Increasing foreign ownership to 49% ‘changes nothing’: New entrants

Proposals to raise the foreign ownership restrictions to 49 per cent will do nothing to help Canada’s new entrant wireless carriers, those carriers say. “All we do is try to raise capital so we can roll this business out. I can tell you it changes nothing if we were to go to 49 per cent,” Simon Lockie, chief regulatory officer at Wind Mobile, told The Wire Report in an interview. “I’m a new entrant and I’m saying to the government, 'Don’t bother. Don’t bother because it will make you look stupid.'” Lockie was responding to CRTC chairman Konrad von Finckenstein's proposal to loosen the restrictions on foreign ownership in Canada’s telco industry to allow up to 49 per cent foreign direct investment in any provider. Canada's broadcasting and telecom regulatory frameworks currently limit foreign investment at maximums of 20 per cent in the operating company and 33 per cent in the holding company. As a first step, von Finckenstein has proposed increasing each of those levels to 49 per cent. In separate interviews Tuesday and Wednesday, executives from Mobilicity and Public Mobile supported Lockie’s position. Mobilicity’s president, Stewart Lyons, said loosening those restrictions to 49 per cent would be “fairly immaterial.” Bruce Kirby, Public Mobile’s vice-president of strategy and business development, said a move to 49 per cent investment restrictions “does nothing to substantially change the rules.” “It comes down to the fact that you’re still constraining people from coming in and investing in the Canadian telecommunications market,” Kirby said. Lockie said the current restrictions only limit the number of voting shares that foreign investors can maintain in a Canadian telco while allowing carriers to receive cash injections from foreign investors and debtors. As a result, he said, each of the new entrants currently count about 60 per cent of their equity as coming from foreign investors—but not all of that equity is in voting shares. “To be very, very clear, my company’s direct and indirect foreign ownership is about 65 per cent,” Lockie said. “For the record though, no voting interests of our operating company are owned by a non-Canadian.” Kirby later confirmed in an email that a majority of Public Mobile's equity, but not voting shares, is foreign. “The voting split is 2/3 Canadian, 1/3 foreign. We have some debt through a vendor financing arrangement, which is a non-Canadian supplier,” he wrote. CRTC documents from 2009 show that 75.9 per cent of Mobilicity’s equity is from foreign investment but that the same is true for only 22.4 of the voting shares. Greg MacDonald, an analyst with Macquarie Capital Markets, said risk-adverse foreign investors are usually less interested in start-up ventures that don’t offer them any control over their investment. “What foreign money cares about is influence on the investment they’re making,” he said. “So it’s really the voting that we should be concerned about.” MacDonald said loosening the foreign ownership restrictions beyond the 50 per cent threshold “may make a difference,” and predicted that the government is more likely to remove those restrictions entirely for smaller carriers. “That’s where I think it has to go to give these new entrants an opportunity to raise money,” he said. “Anything short of that and you’re gambling a lot and probably not doing enough to allow them the best chance of getting funded.” The federal government said it would loosen the foreign ownership restrictions for the telecom industry in its speech from the throne delivered in March 2010. A recently leaked cabinet document also described changes the government was considering last November, including a plan to drop foreign ownership restrictions on telcos with less than 10 per cent market share. Any such move would likely be “step one in a two-step process,” MacDonald said. “Step two is just full elimination for everybody,” he added, noting that “most major developed countries” no longer have foreign ownership restrictions for their telecom sectors. Von Finckenstein told The Wire Report in the interview last week that he predicts that the government will move incrementally to loosen the restrictions. “I don’t think you’ll see sweeping reform,” he said. “I think they’ll take the first step and then see what the reaction is.” The government may make an announcement on foreign ownership restrictions at the same time as its announcement on the rules for the upcoming 700 MHz spectrum auction. Kirby said those announcements must come soon if the government intends to hold the auction this year. “I think we’re pushing the limits for what can be done ,” he said, noting that any announcement on the auction rules would be followed by a lengthy round of consultations to determine how they will be implemented. “That takes a certain amount of time to go through the reviews, make a decision and then tell everybody the decision,” he said. An announcement within the next 14 days would be ideal for the wireless community, he said. “It has to be by the end of February to have any chance of getting it done this year.” nkyonka@thewirereport.ca

Increasing foreign ownership to 49% ‘changes nothing’: New entrants

News | 01/25/2012 11:16 pm EST

To keep reading, get a free trial.

Already a Subscriber?

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us