Manitoba Telecom Services, Inc.

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Manitoba Telecom Services, Inc.

333 Main Street
Winnipeg, Manitoba R3C 3V6
Canada
Telephone: (204) 941-8244
Toll Free: (800) 565-1936
Fax: (204) 777-6391
Web site: http://www.mts.mb.ca

Public Company
Incorporated: 1908 as Manitoba Government Telephones
Employees: 3,566
Sales: $588.1 million (2002)
Stock Exchanges: Toronto
Ticker Symbol: MBT
NAIC: 513310 Wired Telecommunications Carriers; 513322 Cellular and Other Wireless Telecommunications

Manitoba Telecom Services, Inc. (MTS) is the leading telecommunications company in the Canadian province of Manitoba. The company handles local telephone service throughout Manitoba, and also offers cellular communication, paging, and group communication networks. The company also offers longdistance service throughout the province. The company's MTS Media subsidiary produces advertising and information directories, especially through the Internet. Another subsidiary, Qunara, Inc., is a leading information technology company. It provides consulting services on information security, web management, and information management. Its clients are primarily businesses in the financial services, information, healthcare, and energy industries, and it has many government clients as well. MTS also owns a 40 percent share in Bell West Inc., a local and long-distance communications carrier. MTS was formerly known as the Manitoba Telephone System, a public utility owned and managed by the province of Manitoba. The utility became a public for-profit company in 1996.

Early Years in Canada with Bell

The Manitoba Telephone System emerged out of a patchwork of private telephone systems that spread across Canada soon after the invention of the telephone. Alexander Graham Bell, the inventor of the telephone, was of Scottish descent and eventually became a citizen of the United States. But his family lived in Canada, and Bell did much of his seminal work in his parents' home in Brantford, Ontario. Bell moved to Boston in 1871 to work as a teacher for the deaf. In his spare time, he tinkered in an electrical shop, and in 1875 he made his first workable "harmonic telegraph," the device that became the telephone. Bell patented his telephone in the United States in 1876 and in Canada in 1877. It was several years before Bell did anything but lose money on his invention. He assigned Canadian rights to the telephone to his father, Alexander Melville Bell, and the elder Bell did much to promote the new device. Melville Bell tried to sell a percentage of his patent rights to several businesses, including the Toronto Globe and the Toronto Dominion Telegraph Company. Yet no one was interested in what seemed at the time to be only an expensive and curious toy.

In 1880 Bell's backers hired Charles Fleetford Sise, an insurance executive and retired sea captain, to put together a business that would sell telephones and telephone service across Canada. Sise organized the Bell Telephone Company of Canada. The telephone was beginning to catch on as a communications device, and already Bell Canada faced a flurry of small regional competitors. Bell bought them out in many cases. The telephone industry had made it as far west as Winnipeg by 1878, when an agent for the territory managed to sell one pair of phones. In 1881 Winnipeg received its first switchboard, which was operated by a boy with a powerful voice. According to E.B. Ogle's history of the telephone industry in Canada, Long Distance Please, the young Winnipeg switchboard operator "… kept the window in the exchange open, presumably so that he could reach his customers with a good shout if any of his connections failed." By 1882, the Winnipeg telephone exchange had 110 customers.

However, Manitoba and its neighboring Prairie provinces Alberta and Saskatchewan resisted the encroachment of Bell Canada. The predominant phone company was trying to link up the entire country, but the sparsely populated Prairie regions presented difficulties. It was not entirely economical to run telephone wires out to scattered farms in the rural West. By the late 1880s, Bell Canada had grown into a powerful entity, at times resented for the way it handled right-of-way issues when stringing wires. Though Bell had a significant operation in Winnipeg by the early 1900s, local sentiment turned toward a publicly owned phone company. Manitoba held a referendum in 1906, and the majority voted to form a government-owned telephone utility. Manitoba's premier then began negotiating with Charles Sise to buy out Bell Canada. Eventually the provincial government bought out Bell's interest for $3.3 million and formed Manitoba Government Telephones. The new utility, founded in 1908, already had 17,000 subscribers and 700 employees. The other Prairie provinces came to similar arrangements with Bell, forming Alberta Government Telephones and Saskatchewan Government Telephones.

