Industry awaits government’s next move; MTS urges legislation to liberalize telecom

MTS Allstream is calling on the government to keep to its pledge to “open the doors” for foreign investment in the telecommunications sector and table legislation in Parliament to eliminate the “sector specific” foreign ownership restrictions in the Telecommunications Act. “There’s no need for sector-specific restrictions,” Chris Peirce, chief corporate officer at MTS Allstream Inc., told The Wire Report in an interview. Peirce said the government does not need to further review the issue before moving ahead with legislation that can be studied at a parliamentary committee with input from industry stakeholders. “At a policy level, this is an issue that has been studied to death,” he said, referring to previous reports supporting liberalization of the foreign investment restrictions. “It requires legislative changes to get the machinery of government moving down the track,” he said. “But I don’t think you need a big process to further study whether or not you need to liberalize.” Peirce’s comments come as the industry faces uncertainty about how the government intends to proceed on the issue. The day the government released its speech from the throne, March 3, Industry Minister Tony Clement told reporters that he had been advised that legislative changes will probably be necessary to increase foreign investment in the satellite and telecommunications sectors. “It's not going to be tomorrow that we come up with a bill. We're going to be studying the exact process by which we do that,” he said. “It'll be a fair, open, honest, transparent process.” The throne speech said the government “will open Canada’s doors further to venture capital and to foreign investment in key sectors, including the satellite and telecommunications industries, giving Canadian firms access to the funds and expertise they need.” The following day, however, observers were surprised to see a federal budget document that referred only to relaxing the rules for satellites. Now industry observers are questioning whether the government intends to proceed with legislation in the near future. The day of the throne speech, Clement said he wants to “add” the satellite and telecom sectors to the Canada Investment Act, and that the sectors would continue to face the “net benefit” and national security tests under the Canada Investment Act. The Telecom Act currently provides a stricter test for foreign investment than the Investment Canada Act. Industry insiders say that to “add” the telecommunications sector to the Canada Investment Act, the government would effectively have to eliminate the foreign ownership restrictions in the Telecom Act. The Telecom Act currently limits foreign investment to 20 per cent of the voting shares in the carrier and 33 per cent of the voting shares in the holding company. At least 80 per cent of the board must also be Canadians. This week the government said it is only “investigating” the foreign ownership restrictions for the telecom sector. “We will remove the existing restrictions on foreign ownership of Canadian satellites as a first priority. We expect to provide more clarity on timing in the coming weeks,” Lynn Meahan, press secretary to Clement, told The Wire Report by email. “Our government will also be investigating the existing restrictions for the telecommunications industry. This is a complex issue involving changes to business models, rapidly evolving technology, and existing legislation, such as the 1993 Telecommunications Act.” Peirce said he is pleased with the government’s pledge to “open the doors,” and that the government probably left the proposed telecom amendments out of the budget document because they are too complex to be included in its budget implementation bill. The new rules for the satellite sector, however, are considered simple enough to be included in the budget legislation. One industry source said Clement tried to walk a fine line on the throne speech announcement, but didn’t succeed. “He was trying to say we’re going ahead with this, that it’s a priority, but he was trying to signal that it’s complicated and that it will take a long time,” the source said. “I think they tried to have it both ways, and because of that they caused tremendous uncertainty.” The feeling among many industry observers is the government has pulled back on the issue, the source said. “Now everyone feels that it’s on a slow boat to China, and they have a chance to influence it." The big incumbent telcos—Bell Canada, Rogers Communications, and Telus Corp.—are saying little about the proposal. In an interview, Michael Hennessy, senior vice-president of regulatory affairs at Telus, played down Clement’s comments. “I think there was a lot of speculation, which drove more speculation,” he said, adding that he was glad to see the government’s commitment to a digital economy strategy in the budget, instead of a pledge to loosen the foreign investment restrictions for telecom. “I’m just glad we’re talking national digital strategy first,” he said. “That’s something we’ve asked for and we’re pleased they’re going to do that. It’s sort of their starting point for what may be more significant changes down the road.” Bell Canada spokeswoman Jacqueline Michelis told The Wire Report by email that the company intends to be closely involved in any review of the foreign ownership regulations and that it will “work to ensure that any potential changes in the telecom rules are applied consistently across all companies.” “We are not opposed to a review of the regulations—increased possibility of investment in our company supports our focus on broadband innovation and investment,” Michelis said, adding that the company looks forward to hearing more from the government about the process. Observers speculate that opening the doors to foreign competition could force Canada’s incumbent players to merge and position themselves as more competitive. New wireless market entrants like Wind Mobile and Public Mobile could benefit significantly from more foreign capital. Speculation has also emerged about the potential of takeovers from foreign telecom giants, or the creation of “Belus,” a merger between BCE Inc. and Telus. The government could proceed with more foreign investment by following a recommendation in the 2008 Competition Policy Review Panel, chaired by Lynton (Red) Wilson, former president and CEO of BCE Inc., which said foreign companies should be permitted to establish new telecommunications operations in Canada or “acquire an existing telecommunications company with a market share of up to 10 per cent of the telecommunications market in Canada.” But Peirce said he would like to see the government move ahead with legislation to completely open the doors to foreign investment in the telecom sector. He said the Canadian telecom sector cannot depend on public funds for a major broadband build-out, and that the sector needs more foreign and risk capital. The Bell and the BC Tel networks were built with foreign investment, he said. The net benefit limitations in the Canada Investment Act could continue to apply in cases of proposed takeovers, he added. “That still allows the government to regulate to the extent that it wants to regulate—whether it’s for Canadian content or other types of things,” Peirce said. sdoyle@thewirereport.ca

Industry awaits government’s next move; MTS urges legislation to liberalize telecom

News | March 9, 2010

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