Foreign ownership only one of the major issues facing telecom: Call-Net’s Linton

Bill Linton, president/CEO of Call-Net Enterprises Inc., spoke to the House of Commons committee on industry, science and technology on February 3. An edited version of his remarks on changes to the foreign investment rules in the telecom sector appears here. I predict that our presentation will have a different emphasis than almost every other submission you receive. That’s because we do not believe that the question of foreign ownership is the most pressing issue facing our industry today. If we were to list the three most urgent areas of attention, for us, as a competitive telco, foreign ownership might—might—come in a distant fourth. Do we support the liberalization of the restrictions? Yes—but in the absence of domestic telecom policies that clearly encourage competition, to us, this is a dead issue right now. In fact, we believe that a quick move to change foreign ownership restrictions without addressing the state of competition in Canada will have the opposite of the desired effect for existing competitors. Consider that Call-Net is the only competitive national telco that is not in bankruptcy protection at this time. Consider that the major trend we have seen in the industry isn’t more innovation, or better service, or greater choice. It is failure…the failure of promising CLECs such as Axxent, C1 Communications and Cannect…failure by long distance providers such as 360networks…by wireless carriers such as MaxLink. Some would argue that these difficulties are the natural result of the consolidation one would expect in an industry newly opened to competition. You know, I could accept that logic…if the results were a mixed bag of successes and failures. But that hasn’t been the case. There have been many failures…and a very few successes. The fact remains that no entrant in the Canadian telecommunications market has yet experienced profitability…except for us, for one quarter in 1998. Clearly, there is something wrong when the only players thriving are the ones who had the 100-year head start on the rest—the incumbents, like Bell and Telus. We could open the floodgates tomorrow…and invite every international investor we can find to invest as much as they like in Canadian telecom. But why would anyone who could so much as balance a chequebook choose to invest in a sector that has claimed so many victims and seen so many investments disappear? Until we have a level playing field and healthy competition, there will be little investment. This is not necessarily true for the former monopoly telephone companies, that have thrived under the current rules. In that sense, lifting foreign investment ownership restrictions now would provide an instant benefit to the Bells and Teluses of the world. But it would offer absolutely no short-term relief to companies like ours, because the issues facing competition are far more basic than access to foreign capital. The fact is, it’s not access to capital that is holding back competition in Canadian telecom. It’s the lack of opportunities to earn a return on investment. And this is something that affects every investor’s outlook, no matter what kind of passport they carry. Regulations greater impactRight now, the domestic policy framework for telecom, and regulatory decisions affecting it, has a much greater impact on the success or failure of competition in this sector. In short, without an updated telecom policy that clearly encourages competition, foreign ownership is a complete non-issue. Leading with such a review would be like trying to fix your four flat tires by filling up the gas tank. But until you fix the real problem, the one preventing you from moving forward, you’re not going anywhere. More foreign capital won’t get competition moving. It won’t level the playing field. It won’t reduce the inflated rates that we pay to the incumbents for access to the networks they inherited from a 100-year monopoly. It won’t change the fact that this country’s policies have never been adjusted to fully integrate the idea of competition…and as a result, most competitors have floundered rather than flourished. There is a way to fix it. The government, the CRTC, and the industry must work together to create a framework that is fair to both the incumbents and the competitors. One that promotes, rather than just permits, competition. For Call-Net, it’s just a question of priorities. With our qualified support for liberalizing the restrictions, we support the idea of phasing in the changes once the domestic industry is in better financial health. But even then, we would hope that the government thinks very seriously about the ways in which the restrictions are eased. Our telecom infrastructure may be adequate for today. But as the wired world evolves, one day, further capital investments will be needed. Those investments will be important to our competitiveness as a nation…to our ability to create the lasting, knowledge-based jobs on which so much of our future depends. I believe these decisions are much too important to our survival to be left to another country. That is why we strongly urge that when the foreign ownership regulations are modified, it is essential that we don’t simply throw another country the keys and say, "I’ll ride in the back". The important operational decisions must continue to be made by Canadians for the benefit of Canadian consumers. There are many ways this could be accomplished. For example, a licensing system could be employed to ensure minimum investment levels in research and development, the presence of Canadian head offices, or employment obligations, or the composition of Board of Directors. These kind of measures, also included in our submission, would have the effect of protecting Canadian control of a vital part of our infrastructure, while maintaining an openness to international investment capital. But for Call-Net, these are questions for the future…after a new policy framework is in place to promote competition and create an environment where investors see the potential for returns in our competitive industry. Without that, I can make another prediction—we won’t need to worry about promoting competition, because all the competitors will have been driven out of business.

Foreign ownership only one of the major issues facing telecom: Call-Net’s Linton

News | 02/10/2003 5:00 am EST

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