Wednesday, July 2, 2008

Question on Garth Turner blog


Garth:

You're right, too much access to cheap debt has created a bubble of sorts in asset values....that said, why are the Liberals sitting idly by while Canada's largest telecommunications carrier, BCE/Bell Canada is being turned from an investment grade credit issuer into a junk bond fiasco in the making? Their debt will go from $12 billion to $44 billion.

Meanwhile their equity will go from $42 billion to $8 billion.

The interest required to service this mountain of debt will mean that BCE will not pay taxes for a VERY LONG TIME to come. This means Ottawa will forego $800 million a year in taxes.

Rather than simply being a lose-lose proposition, this mess of a deal will be a lose-lose-lose proposition, since the consumer will be the one to fund this bankruptcy in the making.

With an astronomically high cost of capital, this company will have no incentive to expand into new services or lower their service costs. The absence of competitive price pressure will simply mean that Rogers and Telus can continue to charge Canadians some of the highest cell phone charges in the world.

What are the Liberals saying or doing about this?

Brent Fullard

PS: Just in case the Liberals are reluctant to make this BCE leveraged buyout into a political issue, it already is, since all the lose-lose-lose outcomes identified above would not have occurred if Harper/Flaherty hadn't got in the way of BCE becoming a publicly held and taxed income trust, on that fateful Halloween 2006. Why are the Liberals allowing the CONs to get away from being accountable for all the CONs' "unintended consequences"? Who is going to hold the government to account, if not the Official Opposition?

It’s high time the Liberals taught Harper and Flaherty the ABC’s of BCE.


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1 comment:

theloonisunhappy said...

Funny how one event becomes the tipping point for ecomomic termoil. When Jimmy did the dirty to Income Trusts, nobody stepped up to support us, the general public yawned, the media hid and who knows what the Liberals were doing. And people still don't get it, BCE as an Income Trust would generate a ton of tax revenue, BCE the way it's going will generate ZERO. I love this country, but it sure is frustrating to watch opportunity get trampled by Steve the all mighty.