Leading industry thinkers challenge gov’t’s foreign ownership limits

Canada's top telecom lawyers and academics say it's time the federal government dropped its longstanding restrictions against foreign ownership of telecommunications companies, arguing that even the government itself cannot produce any rationale for their continued existence. Underlying their concern is a fear that Canada's telephone and cable industries will become dominated by one or two vertically integrated mega companies, unless foreign investors and foreign competitors are given freer access to our domestic market. "We should remove the foreign ownership rules as soon as possible before we end up with only two made-in-Canada players. But we have to do it quickly," said Richard Schultz, a professor of political science and former director of the Centre for the Study of Regulated Industries at McGill University. Schultz compared Canada's telecom sector to the airline industry, which after a period of heavy financial losses and intense competition found that the Canadian market is too small to support more than one national airline. Foreign ownership of Canadian telecom carriers, and to a lesser extent broadcast licensees, was an overriding theme at a telecom policy conference held Feb. 17-18 at the University of Toronto. In a rare moment of unanimity, scholars, lawyers and economists all questioned the economic and social policy reasons for maintaining ownership restrictions that inhibit the communication industry's ability to raise capital in an era of rapid infrastructure growth and unprecedented consolidation. "These foreign ownership restrictions have to go," said Barbara Miller, a partner in the Toronto office of Fasken Martineau DuMoulin. "I can't find any rationale for them." Miller made her comments at the "Breaking the Mould: Reconceiving Telecommunications Regulation" conference, organized by the University of Toronto Faculty of Law and Fasken Martineau DuMoulin. Senior officials from both Industry Canada and industry have identified the lack of any comprehensive review of the ownership rules since their formation in the early 1990s. Bernie Lefebvre, VP at Wall Communications Inc, is finalizing a study of Canada's ownership rules on behalf of a diverse group of telecom carriers, including Telus Communications Inc, AT&T Canada Corp, Optel Communications Inc, Call-Net Enterprises Inc, Clearnet Communications Inc, Microcell Telecommunications Inc, GT Group Telecom Inc and others. Lefebvre agrees that the existing rules limit access to capital and result in Canadian firms paying more for financing, but says the problems don't stop there. "It is also a problem for day-to-day operations and the retention of senior-level staff in the Canadian industry." Under a complex structure of direct and indirect ownership, foreign companies are permitted to own 46.67% of the voting shares of facilities-based telecom carriers, as well as broadcast distributors and broadcasters. Those same foreign companies can own as many non-voting shares as they like. Resellers who don't own facilities can be 100% foreign owned. Industry Minister John Manley says lifting the ownership restrictions on the facilities side is a possibility, but that he wants to use the issue as a bargaining chip in any future international trade negotiations. "We would be in a position to engage in negotiations on that issue in a multilateral context," Manley told Network Letter. "The next (World Trade Organization) round, I think it was anticipated, would deal with some of those issues. Obviously we're in a bit of a hiatus on that now, but I think (using the ownership rules as a bargaining chip) is still what our position would be." While critics question the current relevance of these rules, Manley is quick to defend the positive dividends ownership limits have produced for Canadians over the decades. He singled out Nortel Networks Corp, which traces its early success to the regulation of the telephone terminal equipment market in Canada. "(The rules have been strategic) from an industrial development point of view. I don't think you can deny the fact that Bell Canada being Canadian-controlled was very relevant to the growth we've seen in companies like Northern Telecom, now Nortel Networks," he says. "It's pretty hard to believe that we would have such an important global company based in Canada as Nortel, if it hadn't been providing this equipment to Canadian telephone companies." Waiting for the ownership rules to change as a result of the WTO could take another year or two, and Miller says that's too long for competitors and consumers to wait. She wants the limit immediately raised to 51% for foreign companies. In a paper presented at the conference, Miller argues that Canadians don't need to own the facilities to achieve public interest goals such as sovereignty, universality, or promotion of Canadian content. As long as the rules are in place, any company that does business in this country is bound to abide by them. "No hard evidence would appear to be available which would support the view that foreign owned companies in Canada are at greater risk of violating Canadian laws and policies," Miller states in her paper. "By way of example, there has not been any suggestion that BCTel - during the time it was controlled by GTE Corporation, was any less compliant with Canadian legislation than any of the other incumbent telephone companies." Several CLECs who attended the conference warned that the CRTC's attempts to create a competitive market for long distance is resulting in the re-emergence of Bell Canada's dominance. AT&T Canada's senior VP government & external affairs, Don Morrison described the current state of competition in Canadian telecom as "a crisis in slow motion". He said "premature" forebearance of the LD market combined with aggressive pricing from incumbents has tilted the competitive balance in favour of the ILECs.

Leading industry thinkers challenge gov’t’s foreign ownership limits

News | March 8, 2000

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