Telecom regulatory reforms proceeding well, but more needs to be done: OECD

Reform of Canada’s telecommunications regulatory environment has received high grades from the Organisation for Economic Co-operation and Development (OECD), but the Paris-based groups says the federal government can still do more to improve the situation. In the 132-page report titled Canada: Maintaining Leadership Through Innovation, the OECD notes that the slow pace of changing the regulatory environment has actually benefited telecommunications competition. "The slower and consensual process has probably been more successful than in many countries where rapid implementation of regulations meant that a number of necessary regulatory safeguards were incomplete resulting in much frustration by new entrants," the international body notes in the 55-page background document, Regulatory Reform in Canada from Transition to New Regulation Challenges. "Relative to a number of OECD countries, Canada has had a much smoother and less problematic implementation of its tele-communications regulatory safeguards." Transfer spectrum licensing to commission Despite the high praise, the OECD also indicates that with the basics in place the government could move more quickly to implement further measures to stimulate competition where it is needed. One recommendation would certainly affect Industry Canada’s role. It indicates that the government should transfer spectrum licensing powers from the department to the CRTC. The OECD notes in the background document that Industry Canada’s powers are a mix of policy and regulation. In future efforts to streamline regulatory activities, the CRTC may be better suited to handling all aspects of licensing, says the international body. "Such a transfer of powers would also more clearly separate the policy functions from the regulatory functions (and) would also ensure that industry policy obligations are not included in licences (e.g. R&D contributions, roll out obligations)," writes the OECD, adding that the department should, however, maintain spectrum planning activities. "Such policy goals should not be attached to licensees. Governments have at their disposal a range of fiscal and budgetary tools to stimulate R&D," the OECD continues later in the background report. "To place such obligations on cellular licensees may distort the market and prices and is contradictory with other goals such as affordability." Not the first time argument has been made The government has heard this argument before. Earlier this year, telecommunications veteran Mike Kedar said in a presentation that the CRTC as an arm’s length quasi-judicial body is better suited to handle spectrum licensing than Industry Canada (RoW, Feb. 19/02). Kedar helped found Microcell Telecommunications Inc. and Call-Net Enterprises Inc. and was instrumental in opening up Canada’s telecom market to competition in the early 1990s. One of the country’s top legal eagles has also called for the department to get out of the spectrum licensing game. Anthony Keenleyside, a lawyer with McCarthy Tétrault in Ottawa, asked at a recent communications law conference: "Why is Industry Canada still dealing with spectrum management and related licensing at all? (RoW, May 13/02). The OECD didn’t reserve all its criticism for Industry Canada. It leveled comments at the CRTC for its slow decision-making process, the seemingly large number of commissioners and its forbearance policies. The global group recognizes that the commission does have to deal with broadcasting issues as well, but still believes that the number of commissioners can be rationalized. The inability to levy fines was also highlighted as one of the deficiencies of the commission. The OECD notes that the CRTC should have the power to impose fines and that fines should be sufficiently high to act as a deterrent to violating CRTC rules. "Good regulatory practice in OECD countries has shown that regulators need to be able to rapidly enforce decisions and the ability to fine ensures they can do so," it writes. The international body also reserved some comments for the relationship between the CRTC and the Competition Bureau. It indicates that there is a certain level of ambiguity in the relationship between the two government bodies. The Competition Act applies only when the commission has forborne unconditionally, but the CRTC has maintained the right to rescind its forbearance. "he CRTC has made it clear that if problems did arise in a market where it had forborne that it would use its prerogative to re-regulate the market, in other words reversing its ‘forbearance’ finding and pre-empting any application of the Competition Act to that market. Such a concept of forbearance is a Damocles sword for the market," the OECD writes, concluding that the Competition Bureau should have a greater role in transitioning the industry towards competition. Kedar also believes that the Competition Bureau should have a greater role in the Canadian telecommunications marketplace. In an interview 10 months ago, he told Report on Wireless that more power should be given to the bureau. "We don’t have any anti-trust laws in this country. And yet you have companies like BCE, which are in broadcast, newspapers, in satellite, in cable and in telecom, basically in all areas," he said. Foreign ownership restrictions under fire from OECD The OECD also leveled criticism at the government’s continued policy of limiting the amount of foreign investment in tele-communications service providers. It notes that while the policy has helped cultivate homegrown Canadian companies and allowed them to flourish, to a certain extent, the same policy is also hampering growth in the industry. It highlights a certain contradiction between the government’s policy of promoting facilities-based competition and foreign ownership restrictions – two key government policies. "The government and the CRTC have repeatedly placed emphasis on the fact that competition to be sustainable requires facilities-based competition, but at the same time foreign ownership restrictions are limiting incentives to invest in infrastructure in Canada," the OECD notes. "The CRTC itself has argued new entrants reduced capital expenditures in 2000 because of their reduced ability to access capital, in part due to the downturn of financial markets," the OECD points out. "Improved access to foreign equity capital would help in meeting Canadian objectives of enhancing competition and meeting the government’s goal of ‘connectedness.’" Prior to the release of the OECD report and supporting background documents, the government had already signaled its intention to review current foreign ownership limits. Industry minister Alan Rock has indicated that rules may be changed but complete elimination is out of the cards. Department bureaucrats are reportedly working on a proposal that the minister can then take to Cabinet. Any changes would need an act of Parliament. Many industry players have been pushing the government on this issue for years. Last year, the National Broadband Task Force called for an urgent review of foreign ownership restrictions (RoW, May 28/01). "Canada should change the foreign ownership and control restrictions as soon as possible in order to rapidly increase productivity, investment and jobs," concludes the OECD. For more information on the foreign ownership issue, see the Nov. 4/02 issue of Report on Wireless affiliate publication Network Letter.

Telecom regulatory reforms proceeding well, but more needs to be done: OECD

News | 11/12/2002 5:00 am EST

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