Public Utility Through the 1970s

The new Manitoba Government Telephones kept on most of the people who had previously worked for the Bell company in the area. The company quickly set about expanding service, stringing almost 1,500 miles of new long-distance line in its first year. Immigration was swelling the population, and by 1912 the number of subscribers in Manitoba had more than doubled, to 40,000. The company as a whole subsidized the cost of building rural lines. In 1912 Manitoba swallowed the territory previously called Rupert's Land, giving it many more square miles to cover. Bringing the telephone to rural areas was part of the mandate of the new government company, and Manitoba Government Telephones did this regardless of the cost. As a result, the utility lost a spectacular amount of money in its first few years. In 1912 the government initiated a Public Utility Commission to regulate rates, weed out government corruption and influence, and hold the company to its mission. The company worked to balance the needs of rural customers for efficient service and of urban customers for livable rates.

The company seemed to do well in the 1920s, a time of booming economic and technological expansion across Canada. The company changed its name in 1921 to Manitoba Telephone System (MTS). At that time, the company was still run as a department of the provincial government. MTS made Winnipeg one of the first Canadian cities with a totally automatic dial service (eliminating the need to ask the operator for a line) in 1926. The company improved its long-distance service to Saskatchewan and Alberta, though calls to the East and West coasts still had to go through other exchanges. The Depression years of the 1930s brought a vast slow-down to MTS, which began losing money again and was forced to lay off workers. In 1933 the utility changed its governance, as required by the passage of the Manitoba Telephone Act of 1933. After that point, MTS was no longer a department of the provincial government. The law asked for up to three commissioners to run the telephone utility. This regulation was revised several times, providing for the appointment of five and then up to seven commissioners.

During the Depression, many Manitoba customers gave up their telephone service. It was not until 1938 that the utility again began installing more phones than it removed. The years of World War II were also difficult for MTS, as much of the labor force went off to war. But the postwar years saw a boom in telephone installation. The number of phones installed in the years between 1945 and 1955 exceeded the number installed in all the company's preceding years put together. MTS flourished, despite some obstacles. In the spring of 1950, flooding along Manitoba's Red River reached record highs. Yet MTS telephone operators reported to work, in one instance climbing over sandbag barricades to enter the exchange building through a window. Flood waters stood ten feet deep in the town of Morris, and MTS workers had to be evacuated by boat. At the worst point in the flooding, one-tenth of Winnipeg was under water, and 8,500 customers temporarily lost their phone service.

While MTS had a government mandate to extend phone service to all parts of the province, some areas nevertheless ran their own independent telephone exchanges. Small groups of rural customers got together to provide neighbor-to-neighbor phone service. These independent telephone services were usually not even legally incorporated. Informal telephone exchanges dotted Manitoba during MTS's early years. By 1969, the last of these municipal phone companies had closed, and Manitoba Telephone provided service in all corners of its large territory.

Changing Competitive Environment in the 1980s and 1990s

Manitoba Telephone continued to provide convenient phone service across Manitoba through the 1970s. The company was considered a technological leader, keeping pace with developments in communications equipment in Canada and the rest of the world. In the 1980s, though, the telecommunications industry in North America went through upheavals that left MTS rethinking its strategy. In 1984, a court order in the United States demanded the breakup of the monopoly phone company Alexander Graham Bell and his backers had founded in the 19th century. The huge company colloquially known as "Ma Bell" was broken into regional "Baby Bells." New companies also entered the telecommunications industry.

In Canada, telephone service had not been controlled by a monolithic corporation but instead regulated by a hodgepodge of government entities. The three Prairie provinces ran their own phone companies, the Maritime provinces had a similar set-up, and the federal government in Ottawa controlled phone utilities in Ontario, Quebec, the Northwest Territories, and British Columbia. The rapid development of new technologies, such as digital and data transmission, made it expensive for telephone utilities to keep up. In 1989, a new communications bill transferred authority over Canadian telecommunications to the federal government, with the expectation that unified regulation would make the industry more adaptable. However, the 1989 ruling exempted the Prairie provinces.

Company Perspectives:

MTS is Manitoba's preeminent, full-service telecommunications company. Seamlessly blending innovative solutions and world class technology, MTS connects its customers to the world.

