Competition—Creating A New Balance of Power

Head Table Guests

Robert Dechert, Partner, Gowling, Strathy & Henderson and a Director, The Empire Club of Canada; Jesse Moore, OAC Student, Malvern Collegiate; Patrick Daly, Executive Director, Canadian Business Telecommunications Alliance; Gregory Ewert, President, Global One; Heather Acheson, Special Events and Incentive Program Manager, Communique Group Inc.; Paul Bates, President and CEO, Porthmeor Securities Inc.; Gareth Seltzer, Vice-President, Private Wealth Management, Guardian Capital Advisors and a Director, The Empire Club of Canada; The Rev. Dr. Harrold Morris, Past Moderator, Presbyterian Church of Canada; Peter Grant, Head of the Communications Law Group, McCarthy Tetrault; Riki Turofsky, Chairman, Culture Communications Management Inc. and one of Canada's foremost sopranos and a member of the board of the Canada Council; and Gaylen Duncan, President and CEO, Information Technology Association of Canada (ITAC).

Introduction by Julie Hannaford

Last week, The Empire Club of Canada opened its series of addresses on telecommunications organised under the question: "Competition: Who Needs It?" with an address from Bill Catucci, President of AT and T Canada. Each of the speakers invited to address The Empire Club on the issue of telecommunications and competition were asked to speak as directly as possible to the fundamental issue in telecommunications today and each of the speakers recognised that in asking the question: "Who needs competition?" the underlying question was also: "Who needs monopolies?"

Our first address from Mr. Catucci began with a confession. As Mr. Catucci said, had he spoken to our Club 10 years ago, he would have spoken from the perspective of a confirmed true believer in monopolies. He was in effect a monopolist. He is now a reformed monopolist, or perhaps more precisely, a true believer in competition.

What we learned in that first address was that monopolies were essential to the development and the entrenchment of telecommunications services in Canada. Without them, Canada would not have enjoyed its pre-eminence as having 98-per-cent penetration rate for telephone service in the second-largest geographical land mass in the world. The useful life of monopolies, however, has come to an end, and what we have also learned is that perhaps the better question is how we define competition in a global economy?

Our speaker today will likely not confess to any former fidelities with monopolies. Rather, David Parkes, President and Chief Executive Officer of Sprint Canada, addresses us from a history of understanding and participation in the competitive marketplace. He obtained his academic training and business degree from York University in Toronto, began his business career with Versa Food Services Limited, moving to Cara Operations where he was Director of Operations and subsequently Vice-President of the Retail Division. He became Senior Vice-President of the Urban Restaurant Division and Retail Division in 1982.

David moved to Cantel in the fall of 1984, and was named Senior Vice-President of Sales and Marketing for Canada in 1986. In 1990, David become President of Cantel Ontario, which represented 55 per cent of the subscribers and revenues in the company.

David joined Sprint Canada as President and Chief Executive Officer on January 9, 1995. As a leader in competitive delivery of telecommunications services, David Parkes' vision of competition has evolved to include not only how telecommunication services are delivered competitively to the Canadian consumer, but how the business itself operates within society. Our speaker views competition as an objective that can only be achieved if a company effectively develops a system of values that ensures the cohesion of the company that is competing in the marketplace. As a result, David Parkes' business philosophy includes not only the usual vision, objectives, and strategies, but also provides for values that define how people act and work together, and define the type of work environment that people want. If it is true that advances in telecommunications will change the way we live, act, work, and entertain ourselves, then it is also true that the leaders in the delivery of telecommunications services must also be leaders in defining the protocols for working in the telecommunications environment. In defining values (team work, responsiveness, balance, and innovation), as the underpinning and foundation for Sprint Canada's participation in the industry, our guest today brings the concept of competition to a second level.

It was our guest today who suggested that any series of addresses on telecommunications in Canada ought to be organised around the blunt question: "Competition: Who Needs It?" I fully expect that our guest today, David Parkes, has an equally provocative answer to the question.

Ladies and gentlemen, please join me in welcoming David Parkes, President and Chief Executive Officer of Sprint Canada to The Empire Club of Canada today.

David Parkes

Good afternoon, ladies and gentlemen.

I hope you've all finished your meals because I wouldn't make a good impression if I interrupted you while you were eating? Well, that hits close to home, doesn't it? I don't think I'd be far off the mark if I guessed that probably a third of you have recently had your dinner at home interrupted by a phone company representative informing you that, based on your calling history, you had become eligible for their particular long-distance savings plan. Your thoughts at that moment? Probably something like: Telecommunications competition in Canada--who needs it!

Well, it's unlikely that you would form your thoughts precisely in that way but I think it's fair to say that the gist of it is about right. You're peeved. You're disgruntled. And you're my customer. As you will see, the customer is the focus of my presentation to you today. Because the customer is the focus of everything we do at Sprint Canada.

I'm the first to admit that since the launch of competition in the marketplace, the telecommunications industry has become more than a bit of a pain--in the media, on your phone, in your face, just about everywhere you look, and especially on the tube. Those of you who haven't been solicited by phone have more than likely had at least one episode of your favourite TV show interrupted by one or more of these not-so-subtle sales pitches.

