Industry Canada may heed call from OECD for foreign ownership changes

The calls to change the foreign ownership limits in the telecom sector are gaining ground, with an international body urging abandoning the restrictions as the Cabinet minister responsible for administering the controls muses about easing them. The Organisation for Economic Co-operation and Development (OECD) generally praises Canada’s success in telecommunications but wants to see the final barrier collapse. In a 132-page document titled Canada: Maintaining Leadership Through Innovation, the OECD suggests that by being one of six member nations with ownership limits, Canada is hampering investment opportunities. Canadian efforts at the World Trade Organization should be furthered, the economic body believes. "Canada took a leading role in the WTO agreement on basic telecommunications and should follow through by opening its market fully," the report states. "It has removed some restrictions (including for satellite services). It should abolish its remaining foreign ownership restrictions." Abolition may not be in the cards, but Industry minister Allan Rock, who would have to shepherd any changes through Parliament, has indicated recently that the rules may be eased (NL, Oct. 21/02). He has suggested that Canadians are not as fervent in their belief in economic nationalism. That flies in the face of research done for Decima Publishing Inc. last year by affiliate Decima Research Inc. (NL, July 3/01). A survey of Canadians found that 59 per cent opposed majority foreign ownership of telephone companies, with only 37 per cent in favour. By contrast, the foreign control of private broadcasters was opposed by 50 per cent and favoured by 44 per cent. The OECD refers to the split in public opinion in another section of its study. "These restrictions are clearly important to Canada in meeting a key public policy goal (to protect Canadian culture and identity), but their cost needs to be evaluated, a public awareness of the trade-off raised," it writes. "The consumer voice remains weak in this debate (and it seems, uncertain in its message: restrictions appear to be seen by some as benefits and by others as cost)." Announcement may come soon Rock’s sudden championing of a new ownership regime has breathed new life into a file that had been dormant for several months. His bureaucrats are reportedly preparing proposals to be presented to Cabinet. The minister could initiate consultations on loosening restrictions soon. Some observers suggest Rock may use his keynote speech at the EXPO COMM trade show in Toronto this week to announce such an effort. The reasoning is that he will soften up public opinion before taking the proposed changes before Cabinet. The lifting of ownership limits was recommended by the National Broadband Task Force in its report last year (NL, June 18/01). Part of the problem in implementing such changes has been the revolving door at the Industry portfolio. The task force was established by John Manley but presented its report to Brian Tobin. The dossier is now Rock’s concern. One telecom executive tells Network Letter changes in the private sector may also pave the way for easing of the restrictions. BCE Inc.’s former CEO Jean Monty was fiercely opposed to letting outside money into the Canadian telecom sector. (This was a conditional resistance. He had no objections to selling a 20 per cent stake in the telecom conglomerate to SBC Communications Inc., a holding which BCE is now in the process of buying back.) His successor Michael Sabia may not be as dogmatic in his approach. Sabia recently sold Bell Canada’s directories division to Kohlberg Kravis Roberts & Co. of the United States and the Ontario Teachers’ Pension Plan (NL Update, Sept. 16/02). The BCE honcho would be hardpressed to argue that other telcos shouldn’t have access to foreign capital when his own firm realized $3 billion from the phone book sale, even though it was an unregulated asset. Telecom is not the only sector that could see its ownership restrictions altered; similar recommendations have been made for the broadcasting sector. The problem arising from that, however, is that that area falls under the jurisdiction of Canadian Heritage minister Sheila Copps. She is firmly in the nationalist wing of the Liberal Party. She is likely to fight any easing of the limits tooth-and-nail. The OECD wants to open the debate on the topic. "While Canada considers these restrictions necessary for reasons of national security, social and cultural well being, they may discourage investment in infrastructure (note that the foreign investment rules for telecommunications do not apply to resellers, and in specific cases they have been found not to apply to carriers using leased facilities under indefeasible right of use (IRU) arrangements, perhaps circumventing the purpose of the ownership rules in such cases). As with other foreign ownership restrictions, the issue that needs to be addressed more clearly is the potential cost of such restrictions, compared with the benefits," the Paris-based body concludes.

Industry Canada may heed call from OECD for foreign ownership changes

News | 11/04/2002 5:00 am EST

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