Telus Labor Troubles - Messy Business

Telus is the #2 ILEC in Canada, and are facing union issues that can be a thorn in the side of any traditional utility. This story has IP overtones on a few levels, which is why I'm commenting on it.

I don't follow labor issues, but this situation ultimately leads to a less competitive market, as service providers of all stripes try to stake out their ground in Canada's emerging VoIP sector. Telus has been a leader and innovator among all North American ILECs, being the first to invest in a VoIP network, and the first to market with a fully featured hosted IP communications platform for the enterprise market (IP One).

They face a particularly tough challenge, as they are essentially a regional carrier trying to compete as a national carrier against the Bell Canada juggernaut. Just a few years ago, they were all one semi-happy family, but we went through the same break-up phase as the Bells did in the US.

Telus has banked a lot on IP as the linchpin of their strategy to compete nationally, and they are trying hard to establish themselves in the lucrative enterprise markets served by Bell, which is comprised of our two biggest provinces, Ontario and Quebec. Telus has long been the incumbent in Western Canada, and while Bell's Western operations (Bell West) have been giving them some strong competition, Telus is the de facto monopoly provider in that market, especially for residential service. The problem for Telus is that the West is a much smaller market, so for long term growth, they need to penetrate Eastern Canada.

The current labor issue has diverted attention and resources away from this, as it threatens to disrupt daily operations and tarnish their reputation about being an employer of choice (their marketing slogan is "the future is friendly").

I'm not going to get into the actual labor story, but it's not pretty. This has been brewing for years, and today was the big day everyone has been waiting for. Today, Telus unilaterally imposed a labor contract on the union. The labor board (CIRB) views this as bargaining in "bad faith", and many of the unionized workers in Alberta and British Columbia consider themselves locked out. This in turn will test the solidarity of the union, as it's uncertain how many workers will in fact cross the picket lines and go to work. Depending on what transpires, this issue could drag on for months, or be settled quickly.

This in itself has little to do with VoIP - it's just too bad that it's happening to a carrier that has so fully embraced the IP revolution. They get it. I hope this gets settled soon so they can get back to business.

I also wanted to comment about this because it underscores just how different the world is for traditional carriers like Telus. It could just as easily be happening to Verizon or Comcast. Nextgen operators like Vonage and 8x8, of course, have nothing of the sort in their DNA. They just merrily go along their way disrupting the landscape and moving things forward in IP time. I can't conceive of anything comparable to a labor dispute that could sidetrack their business other than some draconian regulatory measures. So, I guess the bottom line is that the Telus labor situation highlights some of the messy realities traditional carriers have to live with that makes it so hard to be competitive with the virtual operators.

For those of you who want to understand how this issue is being viewed by the financial community, Jeffrey Fan of UBS Securities here in Toronto has done a nice analysis, along with the expected impact of this on Telus's share price. I've excerpted one of his comments below. If you'd like to get his full Research Note, let me know, and I'll put you in touch with Jeffrey.

"Potential Financial Impact

Based on Aliant's experience, if all TWU's members took action, we roughly estimate that the strike impact alone will be $35m - $40m of EBITDA/month. We note that the Aliant strike lasted for 5 months. Also, the company has not provided official financial guidance on this and the company could take other actions to offset this negative impact."