Competition in the Canadian telecommunications industry? Who needs it, indeed! Ladies and gentlemen, we all need it.

Why do we all need competition in the Canadian telecommunications industry? It can be expressed in one simple word. Balance.

Competition in telecom has essentially led to a re-balancing of power in the marketplace. The balance of power now rests where I believe it should and where it definitely did not prior to competition in the industry. The balance of power now rests with the customer. It now rests with you.

It is a direct result of the first and foremost benefit that a competitive environment delivers and that is choice. For the customer, for you, choice is power. The implications of this re-balancing are widespread and profound. And the move from a monopolistic environment to a competitive environment has led, literally, to a revolution in the telecommunications marketplace. Let me quickly paint you a picture of the differences between then and now.

Back then, in a monopolistic environment, there was choice, but it rested with the monopoly. The monopoly could choose to act, or not act, to upgrade equipment, invest in new technology, expand services. Literally, it had complete control.

In any case, you were forced to buy an essential service at predetermined prices. However, despite all that, it has to be said that sometimes the system did work. But, on the other hand, sometimes it didn't.

What determined when and if the monopoly chose to act? Short-term corporate goals, which sometimes coincided with your needs. But not always. The monopoly had a guaranteed rate of return, and therefore represented a virtually risk-free investment. Not a bad thing, but who paid higher prices to sustain it? You did.

What if you got really teed off, because it cost twice as much to call your mother in Florida as it did for her to call you? Or you were getting really bad attitude from a company rep? What could you do to deliver a really strong message that you were not satisfied? Absolutely nothing. Except maybe write a letter. It was entirely up to the monopoly to respond to your needs and there was no incentive to do so. Fundamentally, it's a question of attitude. The monopoly was accountable to the regulatory bodies, and to its investors. It was not accountable to its customers, to you. And it showed in its attitude.

So, that was then. And this is now. It's a different balancing act. Now, choice rests with the customer. The customer is free to choose the service that is most affordable and most appropriate for his or her needs. And this choice absolutely represents power. The companies that want your business have to meet your needs because now, if they don't, they don't just have an unhappy customer, they don't have a customer at all.

Now, in order to raise capital, in order to be regarded as a good investment, telecommunications companies can't just send out a bill and collect the cash. They have to manage their costs, operate efficiently, plan for the long-term-just like any other legitimate business.

Now, you don't pay more to maintain the status quo. They have to run a better business--so you pay less. Now, your phone company has to invest in innovation, in updated facilities, in better service. It has to offer good value. Today, if you're not satisfied, you're likely not writing letters or complaining to management. You're simply taking your business somewhere else. Now, the attitude of telecommunications companies is clearly different. They are accountable first and foremost to you. If their attitude suggests otherwise, they will likely not be in business for long.

For you and I, the most obvious difference has been simple. Apart from being able to choose the best deal, we can now actually expect and demand service and satisfaction in a way that we never could before. If our phone company annoys us, we now have the choice to switch to a company that will work a little harder to keep us happy. This point gives us a clue to the shape of the competitive environment in the years to come.

Today, the marketplace is still being driven primarily by the best deal. Customers are confused by all the messages bombarding them every day. They're not yet sure what's right for them. Clearly, this isn't the best environment for you, or for us. Five years from now the telecommunications marketplace will be driven by longer-term, more service-oriented relationships. At least that is if we at Sprint Canada have anything to say about it and I believe we will.

Sprint Canada will strive to continue to operate in a position of leadership, both in making a case for a fully competitive telecommunications industry and in making sure the competitive environment evolves in a way that offers maximum advantage to all of society's stakeholders. Sprint Canada has always been front and centre in promoting real and effective competition in telecommunications in Canada. We knew it was good for consumers, for business, and for the Canadian economy. And, as much as anyone else, we are a stakeholder in this economy.

Contrary to what many people believe, we are not a subsidiary of a giant American carrier. Sprint Canada is licensed to use the Sprint brand and technology by the Sprint Corporation, but we are as Canadian as a maple leaf. And we have been very involved in shaping the competitive scene in Canada.

In 1992 and before, CallNet Enterprises, our parent company, was extremely active in the proceedings which resulted in Telecom Decision CRTC 92-12--opening the long-distance market to real competition. In 1993 Sprint Corporation invested in a 25-per-cent non-voting equity position in CallNet Enterprises, which subsequently changed the name of our operating company to Sprint Canada.

Most recently, CallNet has been a primary participant in the proceedings to open up the last frontier, the local service market, to competition. Our proposals now before the CRTC represent one of the most efficient and innovative models of competitive entry into this market. I believe that they will be very influential in determining the shape of local competition in Canada when it becomes a reality.

In our move towards a fully competitive market, we in Canada have not taken the route of complete deregulation. On the contrary, regulation is one of the key factors for success in a truly competitive telecommunications marketplace.

In opening up Canada's long-distance market, the CRTC recognised that deregulation of the industry must proceed in a measured fashion--for good reason. The monopoly had the twin advantages of critical mass and superior capitalisation, built up by years of guaranteed returns. It could easily have undercut the rest of the market for as long as it took to squeeze its smaller competitors right out of business.

