade Organization in its current round has the potential to accelerate the establishment of a global trading and investment regime and regulatory guidelines that are fair and transparent to all concerned.
We'd let go of the monopoly gladly to gain wider access to world markets. I like to say that the best way to be competitive is to compete and we can compete. Canadians already benefit from some of the lowest international telecommunications tariffs in the world. Still not convinced?
We are already competing in the U.S. market, against the giants of the industry, and the volume of U.S. outbound traffic on our network is growing daily.
So yes, we are prepared to see new players come in to our Canadian market. Let them compete with our innovative services like Canada Direct, international toll free, and frame relay.
And as my friend Juri Koor, Chairman of Call-Net Enterprises, the parent company of Sprint Canada, will readily agree, in the case of Sprint we're talking real competition! He is here at the head table with me today. But it's worth noting that in Canada, Sprint is currently both a customer and a competitor of Teleglobe. Also, in the Microcell venture Juri and I are partners. This is not so unusual in today's industry.
Relationships are not monolithic. The market is very good at identifying the most efficient options for any part of the telecommunications value chain.
As for our main Canadian customers, the Stentor Alliance, clearly they should be allowed to get into the overseas market as well. This is a sensitive issue for Teleglobe, however, since our company has evolved over the years, largely as a result of government policy, to be a unique and highly specialised component of the industry. Over 80 per cent of our present traffic comes from Stentor, and if it were suddenly shifted away from Teleglobe to other facilities, there would be a massive amount of stranded investment. Therefore, this change should be delayed, until their own monopolies are opened, and are demonstrated to be effectively competitive.
There's something else we have to let go: restrictions on foreign investment in the Canadian industry. Are we really ready to do this?
Hold on. Let's just think about this for a minute. I suppose we would have to let go of being "protected" from a wide range of options for capital investment that could decrease our cost of capital and ensure we're on an equal footing with our global competitors in a capital-intensive business. And if this happens it would also increase our scope for strategic alliances in a very fast-moving industry. And if this long-standing protection is removed it would expedite our entry into new markets. OK, we agree!
The first order of business is to abolish the Teleglobe Act, and put all Canadian carriers under the same legislation. It no longer makes sense to have rules that prohibit any ownership by a foreign carrier in Teleglobe, nor should there be limits on the investment of domestic carriers in Teleglobe.
Regarding foreign ownership, we have supported a proposal to raise the limit on foreign ownership in any Canadian carrier, including Teleglobe Canada, to at least 49 per cent, in the context of a WTO agreement.
But we're not particularly dedicated to even that limit. Ultimately, we see most of the remaining capital restrictions on foreign investment in telecommunications becoming unnecessary. Being global, the issue is not the source of capital, but rather its behaviour. Governments should not give up their controls over behaviour. In fact they have much to say there. But by giving up jurisdiction over the source of capital, they can ensure that we have a lot more of it around, doing useful things for Canadians, and financing Canadian ventures that are expanding rapidly as they shrink the world.
Meanwhile, as for Canadian domestic barriers to end-to-end ownership, such as the 33-per-cent limit on total shares in Teleglobe that can be owned by any Canadian carrier, these must also go the way of the dinosaur. There is no reason for Teleglobe to have more restrictions on its domestic ownership structure than any other carrier in Canada.
New international competitors like AT and T have already set up their model of end-to-end service. It is available in the United States and will soon be on offer here. And why not? If the market decides that integrated packages are where it's at, more power to them and to us if we follow that option. But not, of course, if we don't even have that option.
So, to conclude, ladies and gentlemen, if you show me a telecommunications CEO who has it all figured out, who has a three-year game plan based on a detailed vision of how the industry will unfold, then I will show you a Board of Directors with the grim job of voting on a major executive severance package on its next agenda!
We are at a time when industry and governments need the wisdom to accept that there is no single or ideal path to globalisation; that they must make many options possible for the industry. We need to stop trying to control the future and instead increase our adaptability to emerging reality.
I think the path to being global requires letting go of what you cannot keep, like a national monopoly and investment restrictions. It means keeping your options open, taking them at the right moment and reaching for what you have to gain, which is the world. And altogether, ladies and gentlemen, I see 1997 as the year we become global. I'm very confident that it will be an extremely positive step forward for Canada, as well as for Canada's national overseas carrier.
The appreciation of the meeting was expressed by Blake Goldring, Vice-President, National Sales, AGF Management Limited and a Director, The Empire Club of Canada.