Sometimes, things don’t work out quite according to plan. Take Mobilicity, which entered the Canadian wireless market in 2008, undoubtedly amidst high hopes of giving established wireless players a run for their money. Today, the company is under court protection from its creditors, and its original investors are suing the Canadian government for $1.2-billion. How did it come to this?
When people purchase shares, they do so with the understanding that they can resell them at some point in the future, should they choose to do so. There is always a certain amount of uncertainty to investing, which is why it’s useful to have an exit available. A company may be too slow in adopting the latest technologies, or try to expand too quickly, for instance. If you back companies that are well run, you prosper; if you back those that are not, you don’t. But that’s the discipline of the market, right? Fair’s fair, and in the long run, we’re all better off.
But in addition to the normal economic risk that comes from exposure to market forces, there is also the unpredictable political risk that comes from exposure to government forces. This happens when politicians and bureaucrats change the rules of the game after the game is already underway. When they do this in such a way that makes it harder for shareholders to resell their shares, it effectively decreases the value of those shares.
When it comes to telecommunications, the Canadian government has for several years now been fixated on the goal of promoting the emergence of a fourth wireless carrier in each of Canada’s regional markets – whether or not those markets can support four players.
One thing the government did to encourage this artificial competition was to grant preferential treatment to new entrants in the 2008 spectrum auctions. It was perhaps to be expected that some of these – not only Mobilicity, but also Public Mobile and Wind Mobile – would not fare well.
Yet, despite these troubles, the government has prevented Telus, one of the three large wireless carriers along with Bell and Rogers, from acquiring Mobilicity. Originally, they were prevented from acquiring the spectrum set aside for companies like Mobilicity for a period of five years. Those five years are up but the federal government has changed the rules, ostensibly to prevent increased concentration in the wireless sector.
Talk about kicking Mobilicity shareholders while they’re down. Sure, someone else could end up buying their shares. But with Telus out of the picture, they’ll get less than they would have gotten if the government had at least kept the rules of the game predictable. The value of their assets has taken a direct hit due to government action, but they won’t get a cent of compensation. Even owners whose assets are nationalized outright are not generally treated so shabbily.
This arbitrary changing of the rules and the uncertainty it generates is very worrisome, and not just for the telecommunications industry. It sets a dangerous precedent of greater state intervention into economic matters that will end up harming industries, consumers, and shareholders alike.
Unfortunately, the current government of Canada has developed a taste for micromanaging the economy on the fly, whether it’s this business with the telecoms, or blocking the sale of Potash Corp. of Saskatchewan Ltd. in 2010, or interfering with the rail industry in response to the grain shipping problem this past winter.
If we don’t oppose government interference when it happens, politicians and bureaucrats will find it easier and easier to interfere in the future. Win or lose, at least Mobilicity’s original investors are taking a stand, and we can all thank them for that.
Michel Kelly-Gagnon est président et directeur général de l'Institut économique de Montréal. Il signe ce texte à titre personnel.