CETA negotiations could impact foreign ownership bill this fall, researcher says

Canada’s negotiations on the EU-Canada Comprehensive Economic and Trade Agreement (CETA) could influence the legislation Industry Minister Tony Clement is expected to table this fall to loosen the foreign ownership rules for the telecom sector, says Scott Sinclair, a senior researcher on trade and investment with the Canadian Centre for Policy Alternatives. “I think it could have a significant impact,” Sinclair, who has been following the negotiations, said in an interview. A draft of the text leaked in April revealed a telecom chapter through which the EU is proposing to open up Canada’s telecom sector to European investment. A fifth round of negotiations is scheduled to take place in Ottawa from Oct. 18 to 22, followed by further rounds in Brussels in January 2011, and Ottawa in April. Parties to the agreement hope to have it “signed, sealed and ratified” by the end of next year, Sinclair said, and progress on the trade deal could affect the kind of legislation Clement tables in the House. Industry Minister Tony Clement has pledged to open the telecom sector to more foreign investment, and in a consultation paper released in June, the minister proposed three options for consideration. One of them followed up on a recommendation from CRTC chair Konrad von Finckenstein, who called for increasing the operating and holding company foreign investment limits in the broadcasting and telecom sectors to 49 per cent. The current restrictions limit foreign investment in the telecom and broadcasting sectors to 20 per cent in the operating company and 33 per cent in the holding company. In a second option, the paper proposed exempting small industry players and new entrants from foreign investment limits if their revenues amount to less than 10 per cent of the total telecommunications market revenues in the country. The proposal is consistent with a previous recommendation from the 2008 report of the Competition Policy Review Panel. A third option suggested repealing Section 16 of the Telecommunications Act to remove the foreign investment restrictions for all telecom carriers. Clement has been conducting final consultations with industry stakeholders and is expected to introduce legislation during the fall session. “The European Union is demanding that Canada remove its foreign ownership limits in telecom,” Sinclair said. “Canada’s an unequal party in this negotiation, and when you’re under pressure from a superpower, the EU could push Canada further than it wants to go.” Sinclair added that the closed-door negotiations should be thoroughly debated in public. Industry sources told The Wire Report the government has not yet made a decision on the issue and that it has not yet been brought to cabinet. But they added that the Conservative government may be inclined to scrap the foreign investment rules for small telecom players—particularly if it means the move will boost the value of upcoming spectrum auctions. The government is expected to hold spectrum auctions for the 2500 MHz band in 2011 and for the 700 MHz band in 2012, and opening the auctions to foreign players such as Verizon Communications or Deutsche Telekom would drive up the value of spectrum—and generate more revenue for the government. “They’ll probably want as many new bidders as possible,” said an industry source close to the auctions. “Anything that interferes with the government taking $4 billion into its general revenues is an issue.” Industry Canada’s 2008 spectrum auction generated more than $4.25 billion in revenue for the federal government and opened the Canadian wireless market to new competitors. The government set aside spectrum for new entrants, but the auction took place under the existing foreign ownership restrictions. The industry source added that the government is considering combining options one and two. Under the proposal, the broadcasting and telecom foreign investment limits would be opened to 49 per cent. But on the telecom side, an exemption would eliminate the restrictions for small players and new entrants with less than a 10 per cent market share nationally. Incumbent players have previously said they would be against a “tiered approach” to foreign investment in the sector. Opening the doors for those with less than a 10 per cent market share could also mean the foreign takeover of small players such as Wind Mobile (owned by Globalive) or even MTS Allstream. Bernard Courtois, Information Technology Association of Canada (ITAC) president, said in an interview that lifting the restrictions only for small players could disadvantage Canadian companies. “You could end up with global firms, which are much larger than our Canadian companies and have special access to capital that the Canadian champions don’t. It’s pretty rare that a country actually treats foreign companies better than its domestic champions,” he said. “That’s a very awkward thing to do.” Clement may try to reach a compromise with opposition parties on the legislation. The minority Conservative government needs the support of at least one opposition party to pass legislation, and option one appears to be most palatable. In a House industry committee report issued last spring, all three opposition parties said they were against opening the doors to foreign ownership in the telecom sector. The Liberals appeared most willing to compromise on the issue, saying they would consider opening the broadcasting and telecom sectors to 49 per cent. “I am detecting consensus at least on option one, that people don't mind bumping it up to 49 per cent, generally,” Clement told The Globe and Mail in an interview this month. “But there are other options as well, so I think I'm going to have to hold my fire until I complete the one-on-one consultations with players in the sector.” Opening the door for new entrants would be consistent with Clement’s statement in March, when he said he wanted to bring the telecom sector under the Investment Canada Act—which effectively means scrapping the foreign ownership restrictions. The Harper government overturned a CRTC decision last year that had deemed Globalive foreign-owned. Industry Canada had cleared Globalive to purchase spectrum in the 2008 auction. In late summer a rumour had circulated that the government was considering rolling its foreign ownership legislation into the 2011 budget, which is also expected to include its digital economy strategy. But sources say the government plans, for now, to introduce the legislation this fall. Ian Munro, a spectrum expert and independent consultant, added that the government will probably want clarify the foreign ownership rules before the auctions start. “My sense is that they want to have these auctions for the 700 MHz and/or the 2500 MHz fairly soon, so it would make sense that they want to move quickly on this file,” Munro added. Clement’s office did not respond to a request for comment, but the minister recently said he wants to “get the 700 MHz auction going soon.” The Harper government says an “ambitious” agreement with the EU could boost the Canadian economy by $12 billion. --With files from Karen Fournier sdoyle@thewirereport.ca

CETA negotiations could impact foreign ownership bill this fall, researcher says

News | 09/24/2010 6:48 pm EDT

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