Big three telco incumbents take different approaches to foreign ownership restrictions

OTTAWA—Canada’s telecommunications incumbents disagree on what changes the federal government should make to the foreign investment restrictions under the Telecommunications Act. According to consultation submissions to the government obtained by The Wire Report, Bell Canada, Telus Corp. and Rogers Communications Inc. take different positions on which course of action would be most beneficial for the telecommunications market. On June 11, Industry Minister Tony Clement announced a public consultation on foreign investment restrictions in the telecommunications sector. The minister released a consultation paper that outlined three options for consideration: increasing the limit for direct foreign investment in broadcasting and telecom carriers to 49 per cent; lifting restrictions on telecommunications carriers with a market share of 10 per cent or less; or removing telecommunications restrictions completely for large and small carriers. The consultation closed its call for comments on July 30. In its submission, Rogers said it supports increasing the foreign investment limit to 49 per cent for telecommunications carriers and broadcasting distributors—but not broadcasters. The cableco said loosening foreign investment restrictions would lower the cost of capital, leading to network expansion. It also said relaxing the restrictions would enhance competition between existing carriers through cost reductions or network integration with foreign carriers. “There is a significantly higher probability that a well-established American cableco or carrier will seek to extend its operations into Canada by purchasing an incumbent cable, telco or wireless operation,” Rogers said in its submission. “Benefits to be derived from this type of North American integration include a lower cost structure through economies of scale and synergies, possible more rapid introduction of new products and applications, a larger, more stable operation that may be perceived by capital markets to be lower risk and hence be able to secure debt financing at lower rates and attract additional equity capital, shared access to intellectual property and increased job creation.” But Bell added that any changes to the restrictions are unnecessary. Still, Bell wrote in its submission that, if any changes are to be made, it favours loosening the restrictions for both telcos and broadcasting companies. “We question the false premises that we believe are driving this consultation, i.e., that Canada lags behind other nations when it comes to communications and ICT and that liberalized foreign ownership rules would lead to greater competition, lower prices, better access to capital and more innovation,” Bell said in its submission. “Simply put, there is no demonstrated need for reform.” In an email to The Wire Report, Bell spokeswoman Jacqueline Michelis added that changing the foreign investment rules is “a solution in search of a problem.” Telus, in its submission, proposed a different approach. The company recommended that the government remove all foreign investment restrictions for telecom carriers and broadcasting distributors—but retain them for broadcasters. “To exclude carriers/distributors that are regulated to any degree pursuant to the Broadcasting Act from the benefits of liberalization would effectively exclude virtually all Canadian telecommunications carriers from benefiting from reform because the networks that these carriers currently operate support the carriage of telecom and broadcast traffic on a fully integrated basis,” Telus said in its submission. Michael Hennessy, Telus’ senior vice-president of regulatory affairs, said in an interview that he would expect the telco’s investment value to go up if all foreign ownership restrictions were removed. But Telus isn’t looking to be taken over by a foreign company, he said. “We have widely held investors, both Canadian and foreign, and as long as management is doing a good job delivering the benefits and paying out a good dividend, you’re less of a takeover target,” he said. Greg MacDonald, a telecom analyst with National Bank Financial, said in an interview that Telus’ proposal is the one that would most benefit the industry. “Eliminating foreign investment restrictions altogether would have a significant impact because foreign financial investors or carriers could acquire Canadian companies … In my opinion, that’s the right policy. If you eliminate it, then you have to include all distribution undertakings,” he said. “If you were to eliminate ownership restrictions for only telecom distributors and not television, that puts the incumbent telephone companies at a disadvantage relative to the other new entrants, which are only telecom providers. That’s particularly important as you go into the next spectrum auction.” MacDonald said that “asymmetrical” foreign ownership restrictions could be disadvantageous for the incumbents—particularly if the next spectrum auction makes room for new entrants and foreign carriers like Sprint and T-Mobile in the United States. “In a spectrum auction you could end up in a very uneven playing field,” he said. “The government’s focus is on allowing new entrants to get funded more easily. The extent that the government will worry what the incumbents want is that their only concern is … a level playing field, so they don’t end up one day where the situation is the opposite—where the new entrants are no longer new entrants, but were acquired by global telcos, which have fewer restrictions than the incumbents in Canada.” But Edward Antecol, vice-president of regulatory affairs and carrier services at Globalive Communications Corp., a new entrant that launched its Wind Mobile brand this year, said in an interview that removing restrictions for broadcasting companies could raise concerns about protecting Canadian content. “I think Clement was very, very clear when he said changes to the Broadcasting Act aren’t on the table,” he said. In its submission, Globalive supported removing foreign investment restrictions for new entrants. “If new entrants were to gain access to start-up capital from foreign sources, incumbents will not unfairly suffer,” Globalive said in its submission. “In fact, allowing start up to access foreign capital would move the industry slightly in the direction of a more level playing field, but in no way fully. Even with access to foreign capital, the incumbents still hold an enormous advantage.” kfournier@thewirereport.ca

Big three telco incumbents take different approaches to foreign ownership restrictions

News | August 3, 2010

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