Achieving Canada’s public policy objectives, without limits on foreign ownership

Ask the average informed Canadian if foreign ownership rules in telecommunications should change and you would probably get an unhelpful, an underwhelming or an unprintable response. The world seems to have more pressing concerns to worry about. Why does the industry need a change in ownership rules? It has annual revenues in excess of $25 billion, it employs over 100,000 Canadians and it invests in the order of $1 billion annually. Prices for telecom services in Canada are reportedly some of the lowest in the world. And the industry is widely recognized as a key economic driver. While recognizing that current indicators of competitiveness, investment and growth are positive, it is important not to downplay the challenges facing the industry. In particular, rapid technological change and increasing globalization require the industry to continuously adapt and improve. This is a requirement of all industries, of course, but most other industries don't face limitations on the degree of foreign ownership. When the original rationale for ownership and control policies was enunciated in the late 1980's, the government seemed to focus on the importance of telecom infrastructure as a key economic asset and also noted the desire to maintain Canadian sovereignty. But the facts are that ownership rules do not promote growth or efficiency and therefore the rules undermine the value and role of telecom infrastructure as a key economic driver. What's more, the sovereign power of a nation must be positively affected by domestic economic strength, and economic strength can suffer under limitations on how resources flow into and out of Canada. To the government's credit, the rules have been following a general trend towards liberalization. This has been mirrored internationally, where most OECD countries have decided against major foreign ownership restrictions. Canada remains one of only a handful of OECD countries with major foreign ownership restrictions (the others being Turkey, Poland, South Korea and Mexico). There are several convincing arguments which favour the removal of ownership restrictions. One of the most compelling involves the higher cost of capital which is imposed on Canadian companies. Not only does this create direct cost disadvantages and force Canadian companies to rely more heavily on high yield debt financing (particularly new entrants who account for an increasing share of capital spending relative to incumbent carriers), but international comparative research reveals that countries with heavier ownership restrictions tend to exhibit lower telecom investment per capita than less restrictive countries. Canadian investment has in fact begun to fall off relative to countries such as the U.S., Australia, Japan and certain EU countries. This is an important finding because the industry's capital requirements are projected to remain high and continue growing. Canada needs this investment, not only to build more sophisticated networks which will underpin the new economy, but also to ensure that competition is strong within domestic markets. When you think about it, virtually all of the objectives contained in the Telecommunications Act (setting aside the ownership and control objectives themselves) can be achieved without Canadian ownership and control. That's worth thinking about. And then acting. Dr. Gerry Wall is President of Wall Communications Inc and Publisher of Decima Publishing Inc.

Achieving Canada’s public policy objectives, without limits on foreign ownership

News | 04/25/2000 4:00 am EDT

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