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Can BCE treat its customers worse after privatization?

Posted by admin on July 10, 2008 in Misc.

I am one of those people that think the BCE privatization is all but done and the risks to it not closing (the banks not coming up with financing or the buyers backing out) are more perceived than real. In this environment, the banks would not have agreed to close without lining up other lenders and, given that the buyers have already hired their new management, short of some massive shock to the system, it does not appear likely they would back out at this point (a $1.2 billion penalty is also a good incentive for the buyers not to walk away). Assuming that all the drama is over and BCE will indeed be privatized, the larger, and more frightful question, becomes how will BCE customers be affected?

Very badly. In a best case scenario. Last year, I polled readers on the worse customer-service companies and BCE won hands-down (they won’t be putting that in their annual report) so there’s no where to go but up right? No. There are two distinct factors to consider in this privatization which will make customer very unhappy.

The first is the entire reason for a private-equity lead privatization. Most of the time, it is to make the company very lean post-privatization and then bring it back to the market via an initial public offering (IPO). Remember what private equity was called in the 80′s? Corporate raiders. The new owners will cut every “unnecessary” department possible and attempt to jack up profits to get the best IPO price possible. This could mean less customer-support staff (who are not profit centers because they don’t bring in money), higher prices, more “options” we have to pay for and generally low staff morale given whole-sale changes may take place. In other words, we could be looking at less bang, more buck.

The second are the owners: Ontario Teachers Pension Plan (“Teachers”) and two private equity shops but, for all intents and purposes, it is the Teachers show to run. Teachers is the majority owner of Maple Leaf Sports and Entertainment who own the Toronto Maple Leafs hockey team (aka the Maple Laughs). The BCE is like the Leafs east of Manitoba- it is the only real show in town (BCE is to Telus, east of Manitoba, what the Leafs are to the Ottawa Senators; competitors but, on a business basis, play in different leagues; Rogers are like the Montreal Canadians). If you live in Toronto, you know Teachers milk the Leaf gravy train for all its worth and don’t put good product on the ice (unless you consider watching losing hockey at $150 a ticket good product). They are a faceless, money-making machines; it is rumored they make in excess of 20% profit on the Leafs annually which is astonishingly porfitable for a sports franchise- especially one that sucks. I would love to own the Teachers but not be a customer of one of their businesses.

And, then, there is the Teachers biggest problem. They have a pension shortfall of $12.7 BILLION as of April 1, 2008. They can cover part of this shortfall from raising pension contributions but they will have to make the rest up by treating customers of BCE like the Leafs- find ways to get the most money out of the paying customer.

I would expect BCE to move quickly into Western Canada to expand market share, lock up customers into long-term cell phone and satellite television contracts across the country (where you know you have a steady stream of revenue) and then provide poor customer service as a way of maximizing profits (not that they are a great customer service company now). I would love to be wrong- perhaps, BCE spins off some operating divisions and, freed from the bureaucratic colossus BCE is now, becomes nimble and customer friendly. But remember that one of its largest competitors, Rogers, is getting a lot of flack for an unreasonably priced Apple iPhone data plan (although it semi-caved yesterday) so the floor on good customer service in telecommunications is very low.