Hearings on foreign ownership continue as telcos, broadcasters state their cases

Testimony to the Parliamentary committee studying the possibility of changing foreign investment restrictions in the telecom sector shifted gears in the last two weeks as ILECs and CLECs alike told the committee that removing foreign ownership restrictions isn’t a high priority. A noted telecom law professor, however, said that removing foreign ownership limits is key to the long-term survival of the Canadian telecom sector. The House of Commons Standing Committee on Industry, Science and Technology also heard from a coalition of broadcasters that the only way to protect Canadian programming is to maintain the status quo. Much of the debate focused on the need, on one hand, to include broadcast distribution in the review, and on the other, the ability to ensure that Canadian programming is protected against the impact of an infusion of international investment. As might be expected, the broadcasters engaged in fear mongering over the potential impacts of liberalized foreign investment rules. (See the February 13 issue of Report on Wireless affiliate publication Canadian Communications Reports for more information on the broadcasters’ position.) During the last two weeks of discussion at the committee hearings, a general consensus seemed to emerge that broadcast distribution should be included in the review, though broadcasters don’t necessarily agree. Proponents of change believe that a separation between programming and distribution can be made. It should be noted that the Industry committee met with the Standing Committee on Canadian Heritage in a closed-door session last week. It’s unknown what transpired at the meeting, but some speculate that the two committees, which previously couldn’t come to terms for getting together (RoW, Dec. 20/02), may have come to a meeting of the minds in terms of being able to hold a joint session. Others, however, say that this was likely a simple housekeeping meeting to try and deal with the large number of groups wanting to appear before the Industry committee. BCE Inc. president and CEO Michael Sabia headlined the latest lineup of witnesses to appear before the committee. In a passionate presentation to the committee on February 18, Sabia told committee members that the Canadian telecommunications industry is currently healthy and that previous presentations to the contrary misrepresent the current state of the industry. He said Canadians enjoy some of the lowest telecommunications prices in the world, a result of competition. In highlighting BCE’s position, Sabia proposed a new model representing little change from the existing foreign ownership framework. He suggested that foreign ownership limits at the holding company level could be increased to 49% from the current 33% level, while limits at the operating company level remain at the current 20% level. Making these changes would require little effort, he added. Sabia admitted during his presentation that the complete removal of foreign investment restrictions is inevitable, but that doesn’t mean the government should change the rules immediately. Implementing the BCE model would put Canada on the right path and allow the government to get the right formula of opening up the markets more fully, he noted. Previous witnesses have testified that opening the floodgates to foreign investment capital likely wouldn’t translate into a massive injection of new capital into the country and the expected competitive benefits (RoW Update, Feb. 10/03). With the level of mergers and acquisitions south of the border having decreased significantly in the last three years, dropping from US$200 billion to US$50 billion in value last year, there’s no reason to expect an influx of capital into the Canadian telecom marketplace, Sabia noted. In that light, there is no need to make dramatic and hasty changes to the current regulatory environment, he said. "I don’t believe that foreign ownership frankly has got a whole lot to do with enhancing competition. I think one’s an apple and the other is a pomegranate. They’re both red outside, but they’re real different inside. "There may be very good reasons to open up Canada’s foreign ownership regime and we support it, but I don’t believe it’s going to cause a substantial step up in the level of competition, certainly not in the near term, in the current capital markets." BCE wasn’t the only telecom player to tell the committee in the past couple of weeks of hearings that removing foreign ownership limits is not a high priority. Incumbent and competitive providers noted that while removing foreign ownership restrictions is a step in the right direction, the contentious issue isn’t currently the most important priority. Jim Peters, Telus Corp.’s executive VP and general counsel, told the committee on February 5 that removing the limits on foreign investment in telecom wouldn’t help companies operating under a flawed business plan – implicitly pointing the finger at AT&T Canada Corp. and Call-Net Enterprises Inc. AT&T and Call-Net, both CLECs, agreed with Telus that the foreign investment issue isn’t at the top of their priority lists. They told the committee on February 3 that the regulatory regime, which they say favours the incumbents, needs to be more amenable to competitive providers. The high cost of accessing incumbents’ networks is simply too onerous, they said. While telcos and broadcasters flooded the committee with their respective arguments, a community network joined the fray by saying that a more competitive telecom sector is needed if broadband networks are going to roll out cost-effectively. Vic Allen, CEO of Upper Canada Networks (UCNet), told committee members on February 3 that the current foreign ownership regime is killing community networks’ ability to serve residents. UCNet uses AT&T to connect to the Internet backbone because, Allen said, Bell Canada was simply too expensive. Noted telecom law professor Hudson Janisch said during his presentation on February 5 that much of the concern raised about the potential negative impact of removing foreign ownership restrictions can be dealt with through regulatory checks and balances. Carriers are already subject to deployment and coverage milestones, so it can reasonably be expected that the government can implement such a system to deal with many concerns raised by opponents, he said. "If restrictions on foreign investment are relaxed or even eliminated, this does not mean that associated policy goals cannot be better achieved without depriving us all of the benefits of an infusion of foreign capital, outside new ideas, new sources of technology and management efficiency," Janisch noted in his presentation.

Hearings on foreign ownership continue as telcos, broadcasters state their cases

News | 02/18/2003 5:00 am EST

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