THE NATION’S BUSINESS

‘Red’ Wilson’s trial by competitive fire

BCE cannot just ignore public protests over approved increases in telephone rates, but the rates cannot be set by angry citizens

Peter C. Newman August 28 1995
THE NATION’S BUSINESS

‘Red’ Wilson’s trial by competitive fire

BCE cannot just ignore public protests over approved increases in telephone rates, but the rates cannot be set by angry citizens

Peter C. Newman August 28 1995

‘Red’Wilson’s trial by competitive fire

THE NATION’S BUSINESS

BCE cannot just ignore public protests over approved increases in telephone rates, but the rates cannot be set by angry citizens

PETER C. NEWMAN

No corporate empire in this country compares to the sweep and size of Montreal’s $38-billion BCE Inc. Under L. R. “Red” Wilson, the conglomerate’s impressive CEO, the country’s largest Canadian-owned company racked up profits of $1.2 billion last year, representing an astonishing $1.8 billion turnaround from a disastrous 1993.

This is a tough time to run anything, especially a concern whose best-known subsidiary, Bell Canada, is a former monopoly whose allowable profits were set by government edict until the deregulation decree of 1992. Bell came full circle recently when it rescinded its already promulgated decision to raise business phone rates as much as $60 per month by billing on a per-use basis. The communications giant’s per-call approach had been approved by the CRTC in Ottawa as part of its attempt to harmonize the current chaos in telephone rates, but the outcry of organizations such as the Canadian Federation of Independent Business prompted the company to back off.

Shortly after that decision was taken, I interviewed Wilson in his Montreal office and found him to be philosophical about his retreat. “Going back to the Railway Act, which has regulated this industry since 1908,” he told me, “there has been a social contract between us and Canadians that there would be a lot of cross-subsidies in our business. We would earn large-profit margins in long distance, but apply them to building up local networks. Government regulators would police our annual revenues and expenses, then allow us a return on capital of about 12 per cent, which didn’t make us rich, but allowed us to attract the capital necessary to keep going. That contract worked very well. But what happens when you allow competition in only one facet of your business is that the cross-subsidy goes out of whack. When a lot of new guys moved in to grab pieces of the profitable long-distance market, our ability

to subsidize local services disappeared.” Wilson is neither apologetic for trying to raise local phone rates (he points out that such “measured” services are already in effect in Britain and parts of the United States), nor sorry that he had to back down. But he makes some interesting points about BCE’s unique place in Canada’s capitalist universe. “Part of the problem for us,” he says, “is that people say, ‘How could a company with revenues of $21 billion care about an extra 50 cents per call? That’s usury.’ The fact is that our 350,000 shareholders have about $10 billion in equity tied up in this company, and that the profit we make—including about $900 million we pay out in dividends—doesn’t disappear out of the country, but is recirculated. Our ability to do that depends on continuing to earn a decent return.” While he remains optimistic about his company’s and his country’s future (Wilson sometimes has trouble differentiating between the two), he is well aware that the nature of investments in BCE stock is undergoing a fundamental shift. Pricing services closer to their real costs must happen one way or another, whatever the consequences. And while public protests can’t

be ignored, angry citizens cannot ultimately set telephone rates.

“Regulation matters less and less,” Wilson maintains. “The driving force has become technology, which is leading us to do things in certain ways. The transition from a monopolistic to a competitive environment will be difficult to micro-manage for us as well as for governments. There are bound to be casualties. While there are many high-tech options becoming available, such as broadband and satellite-based transmissions, wireless and cellular microwave, nobody has as yet identified the killer technology that’s going to do it best.”

BCE is a partner in Expressvu Inc., a direct-to-home service, that will start beaming 100 TV and radio channels to Canadian homes late this fall over Telesat Canada’s Anik-E2 satellite. (Wilson recently plugged his summer cottage in Vermont into an American DirecTV system through an 18inch disc that delivers 300 channels, including about 100 that beam pay-per-view movies, and 50 that are packaged entertainment services such as HBO and The Disney Channel.

Under Wilson’s driving management style, BCE has become a thriving multinational, with huge investments in American and British cable systems, and such one-time shots as the purchase of a 51-per-cent interest in Comcel, the leading cellular telephone service in the region around the Colombian capital of Bogotá. Its Northern Telecom subsidiary, (recently renamed Nortel Inc.), has become an international star of high-tech achievements, with $1.6 billion invested this year alone in its research and development facilities. BCE is expanding its fibre-optic networks, and its BCE Mobile cellular phone operation is projecting a 35-per-cent increase in business for the year as it prepares to go digital and move to satellite transmissions that will allow anyone anywhere in the country to hook onto its system.

Robert A. Ferchat, a former Northern executive, has been appointed to head BCE Mobile, as part of Wilson’s complete overhaul of the conglomerate’s top executive team. International sales come under Derek Burney, former Canadian ambassador to Washington, while Peter Nicholson, the former ScotiaBank chief economist (and policy adviser to Finance Minister Paul Martin), joins BCE on Sept. 1, as senior vice-president of corporate strategy. Ron Osborne, the former president and CEO of MacleanHunter joined BCE as chief financial officer, while Peter Sharpe has moved over from Redpath Sugar to be vice-president, corporate services. Together with Jean Monty, who has turned Northern around in record time from the catastrophic stewardship of predecessor Paul Stern, and John McLennan, who is applying new energy to the problems at Bell, this is undoubtedly Canada’s most effective executive team. Their talents are about to be tested in the shark-infested “waterworld” of BCE’s newly competitive environment.