Magazine article Canadian Dimension

The Privatisation of the Manitoba Telephone System

Magazine article Canadian Dimension

The Privatisation of the Manitoba Telephone System

Article excerpt

A cautionary tale of sabotage, duplicity, government contempt for its citizens, and the subversion of democratic procedures

On November 29, 1996, Manitoba's Tory government rammed through a bill to privatise the Manitoba Telephone System (MTS). This was the culmination of a process which started with the government's sabotage of the MTS, and ended with its hijacking of democratic procedures in the Manitoba legislature.

The sabotage of MTS

Rumours that the government planned to privatise the MTS circulated as early as 1993. Premier Gary Filmon's inner circle recognised, however, that selling the MTS would result in their defeat in the 1995 election. So they began to lay the groundwork for privatisation immediately after the election, by selling off some of the MTS assets and turning over lucrative MTS activities to the private sector. Rumours about privatisation were consistently denied by Filmon and key cabinet ministers, but they didn't go away.

Despite their denials, the rumours were verified by the government's actions. In 1994, the company sold off its coaxial cable system for $11.5 million, despite a 1993 Ernst & Young study indicating that ownership of the cable network gave the MTS a strategic advantage relative to potential competitors. The report concluded, "...it would be most unfortunate for a [telephone utility] to lose control over coaxial cable that it currently owns." The price was less than 20 per cent of an internal MTS valuation of the cable network, which placed its strategic worth at $63 million. The internal study also warned that sale of the cable system "could be dangerous and compromising to MTS's future."

Subsequently, Premier Gary Filmon orchestrated a deal which gave Boston-based Faneuil ISG a lucrative $47 million contract with MTS for telemarketing services. This stripped MTS of the capacity to exploit telemarketing for its own benefit and to diversify its revenue sources. The deal also generated substantial rewards for Mike Bessey, a confidant of Filmon and one of the brokers in the contracts, who cut himself a $400,000 side deal with one of the key people in Faneuil, and Charles Feaver, a senior civil servant, who landed himself a job as a senior executive at Faneuil.

A December, 1996 Winnipeg Free Press story revealed that a flyer distributed to prospective buyers of MTS shares by RBC Dominion Securities said, "MTS has been preparing for this sale for the last several years, and is prepared to act very aggressively for business in a competitive marketplace."

The duplicity of the Tory government

During the April, 1995, Manitoba election campaign, Filmon and the Minister in charge of MTS, Glen Findlay, insisted the MTS would not be sold. The Tories were re-elected with 42 per cent of the vote, but a majority of seats. On May 24, 1995, Filmon reiterated that his government had "no plans" to privatise the MTS, "We are not driven ideologically or... hidebound."

In late 1995, the government restructured the MTS into four divisions and recruited new management sympathetic to privatisation. Glen Findlay still claimed, "the restructuring was done for reasons that have nothing to do with privatisation ... Privatisation, as a principle, is not driving the organisation, not at all."

In December, 1995, the government commissioned three brokerage firms at a cost of $300,000 - Richardson Greenshields, RBC Dominion Securities, and CIBC Wood Gundy - to "evaluate MTS and make recommendations." Findlay claimed this was to help the MTS deal with "new and changing circumstances."

The brokers reported on April 30, 1996. As expected, they recommended privatisation. They neglected to cite the massive commissions they would gain from privatisation. Those commissions would later amount to a tidy $36.5 million. Two days later, on May 2, 1996, the government announced that the MTS would be privatised.

On May 31, 1996, the government tabled Bill 67 - the bill to privatise the MTS. …

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