Foreign ownership bill now a long way off, industry insiders say

It may be a year or more before the telecom industry sees a serious policy move to liberalize the sector’s foreign ownership limits, industry insiders say. The predictions about a delayed process follow Industry Minister Tony Clement’s Nov. 22 update on the digital economy strategy, when he announced a consultation for the 700 MHz spectrum auction, but did not take any steps toward loosening the foreign ownership limits. Instead, Clement tied foreign ownership policy to the 700 MHz consultation, effectively delaying a decision on foreign ownership until next year. Speaking at the International Institute of Communications (IIC) annual conference on Nov. 22, Clement said he will continue to talk to stakeholders about foreign ownership as the department consults for the 700 MHz auction, which is now scheduled for 2012. “I know it sounds laggardly, but in order to do it right and to do it effectively with the one shot we have, it works out to two years,” Clement said. “After all, how spectrum is allocated and who is eligible to compete and pay for it are interrelated issues.” The final deadline for comments for the 700 MHz consultation is not until the end of March 2011, and industry insiders say it will take the department a number of months to develop an auction framework following that. “He could potentially buy close to a year before ruling on foreign ownership. Then you start wondering, ‘Are they even going to bother?’” one senior industry insider said. “I think we’re a long way away from it, if it ever sees the light of day at all.” In the summer, when Clement announced a consultation on foreign ownership (which closed July 30), the minister said he wanted to “move ahead” with the issue in the fall. That led many in the telecom industry to believe the government would come forward with legislation in this session of Parliament. Sources say they believe the controversy over Australian company BHP Billiton’s $38.6-billion US bid to take over Canadian company Potash Corp. impacted the government's thinking. After reviewing the Potash bid, Clement rejected it, saying it did not meet the “net benefit” test under the Investment Canada Act. “They didn’t want to tackle this so soon after Potash,” the senior industry insider said. “It was just going to create more controversy.” Dave Coles, president of the Communications, Energy and Paperworkers Union of Canada, agreed at a news conference in Ottawa on Nov. 24. “They’re still reeling from the whole issue around Potash … I think they got cold feet,” he said. “This is a hot potato. This is not about supplying cheap cellphone rates. The rates in Canada are as competitive when you compare them, apples to apples and oranges to oranges.” Insiders add that the government did not want to move forward on another controversial foreign ownership issue before a potential election in the spring. A bill liberalizing foreign ownership in telecom would be in danger of being spun as “selling Canadian assets to Russian mafia,” one regulatory source said. Coles added in an interview that he believes Clement’s delay of a foreign ownership announcement is linked to the government’s negotiations in the EU-Canada Comprehensive Economic and Trade Agreement (CETA)—a deal that Canada and Europe ambitiously say they want to finalize by the end of next year. “What’s going on with CETA and the whole issue of foreign ownership in the telecommunications sector are locked together,” Coles said. “It’s the same federal government, the same trade ministry.” An October draft of the agreement leaked publicly last month. It’s the first draft released since a January version leaked in April. Observers expect the agreement, still under negotiation, to be similar to the EU-South Korea Free Trade Agreement signed in October. Under that agreement, South Korea will relax, over a two-year period, its telecom foreign ownership requirements to allow for 100 per cent indirect ownership of telecom assets. Indirect ownership—as opposed to direct—means that foreign companies can own the holding company of the telecom carrier but not the carrier itself. But some telecom carriers have holding companies that own 100 per cent of the shares. Although the company’s ownership is indirect, the holding company effectively owns the carrier. “In addition, EU satellite broadcasters (telephone and TV) will be able to operate directly cross-border into South Korea, thus avoiding having to liaise with a Korean operator,” says an EU summary of the agreement. Right now, Canada’s Telecom Act restricts foreign investment in the sector to 20 per cent direct investment and 33 per cent indirect. Scott Sinclair, a senior researcher on trade and investment with the Canadian Centre for Policy Alternatives who has been following the CETA negotiations, said it’s not yet known whether Canada has expressed any reservations for the agreement, which would allow for exemptions. He said he hopes Canada expresses a reservation similar to one it proposed for the Canada-Colombia Free Trade Agreement, which Canada signed in 2008. That exemption said that Canada reserves the right to limit “foreign investment in facilities-based telecommunications service suppliers, provided that the measures adopted or maintained by Canada do not limit foreign investment to less than a cumulative total of 46.7 per cent of voting shares, based on 20 per cent direct investment and 33.3 per cent indirect investment.” But if Canada has not put forward any reservations, he said, the government is prepared to open the sector to foreign control. “If there are no reservations, then yes, they would have agreed to open their telecommunications markets completely to each other,” he said. A source close to the negotiations said observers should not expect any significant movement on either side before Canadian and European negotiators meet in Brussels in January. The federal government says CETA could bring economic benefits to many industrial sectors across the country, potentially drawing a 20 per cent “boost” to bilateral trade and an increase of $12 billion to Canada’s GDP by 2014. Clement has also said that foreign investment and more competition in Canada’s mobile space has been good for consumers. sdoyle@thewirererport.ca

Foreign ownership bill now a long way off, industry insiders say

News | December 8, 2010

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