Nevertheless, Alberta's phone company, Alberta Government Telephones, announced in 1990 that it would become a private company. It restructured and broke into several interrelated subsidiaries. Saskatchewan's phone utility, then called SaskTel, declared at the same time that it had no intention of changing its governance, though the prevailing wisdom was that privatizing would make the Prairie companies more competitive. Caught between these two, MTS announced in 1990 that it was considering following Alberta's route. Government ministers felt that Manitoba businesses were being held back from investments in data processing and other communications industries by the current regulatory restrictions. MTS began to move slowly toward privatization.

In 1991 Manitoba's Public Utility Board gave up its control of MTS, ceding its regulatory power to the federal Canadian Radio-Television and Telecommunications Commission. This put Manitoba in line with the other provinces that had come under federal control as a result of the 1989 regulation. Yet changes in the competitive landscape threatened the economic health of MTS in the early 1990s. Revenue for 1991 was $560 million. The company finished 1992 with $800 million in debt. During 1993, the company saw its net income drop by half. Not only was the Canadian economy in a slump, but MTS lost out on long-distance fees that were going to new competitors.

Business began to pick up the next year, but MTS was still in trouble. By 1995, the company had run through three chief executives in five years. Bill Fraser, who took over the top job in 1995, protested to Manitoba Business (October 1995) that "… We're not a dying industry; we're a growth industry." But it was difficult to turn the company around. Fraser hoped to cut down the enormous debt, now 80 percent of equity, and to lay off employees in order to get MTS back into shape. Critics sniped that Fraser should simply put a "For Sale" sign on the company. In 1996 MTS did become officially for sale, with its high debt and the need to invest $500 million in new equipment cited as the pressing reason.

The transition came with much political bickering and contradictory sets of statistics. One poll showed that 70 to 80 percent of Manitobans opposed the privatization. Despite much turmoil, MTS became a publicly-owned for-profit company in late 1996. In 1997 the company was renamed Manitoba Telecom Services.

New Ventures in the Late 1990s and Early 2000s

The new company moved quickly to form joint ventures and to invest in new markets. In 1999 MTS entered a joint venture with the larger telecommunications firm BCE to expand into the business services market in Calgary, Edmonton, and Vancouver. In 2000, MTS began spending some $300 million on high-speed Internet technology, deploying thousands of kilometers of new fiber optic cable to carry the advanced connection. The company hoped to put 85 percent of Manitobans within reach of highspeed Internet access. The company already held 60 percent of the Internet access market in Manitoba, with the great bulk of customers using the slower dial-up service. MTS hoped to lay the groundwork for other broadband services, such as video on demand, over the next few years. MTS applied to the federal telecommunications governing board in 2001 for a residential phone rate increase, as the company now had to pay income tax since it had become a for-profit company. The increase still gave Manitoba customers relatively low phone rates compared to the rest of the country. In addition, MTS was upgrading and improving its services. The company had also cut costs, reducing staff by over 40 percent between 1990 and 2000, and reorganizing some of its marketing ventures to gain efficiency.

By 2003, the company had emerged on much sounder financial footing than in its last years as a public utility. Though the telecommunications industry in Canada was in something of a doldrums in the early 2000s, Manitoba Telecom stood out. According to Canadian Business (June 9, 2003), MTS was "… the belle of the telco ball." MTS did well in part because, though it was now a for-profit, competitive company, it still had much of Manitoba to itself. It still provided 98 percent of local phone service in the province, and 77 percent of long-distance service. Though wireless and Internet services were new markets for it, MTS also controlled close to 70 percent of the Manitoba wireless market by 2003, and almost 60 percent of the Internet services sector. With a strong stance in its traditional market area, the company also risked expanding into new projects. It began offering a digital television product, MTS-TV, in 2003. This service, which was first available only in portions of Winnipeg, gave customers access to 200 television channels, plus radio, and an interactive feature that let users search for information. While MTS President Bill Fraser characterized the company as conservative and "sticking to its knitting," MTS had nevertheless reached out for new technology and market sectors, so far very successfully.

Key Dates:

1877:: Bell patents telephone in Canada.
1908:: Provincial government buys out Bell, founds Manitoba Government Telephones.
1921:: Name is changed to Manitoba Telephone System (MTS).
1950:: MTS continues operating despite record floods.
1969:: Last of small regional phone companies closes in Manitoba.
1991:: MTS comes under regulatory power of federal Radio-Television and Telecommunications Commission.
1996:: Company converts to public for-profit status.
1997:: Name is changed to Manitoba Telecom Services, Inc.