SaskTel losses force government crackdown

In 2001, Saskatchewan’s government-owned phone company bought a Vancouver-based service provider it called Navigata, sinking $70 million over the next four years into the business.

At the end of that time SaskTel wrote off $15 million of the investment, and according to the government, Navigata continues to lose money today.

That’s why the ruling Saskatchewan Party wants SaskTel to get rid of Navigata, part of orders to all four provincial crown corporations to only invest in businesses inside the province. Where possible, it added, they should now sell off out-of-province investments.

The order came after a consulting company hired by the government, KPMG, concluded that over the past 16 years, Crown corporations have wasted a lot of taxpayer money on investments outside the province.

Of some $465 million put into 26 companies by the four Crowns, the capital remaining in the active investments is worth $300 million. The government’s target rate of return was 22 per cent; the actual rate of return was minus 15 per cent.

Some of SaskTel’s investments have been real turkeys, including $10 million put into Craig Wireless of Winnipeg, all of which has been lost; $24 million poured into a U.S. energy management company, of which only $239,000 came back; and $15.8 million in a Chicago-based fibre optic network company which was written off. Of $39 million invested in what was described as hosting and Internet applications only about $2.4 million has been returned. Looking strictly at the five remaining out-of-province corporate investments, the report said SaskTel has lost 43 per cent of the $154 million it spent.

“Investing outside the province has not proven beneficial to the people of Saskatchewan,” concluded Crown corporation minister Ken Chevaldayoff this week. “In Saskatchewan’s growing economy there exists opportunities for Crown corporations within the province to grow and support the provincial economy.”

However, Iain Grant, managing director of the SeaBoard Group, a Canadian telecommunications consultancy, thinks the order is narrow-minded. It’s easy for Chevaldayoff to limit SaskTel’s investing to within the province’s borders when times are good, he said. [Until recently, economists believed Saskatchewan and Alberta will have the best growth in the country in 2009.] “But when the bloom fades, [SaskTel] will have to fall back on other skills, and it’s important to keep those other skills sharp.”

“In hindsight, at the beginning of the decade many people were making investments in communications which were deemed prudent by all and sundry, which turned out to be less wise,” he said. Nortel Networks, is one, Grant said. Navigata, “looked like a very good move at the time,” he said, “and might still again.”

A spinoff of B.C. Rail that became RSL Com Canada before being bought and renamed by SaskTel, Navigata has an optical fibre network throughout B.C. that also includes links to Calgary, Edmonton and Toronto. “That’s a pretty attractive network,” said Grant. SaskTel “ought to be able to do something with it.” Today Navigata offers a wide range of data, Internet, carrier and voice services for organization.

Unfortunately,Grant said, Navigata racked up debt in 2002 at a time when a lot of other companies were selling network capacity. But Grant said that was bad timing rather than bad facilities. “Bigger companies than SaskTel were significantly burned” at the time, he added.

SaskTel refused to comment on the government’s decision, saying Chevaldayoff, as the minister, would speak for the company. In an interview Wednesday he was unimpressed with Grant’s arguments, pointing out all the SaskTel money in Navigata that’s been written off. “We’re not doing any fire sale, here,” he added, “and if the Crown makes the argument that certain assets need to remain because of certain policy goals, we will certainly look at that.”

Grant pointed out that the KPMG report didn’t put much emphasis on SaskTel’s successes, which include an 80 per cent return on the $36 million it invested in a cable company in Britain, and a 4.1 per cent gain (about $6 million) on the $39 million it put into an Australian satellite provider.

Saskatchewan’s NDP opposition sees the government’s move as a step towards privatization of the Crowns, while one newspaper columnist noted that the former NDP government ordered the Crowns to stop risky outside investing five years ago.

But in the interview Chevaldayoff said some of the poor performers are still on their books. He also said his party has committed to keep the Crowns public. His order, he said, is about “stopping the bleeding of red ink” and clearing unnecessary operations from the Crowns. Why, he asked, should SaskTel own Ag Dealer, a Web site for the farm industry?

“Projects such as that are not necessary,” he said. “With us having the hottest economy in the country right now and the need for infrastructure in the province we think money is better spent providing more broadband coverage to our rural residents as well as looking at technology changes coming forward.”

The government is committed to bringing high speed Internet and cellular service to all parts of the province, he said. Right now, 86 per cent of the populace have access to broadband and 95 per cent have access to cellular. Instead of Crown money going to Chicago and Mexico, he said, it should be put into improving telecom infrastructure.

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