Telecom ownership rules may be loosened

The federal government is looking to loosen foreign ownership restrictions on telecommunications companies, a move that would open Canada to service providers from other countries.

"Our government will open Canada’s doors further to venture capital and to foreign investment in key sectors, including the satellite and telecommunications industries, giving Canadian firms access to the funds and expertise they need," said Gov. Gen. Michaëlle Jean in her speech from the throne on Wednesday.

The government is expected to unveil further details of its plan during the release of the budget on Thursday. Currently, corporations operating as telecommunications carriers must meet the following requirements:

• At least 80 per cent of its board of directors must be individual Canadians.
• Canadians must own at least 80 per cent of its voting shares.
• The corporation must not be otherwise controlled in fact by non-Canadians.
• At least two-thirds of the voting shares of a carrier's parent company must also be held by Canadians.

Industry analysts and experts, including a federally appointed competition panel, have called the rules archaic and anti-competitive. By preventing foreign telecommunications companies from setting up significant Canadian operations, competition between domestic providers has been soft, prices have been high and service levels low.

The Organization for Economic Co-operation and Development has identified Canada has having some of the most restrictive telecommunications ownership rules in the world.

The federal panel, led by former BCE chairman Lynton (Red) Wilson, in 2008 advocated lifting the restrictions in phases. In the first phase, foreign companies would be allowed to own a Canadian telecommunications firm that has less than a 10 per cent market share. That would allow foreign companies to start up a new cellphone carrier or internet provider in Canada, for example, or buy a smaller player.

Foreign takeovers of larger companies would then be allowed after five years, at which time a broader review of broadcasting and cultural policies would take place. The panel said the government could still regulate Canadian content requirements, but said these wouldn't need to be tied to the actual pipes over which the media is transmitted.

Wind strained the rules

The government skirted the existing rules in December when it overturned the Canadian Radio-television and Telecommunications Commission in allowing Wind Mobile to begin operations. Wind, which is partially owned and controlled by Egypt's Orascom, did not meet Canadian ownership rules and could not launch service, the CRTC said last year.

Industry Minister Tony Clement, however, interpreted the rules differently and ruled that Wind was indeed following the rules and gave the company his blessing. Orascom is investing an estimated $1 billion in Wind, including more than $440 million already spent during an auction of government airwave licences in 2008.

The decision spurred a court action from another potential new cellphone provider, Public Mobile, which said the government had created an uneven playing field by forcing similar companies to play by different rules.

A permanent change to ownership rules would necessitate a revision of the Telecommunications Act, which will require parliamentary assent. The Liberals have indicated they are not opposed to lifting foreign ownership restrictions on telecommunications companies, but are wary about similar changes being made to broadcasters.

Critics have argued that foreign companies cannot be relied on to invest in Canadian culture and programming, and that additional protections will be needed in the event of any loosening of ownership rules. The matter is further complicated by the fact that many of Canada's major telecommunications companies also own broadcasters. Rogers, for example, is the country's biggest wireless and cable provider, but it also owns a number of television stations.

"The key issue is whether there's any protection of the content of our culture," said Liberal leader Michael Ignatieff on Wednesday. "I'm okay with increasing investment provided we don't lose the Canadian content of which we're justly proud."

The throne speech, however, made no mention of changes to the rules regarding broadcaster ownership.

Telecommunications industry analysts have speculated that opening up Canada to foreign firms could lead to mergers between the country's big service providers, who would need to get bigger in order to compete with multinationals such as AT&T and Vodafone. Mergers between phone companies Bell Canada and Telus and between cable providers Rogers and Shaw have been identified as the likeliest scenarios.