Had the CRTC decided to adopt a hands-off approach, Canada would have ended up, in the short term, with some lively competition. But in the long term, we would have been left with the same monopoly we started with. The reality is that without some regulation you wouldn't have any competition. The CRTC recognises this.

So today, we have what I like to call "enlightened" regulation. It is regulation that maintains the balance. It maintains an environment in which competition can evolve in a healthy way. And it is the kind of regulation that will continue to be important as the local market opens up to competition.

One of the results of our move into the competitive market has been the growth of Sprint Canada from a small upstart, into the leading long-distance alternative in Canada. We are the number-one long-distance alternative to small- and medium-size businesses. We are the leading long-distance alternative in the consumer residential market. We are a major player in the 1-800 toll-free market, and we are making substantial inroads into the large corporate marketplace.

As proud as I am of our success, I'm certainly not going to argue that competition is good because it's good just for us. Long-distance competition has been good for virtually everyone it has touched. Too good to be true? Let's examine the various groups affected.

First, the consumer. We've already said choice has given you power--the power to demand the unbeatable combination of better price and better service.

Second, business. Business is enjoying the same advantages exponentially. Telecommunications represents the second-largest cost on the income statements of most businesses, so a drop in price has had a significant upward impact on the bottom line of any business that depends on telecommunications services. The Financial Post recently estimated today's average long-distance toll rate at $0.20 per minute, compared to over $0.40 in 1990, which would put Canada on par with the U.S. in terms of affordability. This translates into billions of dollars in annual savings for Canadian consumers and businesses.

But cost savings are not the only "win" for business. Combined with the innovative "better service" side of the equation, business can now operate faster, more efficiently, and more effectively. When discussion of competition in the telecommunications industry first began, a central goal of Canadian policy-makers was to create conditions that gave Canadian companies an edge in the global marketplace. As a result of competition they now have that edge.

The third group is the telecommunications industry itself. Before the long-distance market opened up to competition those opposed to it argued that, within the industry, it would increase the cost structures, increase the cost of capital, increase revenue requirements, degrade the quality of service and the efficiency of network planning, and ultimately reduce productivity and profit levels.

To put it mildly, their fears were unjustified. Competition has made the telecommunications industry one of its biggest winners. According to Statistics Canada, telecommunications growth has outpaced growth in most other sectors of the economy in every year since 1992. Despite falling per-minute costs for long distance, revenues in the telecommunications sector have increased substantially over the past five years. And, operating revenues and profits are currently rising steadily. Ironically, the Stentor companies have been one of the biggest winners from competition, and are predicting significant increases in earnings for the coming year. We are all aware of the recent stock market performance of Canadian telcos. It makes sense that if our telecommunications sector grows in dynamism and efficiency, its opportunities both at home and around the world will increase. So, the industry is already reaping its rewards.

And finally, the national economy. Telecommunications competition has had extremely positive effects on the economy. It has accelerated the creation of high-skilled jobs, it has enhanced the development of the Canadian information infrastructure and it has expanded investment opportunities in the telecommunications industry.

CIBC Wood Gundy, in its Research Highlights recommends investment in Canadian telcos for a 10-30 per-cent one-year total return. It states that "The solid balance sheet, experienced management, reputation for customer service, diversified suite of services and state-of-the-art infrastructure are key competitive strengths for the telcos." Quite a bit different than the doomsday prediction of the former monopolists!

I believe I've made a strong case for why we all need competition in the Canadian telecommunications industry. Does this mean that in order to enjoy the benefits of this competition, we're going to have to continue to put up with the marketing wars--with massive advertising campaigns and aggressive sales techniques? Well, in the short term, the answer is yes. Competition in Canada is still in the early stages, and we are years from reaching a state of more normal market equilibrium. But the long-term, mature competitive environment will, we all hope, be a little less intrusive.

How are we going to get there? We at Sprint Canada plan to get there by focusing on one of our key corporate objectives='To become the number-one telecommunications company in customer satisfaction, as measured by our customers." This is, I believe, the key to the continued evolution of the competitive environment.

And it is, as much as anything else, a question of attitude for us--an attitude of leadership by focusing on the needs of our customers. As I said before, our customers are the focus of everything we do at Sprint Canada. Very simply, our long-term goal is to have a great relationship with our customers, large and small. We're going to make them so happy that they won't even think about changing phone companies when they get that next call in the middle of their dinner.

It sounds like an abstract sort of goal and it's certainly a challenge. But I'm sure that the company which is most successful in achieving this goal is the one that will lead the way in the Canadian telecommunications marketplace of the future.

And, it's important to recognise that this goal wouldn't be foremost in anyone's mind today, were it not for the new balance of power created by competition. The customer will ultimately define the way we do business. So, in closing, I'd like to make a toast--to you, the customer. Thank you.

The appreciation of the meeting was expressed by Gareth Seltzer, Vice-President, Private Wealth Management, Guardian Capital Advisors and a Director, The Empire Club of Canada.