Verizon calls for removal of telecom foreign ownership restrictions

OTTAWA--Foreign investment restrictions are precluding Verizon Canada from making direct network investments and offering new services in Canada, the company said in a submission to the federal government’s consultation on foreign ownership rules in the telecommunications sector. Verizon Canada, operating under the American communications giant Verizon Inc., said it supports completely removing the restrictions on foreign direct investment, arguing that the change would introduce more competition and encourage innovation. “New entrants play a major role in introducing innovative telecommunications services to the Canadian telecommunications market and their presence in the market has led to more choice for customers, higher quality of services, and a range of new services. Yet existing FDI restrictions jeopardize new entrants’ positions in the telecommunications sector,” Verizon wrote in its submission. The Industry Canada consultation, which closed its call for comments on July 30, sought feedback on three options for loosening the restrictions: increasing the direct foreign investment limits for broadcasting and telecom carriers to 49 per cent; lifting restrictions on smaller players; or completely removing restrictions on telecommunications carriers. Prior to the introduction of the existing foreign investment restrictions, General Telephone and Electronics, a predecessor to Verizon, operated in Canada through interest in subsidiaries, including BC Tel and Québec-Téléphone. Verizon Canada entered the market in 1991 as a reseller offering voice and data services to business customers. “The practical effect of FDI restrictions on Verizon’s operations in Canada is that Verizon Canada is prevented from owning and operating its own transmission facilities. Instead, it must lease facilities from other carriers, making it more difficult for Verizon to control its underlying costs,” Verizon wrote. “Verizon is also unnecessarily dependent on other service providers for critical network components and services and it is effectively precluded from making direct network investments.” The company said the investment restrictions—which limit foreign investment to 20 per cent of the voting shares in the Canadian carrier and 33 per cent of the voting shares in the holding company—also limit its ability to offer new products and services to its customers, such as “some of the more integrated or ‘seamless’ international services” it offers customers in other jurisdictions. Verizon’s call to remove the foreign ownership restrictions was echoed in a submission from the Coalition of Service Industries’ (CSI), an American industry group that promotes the liberalization of international trade and investment in services. Its list of members and affiliate members includes AT&T, IBM, Microsoft and Verizon Business. “As a consequence of these foreign ownership restrictions, a wholly U.S.-owned operator in the Canadian market continues to be constrained to that of a reseller, dependent on Canadian facilities-based operators for critical services and network components. These restrictions limit global telecommunications service providers’ options from providing high-quality, end-to-end telecommunications services,” the CSI wrote. “Canada’s recent measures to substantially deregulate its facilities-based telecom market further highlights the need for foreign telecom suppliers and investors to have opportunities for 100% facilities-based telecom ownership.” Lawson Hunter, counsel at Stikeman Elliott and a former Bell Canada executive, said in an interview that it appears American players like Verizon are interested in offering enterprise services in large urban centres—if the restrictions are lifted. “ is a significant business in Canada … the revenues annually are certainly in the billions,” he said. “It’s governments, it’s universities, it’s banks, it’s insurance companies and it’s big corporations. It’s a limited number of customers, but they’re large contracts, and it’s mostly data.” Amit Kaminer, an analyst at the SeaBoard Group, said in an interview that there is genuine interest for foreign companies to extend their networks into Canada. “Having Verizon, or other companies, being able to control both ends of the rope is better for them,” he said. Kaminer said Verizon and other potential entrants are likely to target Canada’s enterprise sector, which he says lacks offerings for small- and medium-sized businesses. Verizon and the CSI represent just a few of the companies that have come forward during the consultation to express an interest in investing in Canada. Colorado company Level 3 Communications, which has an IP transit network that extends into Canada, said in its submission to the department that it will increase its investment in Canada if the government removes the foreign ownership restrictions. “In the event restrictions were lifted, Level 3 would provide an important competition alternative in the Canadian wholesale segment,” the company wrote. Level 3 currently acts as a reseller in Canada. Wireless industry consultant Eamon Hoey, a senior partner with Hoey Associates in Toronto, said in an interview that Level 3 may be interested in buying out a Canadian service provider or building out its network in Canada. He added that AT&T would likely show interest in expanding its network into Canada. “None of these companies are happy with the lack of opportunity,” he said. “But I wouldn’t limit myself to Americans … there are companies in India that are pretty large. Canada does not present a huge investment challenge. Capital follows opportunity.” Belgian voice-over IP (VoIP) service provider Voxbone wrote in a submission that the restrictions make it difficult for new entrants to start operations in Canada and to offer services beyond those of a reseller. “The telecommunications restrictions result in Canadians being foreclosed to receive a wide range of new innovative services at prices and on conditions that are among the best in the world,” the company wrote. The company said that failing to completely remove restrictions, the government should extend the regulatory rights of competitive local exchange carriers to include all local telecommunications resellers. The United States Council for International Business and the U.S. Chamber of Commerce wrote in a joint submission that they also support the elimination of all foreign investment restrictions for the Canadian telecom sector, arguing it will bring new technologies, business processes and “valuable” global brands. The Telecommunications Industry Association (TIA), based in Washington, D.C., argued in a submission to the department that Canadian broadband expansion could grow more quickly in the absence of the foreign investment restrictions. Verizon did not comment Monday. CRTC chair Konrad von Finckenstein has said that, in an age of network convergence, control of Canada’s telecommunications sector should remain in Canadian hands at a minimum of 51 per cent to avoid losing control of content. kfournier@thewirereport.ca

Verizon calls for removal of telecom foreign ownership restrictions

News | August 9, 2010

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