SaskTel Borrowing Money Despite Profit | News Talk 650 CKOM

SaskTel Borrowing Money Despite Profit | News Talk 650 CKOM

And this folks, is really not news. Let's pick a random company headquartered in the province and rewrite the headline based on that company:

"Cameco borrowing money despite profit"

"PCS borrowing money despite profit"

"Mosaic borrowing money despite profit"

Nope. None of these would be news either.

It is obvious that the people reporting this story, and the person writing this story, have absolutely no knowledge of how business is normally conducted. It is also obvious that the people writing and reporting this story have an agenda that has nothing to do with Sasktel running their operation profitably. For these people, here's a little lesson.

Capitalists borrow money to invest into projects. Good money managers will borrow money to invest in projects regardless of how much money is in their bank account. In short, this is a normal business practice for ALL companies - Borrow money, develop a mine, use the mine to generate more revenue. Borrow money, develop a mill, use the mill to process ore and generate more money. Borrow money, purchase equipment to expand your network infrastructure, use new technology to open up a new market. Borrow money, purchase a truck, use the truck to generate more revenue.

Can you spot the SaskTel application of capitalism? Did it really look any different than the other 3 examples? The answer? No, because it isn't any different.

The fact of the matter is that Sasktel's dividend, while the largest in years, is on par percentage-wise to many of the dividends paid out from 1999 to 2003 (Page 44). For 5 years straight, SaskTel's coffers were emptied by the government of Saskatchewan leaving very little money in the corporation to invest in new technology and new infrastructure. For 4 years straight (2000-2003), Sasktel's long term debt hovered north of 390 million, while the government snagged 90% or more of the profits of the corporation for the general revenue fund. For 5 years straight (1999-2003), Sasktel's debt ratio hovered between 38% and 42% while in 2008, it was down to 27.3%.

In short, Sasktel has room to borrow. Sasktel should borrow to upgrade its networks. The dividend paid by Sasktel to the provincial government this year is only $50 million more than it was in prior years and as a Sasktel representative has stated in the story:

SaskTel insists it would borrow money this year regardless of these political decisions because of the demand for the 3G network.

In short, this was Sasktel borrowing to invest in a technology which would allow it to open up new markets and expand its revenues and product lines. The new technology will allow Sasktel's customers to use their cell phones world wide, and will expand wireless internet technology further than it currently reaches.

I think that it is a decision long past due.