Canadian Firms Fight to Control Long-Distance Services

By , Special to The Christian Science Monitor

CANADA'S highly regulated telecommunications business has been shaken up by a bitter proxy fight. The battle was over Teleglobe Canada, the monopoly that handles overseas telephone calls. It was sold by the government in 1986 to Memotec Data Inc., a small Montreal company.

Earlier this month, Gordon Capital of Toronto mounted a proxy battle to oust the chairman and president of Memotec, saying they were wasting shareholders' money investing in high-tech projects in the United States instead of concentrating on the profitable core business.

Gordon Capital said it was acting in the interest of shareholders. "We don't have a client and we don't have anybody to pick up the bill," said Tom Allan, a spokesman for the investment firm.

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But the speculation was that Gordon Capital was a stalking-horse for BCE Inc., the parent company of Bell Canada and Canada's second-largest company, with revenues in 1990 of $18.3 billion (Canadian; US$15.9 billion). BCE owns 31 percent of Memotec but is prohibited by law from owning more than a third.

"Mr. Raymond Cyr, chairman of BCE Inc., apparently wants to control Teleglobe, and BCE is said to be lobbying the federal government to remove ownership restrictions," said Allan Duncan, an officer of Unitel Communications Inc., which is fighting for a piece of Bell Canada's long-distance monopoly within Canada.

"While Mr. Cyr has denied he is behind the Gordon Capital proxy fight, he has acknowledged that his company supports the move by Gordon," Mr. Duncan said.

Memotec won the battle against Gordon Capital, but it appears to have been a Pyrrhic victory.

At the annual meeting Memotec changed its name to Teleglobe Inc. to show its commitment to the overseas telephone business, and lost two of its members on the 13-member board. They were replaced by institutional shareholders who are expected to direct the focus of the firm to making money from its telecommunications monopoly.

Chairman Eric Baker and president William McKenzie kept their jobs; Gordon had wanted them off the board and out of the company. But the two new board members represent institutional investors, the largest of which is the Caisse de depot et placement du Quebec - the Quebec government pension plan. Its nominee, Pierre Jeanniot, is the former president of Air Canada. He is expected to take an active role in the company. Analysts say he could take over the management of Teleglobe Canada, leaving Mr. McKenz i

e to run the holding company.

Gordon Capital claims it really won, and perhaps it did. "We only wanted to be a catalyst to try to produce changes in the board. That's been accomplished and we're delighted," said Gordon's Mr. Allan. For the time being though, the loser seems to be BCE Inc. It did not increase its power on the board, as the Gordon bid would have done. And it may have shown its hand too clearly as the big phone company after even more power.

"Ray Cyr made very big tactical mistake when he said he'd like more of Teleglobe," one analyst said.

Bell (BCE), its competitor Unitel, and the newly named Teleglobe Inc. are positioning themselves for hearings on telecommunications by the federal government regulator over the next year. Those hearings could change the rules on long-distance service, allowing more competition.

The end result could be lower long-distance rates, which are now significantly higher in Canada than they are in the US.

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